1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 5901 GREEN VALLEY CIRCLE 3 CULVER CITY, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 OCTOBER 25, 2011 10 11 12 13 14 15 FINAL ACTIONS 16 17 18 19 20 21 22 23 24 25 26 27 REPORTED BY: KATHLEEN SKIDGEL 28 CSR NO. 9039 1 1 P R E S E N T 2 3 For the Board Jerome E. Horton of Equalization: Chairman 4 Michelle Steel 5 Vice-Chairwoman 6 Betty T. Yee Member 7 George Runner 8 Member 9 Marcy Jo Mandel Appearing for John 10 Chiang, State Controller (per Government Code 11 Section 7.9) 12 Diane G. Olson Chief 13 Board Proceedings Division 14 15 For the Staff: John Johnson Tax Counsel 16 17 ---oOo--- 18 19 20 21 22 23 24 25 26 27 28 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 OCTOBER 25, 2011 4 ---oOo--- 5 MR. HORTON: Ms. Olson. 6 MS. OLSON: Our next items are those matters 7 taken under submission. And our first item is B1, Eddie 8 C. Davis and Cynthia L. Davis. 9 ---oOo--- 10 EDDIE C. DAVIS and CYNTHIA L. DAVIS 11 No. 538607 + 12 ---oOo--- 13 MR. HORTON: Discussion, Members? 14 MR. RUNNER: Hang on here. Let me get to my 15 right page. 16 MS. YEE: Make a -- may I make a motion to 17 entertain discussion? May I entertain a motion to 18 entertain discussion? 19 MR. HORTON: Oh. Discussion, Members. 20 MS. YEE: Uh, I'm going to move to sustain the 21 Franchise Tax Board on this. 22 MR. HORTON: It's been moved by Member Yee for 23 the purpose of discussion to sustain the Franchise Tax 24 Board. For the purpose of discussion, second by 25 Ms. Mandel. 26 Discussion, Members? 27 MS. YEE: Um -- 28 MR. HORTON: Member Yee. 3 1 MS. YEE: Yeah. I -- I actually think this is 2 a fairly clear-cut case, um, with respect to, uh, these 3 nonqualified stock options. And, uh, I think what maybe 4 was being conflated was the use of the term 5 compensation. And, um -- and, uh, I don't see where, 6 um -- I mean, just by virtue of these being nonqualified 7 stock options, the -- there had to have been, um, 8 compensation for her services while employed. 9 So, I mean I just don't think there's an issue, 10 uh, from the date of when the options were granted 11 through when they were exercised. 12 MR. HORTON: Okay. Is that a motion? 13 MS. YEE: I made my motion. But it's to 14 support the motion. 15 MR. HORTON: Support the motion, okay. 16 Further discussion, Members? 17 Hearing none, without objection, such will be 18 the order. 19 MS. YEE: Thank you. 20 ---oOo--- 21 22 23 24 25 26 27 28 4 1 MR. HORTON: Ms. Olson. 2 MS. OLSON: Our next item is B4, Robert A. 3 Kidwell. 4 ---oOo--- 5 ROBERT A. KIDWELL 6 No. 530913 + 7 ---oOo--- 8 MR. HORTON: Is there a motion, Members? 9 MS. MANDEL: Um -- 10 MS. YEE: Oh, yes. Let's see. 11 MR. HORTON: For the purpose of discussion 12 moved my Member Mandel. Second by Member Yee. 13 MS. MANDEL: Was -- was this the one where, 14 um, was there a sense that people were wanting to give 15 him the opportunity to -- 16 MS. YEE: Yeah, I think -- 17 MS. MANDEL: -- try to get, um, some more, uh, 18 pieces of paper, um, that would certify the, uh, 19 alcoholism and impact on his ability to handle his 20 affairs? Am I thinking of the right case? 21 MS. YEE: Yes. Yes. 22 MR. HORTON: Mm-hmm. 23 MR. RUNNER: Yep. 24 MS. YEE: Um, Mr. Chairman, I would like to 25 grant more time in this matter. It appeared that 26 certainly through your inquiry, and others on the dais, 27 that perhaps the Appellant, uh, was confused about how 28 to connect the dots here to provide the -- 5 1 MR. HORTON: Okay. 2 MS. YEE: -- substantiation that's required. 