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 28, 2011 10 11 12 13 14 15 FINAL ACTIONS 16 FOR OCTOBER 26, 2011 17 18 19 20 21 22 23 REPORTED BY: JULI PRICE JACKSON 24 CSR NO. 5214 25 26 27 28 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 Chiang 10 State Controller (per Government Code 11 Section 7.9) 12 Diane G. Olson Chief, Board 13 Proceedings Division 14 For Appeals Division: Grant Thompson Tax Counsel 15 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 28, 2011 4 ---o0o--- 5 MR. HORTON: What are our next scheduled items? 6 MS. OLSON: Those are the items that we took 7 under submission. 8 Our first item is B7, Ronald N. Frazar and Jane 9 A. Frazar. 10 ---o0o--- 11 B7 12 RONALD N. FRAZAR AND JANE A. FRAZAR 13 NO. 494349 14 ---o0o--- 15 MR. HORTON: Is there a motion, Members? 16 MS. YEE: Move to sustain the Franchise Tax 17 Board. 18 MR. HORTON: It's been moved to sustain the 19 Franchise Tax Board by Member Yee. 20 Is there a second? 21 MS. MANDEL: Yeah, second. 22 MR. HORTON: Second by Ms. Mandel. 23 Discussion, Members? 24 MR. RUNNER: Yeah. 25 MS. STEEL: Objection. 26 MR. HORTON: Objection noted. 27 MR. RUNNER: I object and also just that I -- I 28 believe that regardless of what the reason was and the 3 1 in -- the unintended consequences, I was convinced that 2 was there some un -- some period of unclear law at that 3 point that ended up being clarified later on. 4 So, I -- I don't believe that the taxpayer owes 5 that. So, I will object. 6 MR. HORTON: Okay, objection noted. 7 Ms. Olson, please call the roll. 8 MS. OLSON: Mr. Horton? 9 MR. HORTON: Aye. 10 MS. OLSON: Ms. Steel? 11 MS. STEEL: No. 12 MS. OLSON: Mr. Runner? 13 MR. RUNNER: No. 14 MS. OLSON: Ms. Yee? 15 MS. YEE: Aye. 16 MS. OLSON: Ms. Mandel? 17 MS. MANDEL: Aye. 18 MS. OLSON: Motion carries. 19 MR. HORTON: Ms. Olson? 20 MS. YEE: Mr. Chairman, I just want to kind of 21 put it out there and then dispense with it, but was 22 there a question about preparing a summary decision on 23 this, Mr. Thompson? 24 MR. THOMPSON: The Appellants had raised the 25 question about preparing a decision of some sort, but 26 typically if you just do a vote like this -- 27 MS. YEE: Yes. 28 MR. THOMPSON: -- Appeals does a very brief 4 1 letter decision. 2 The other alternative, if you want to do a 3 summary decision, you would -- you know, we could do 4 that, but it wouldn't become final until later. 5 MS. YEE: No, no. I just wanted to be sure 6 that we recognize that that was what the Appellant 7 had. 8 MR. THOMPSON: Yeah. 9 MS. YEE: Okay, thank you. 10 MR. HORTON: All right, thank you. 11 ---o0o--- 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 5 1 MR. HORTON: Ms. Olson? 2 MS. OLSON: Our next item is B8, Dennis A. 3 Conforto and Bonny J. Conforto. 4 ---o0o--- 5 B8 6 DENNIS A. CONFORTO AND BONNY J. CONFORTO 7 NO. 522443, 528754 8 ---o0o--- 9 MR. HORTON: Is there a motion, Members? 10 MS. YEE: Move to sustain the Franchise Tax 11 Board. 12 MR. HORTON: Moved by Member Yee to sustain the 13 Franchise Tax Board. 14 Is there a second? 15 MS. MANDEL: Second. 16 MR. HORTON: Second by Member Mandel. 17 MS. STEEL: I have objection. 18 MR. HORTON: Objection by Member Steel. 19 Ms. Olson, please call the roll. 20 MS. OLSON: Mr. Horton? 21 MR. HORTON: Aye. 22 MS. OLSON: Ms. Steel? 23 MS. STEEL: No. 24 MS. OLSON: Mr. Runner? 25 MR. RUNNER: Aye. 26 MS. OLSON: Ms. Yee? 27 MS. YEE: Aye. 28 MS. OLSON: Ms. Mandel? 6 1 MS. MANDEL: Aye. 2 MS. OLSON: Motion carries. 3 ---o0o--- 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7 1 MS. OLSON: Our next item is B11, Vista Pacific 2 Townhomes Association, Incorporation. This was a waived 3 appearance. 4 ---o0o--- 5 B11 6 VISTA PACIFIC TOWNHOMES ASSOCIATION, INC. 7 NO. 522642 8 ---o0o--- 9 MS. YEE: Waived appearance, okay. 10 MR. HORTON: Is there a motion, Members? 11 MS. YEE: Move to sustain the Franchise Tax 12 Board. 13 MR. HORTON: Moved by Member Yee to sustain the 14 Franchise Tax Board. 15 Second by Member Mandel. 16 Objection, Members? 17 Hearing none, such will be the order. 18 ---o0o--- 19 20 21 22 23 24 25 26 27 28 8 1 MR. HORTON: Ms. Olson? . 2 MS. OLSON: Our next item is B12, Cort R. 3 Schultz and Margaret Krinsky. 4 ---o0o--- 5 B12 6 CORT R. SCHULTZ AND MARGARET KRINSKY 7 NO. 556764 8 ---o0o--- 9 MR. HORTON: Is there a motion, Members? 10 MR. THOMPSON: There just -- 11 MS. YEE: I think there was -- 12 MR. THOMPSON: -- I was just going to remind 13 there was a concession with regard to the 2006 -- 14 MS. YEE: -- 2006. 15 MR. THOMPSON: -- penalty, which the FTB has 16 conceded. So, the 2007 is left. 17 MR. HORTON: Okay. As noted. 18 Is there a motion incorporating the -- 19 MS. YEE: Yeah, sustain the Franchise Tax Board 20 with the noted concession. 21 MR. HORTON: Thank you. It's been moved to 22 sustain the Franchise Tax Board with the noted 23 concession. 24 Second by Member Mandel. 25 Is there objection? 26 Hearing none, such will be the order. 27 ---o0o--- 28 9 1 MS. OLSON: Our next item is B15, Marie R. Sanders. 2