3 So, um, I would like to allow more time and hopefully 4 some assistance to figure that out. 5 MR. HORTON: Mr. Johnson. 6 MR. JOHNSON: John Johnson with Appeals. 7 What we can do is instruct a 30/30/30, and that 8 will give the taxpayer time to try to get documentation, 9 FTB to review it, and then we'll bring it back for a 10 decision. 11 MR. HORTON: Okay. 12 Moved by Member Yee. Second by Mr. Runner. 13 Without objection, Members, such will be the 14 order. 15 ---oOo--- 16 17 18 19 20 21 22 23 24 25 26 27 28 6 1 MR. HORTON: Ms. Olson. 2 MS. OLSON: Our next item is B5, Matthew 3 Heller. 4 ---oOo--- 5 MATTHEW HELLER 6 No. 554452 + 7 ---oOo--- 8 MR. HORTON: Members? 9 MS. YEE: Move to sustain the Franchise Tax 10 Board. 11 MR. HORTON: Moved by Member Yee to sustain the 12 Franchise Tax Board. Second by Member Mandel. 13 Discussion, Members? 14 MR. RUNNER: Yeah, the question I have -- I 15 really don't have any issue with the demand penalty, is 16 pretty clear, it seemed to me, in regards to 17 notification. Actually, what I have a question about is 18 the late -- the late filing. Because that was at the 19 time when he actually had the health issues. 20 MS. YEE: Mm-hmm. 21 MR. RUNNER: Um -- and so, um, the health 22 issues were actually in that same -- in that same year, 23 which then would be the result of that -- of that late 24 filing penalty. So, um, I would, uh -- 25 MS. MANDEL: It's tough when the taxpayer 26 concedes it. 27 MS. YEE: Right. 28 MR. HORTON: Yeah, that's my only concern. 7 1 MR. RUNNER: He conceded the late penalty? 2 MS. YEE: He did. 3 MS. MANDEL: He conceded the late penalty. 4 MS. YEE: That's not before us now, or it's not 5 an issue. 6 MR. RUNNER: Well, I don't know if they 7 understood that we could actually still keep -- 8 MS. MANDEL: It -- it -- 9 MR. RUNNER: -- to keep the demand penalty and 10 remove the late penalty -- the late filing. 11 MS. MANDEL: Yeah, what's very hard about this 12 case is that we don't have information from the -- the 13 taxpayer himself about his brain tumor and everything 14 that one might assume comes with it in terms of 15 treatment that could impact that time period. And he 16 had a representative who sat here and said he concedes 17 the late filing penalty and he didn't -- 18 MR. RUNNER: Yeah. 19 MS. MANDEL: So -- 20 MR. RUNNER: Okay. 21 MS. MANDEL: That's -- I mean, I was very 22 sympathetic just -- I was expecting to hear more. 23 MR. RUNNER: I think we were all trying to give 24 him a break on the -- on the -- on the demand. 25 MS. MANDEL: Yeah. 26 MR. RUNNER: But it was just -- couldn't get 27 there. 28 MS. MANDEL: Yeah. 8 1 MS. YEE: Mm-hmm. 2 MR. RUNNER: Okay. 3 MR. HORTON: It's been moved and second. 4 Discussion -- further discussion, Members? 5 Hearing none, without objection, such will be 6 the order. 7 ---oOo--- 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 9 1 MR. HORTON: Ms. Olson. 2 MS. OLSON: Our next item is B6, Kevin M. Kelly 3 and Gretchen L. Kelly. 4 ---oOo--- 5 KEVIN M. KELLY and GRETCHEN L. KELLY 6 No. 539558 + 7 ---oOo--- 8 MR. HORTON: Members. 9 MS. YEE: Move to sustain the Franchise Tax 10 Board. 11 MR. HORTON: Moved by Member Yee to sustain the 12 Franchise Tax Board. Second by Member Mandel. 13 Discussion, Members? 14 MR. RUNNER: Yeah. 15 MR. HORTON: Mr. Runner. 16 MR. RUNNER: Yeah, at this point, you know, it 17 seems to me that, uh, I don't know what the State's loss 18 here is in regards to going ahead and letting that 19 reconsideration take place on -- on -- on behalf of the 20 IRS, um, and getting that reviewed. 21 So I would be fine with continuing this and 22 letting the IRS run its track -- 23 MR. HORTON: Mister -- 24 MR. RUNNER: -- in regards to that. 25 MR. HORTON: Mr. Johnson, any, uh, new 26 information? 27 MR. JOHNSON: Is this a situation where we 28 would ask the taxpayer to present more information? Or 10 1 are we asking just for more time so that both parties 2 can get verification of what the IRS is actually doing? 3 MR. RUNNER: I think -- I think my thought 4 would be the more time aspect. You know, that -- 5 that -- clearly they're in communication right now with 6 the IRS, trying to get that squared away in regards to 7 that particular, um -- um, those issues. 8 Um, the State continues to have the interest 9 clock going on this issue. Uh, and if they don't get to 10 resolution, they're just getting paying higher -- more 11 interest in the deal. If they do, then obviously we'll 12 have to recalculate if they end up with a 13 reconsideration from the IRS. 14 MR. HORTON: Members, my -- my -- my concern 15 was that the determination of the status of this 16 particular transaction was clouded. And so somewhat 17 unknown whether or not it had gone final, it was in the 18 collection process, or they were opening it up for 19 reconsideration. 20 And even though the interest is accruing, we 21 cannot protect the interests of the State of California 22 until it goes final from our perspective. Given that 23 there is the, um, apparent, uh, support on the part of 24 the FTB to reconsider, to readjust, and not necessarily 25 to take into mind that within the next six months or so 26 everything may change, but at a minimum we are in 27 position to protect the interests of the State because 28 of the uncertainty as to whether or not this has gone 11 1 final. 2 Apparently by all evidence it had, but then 3 it's -- it had gone to collections and then it -- then 4 it's opened back up again. 5 So it seems to me it's in the best interest of 6 the State, to protect the interests of California, to 7 allow it to go final and to encourage the FTB to -- I 8 don't want to say stand down, but give careful 9 consideration to where we are in the process. 10 Further discussion, Members? 11 It's been moved and second. 12 Objection, Members? 13 MR. RUNNER: Object. 14 MS. STEEL: Objection. 15 MR. HORTON: Objection noted, Mr. Runner, 16 Mrs. Steel. 17 Ms. Olson, please call the roll. 18 MS. OLSON: Mr. Horton. 19 MR. HORTON: Aye. 20 MS. OLSON: Ms. Steel. 21 MS. STEEL: No. 22 MS. OLSON: Mr. Runner. 23 MR. RUNNER: No. 24 MS. OLSON: Ms. Yee. 25 MS. YEE: Aye. 26 MS. OLSON: Ms. Mandel. 27 MS. MANDEL: Aye. 28 MS. OLSON: Motion carries. 12 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, KATHLEEN SKIDGEL, Hearing Reporter for the 8 California State Board of Equalization certify that on 9 October 25, 2011 I recorded verbatim, in shorthand, to 10 the best of my ability, the proceedings in the 11 above-entitled hearing; that I transcribed the shorthand 12 writing into typewriting; and that the preceding pages 1 13 through 12 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: November 2, 2011 17 18 19 ____________________________ 20 KATHLEEN SKIDGEL, CSR #9039 21 Hearing Reporter 22 23 24 25 26 27 28 13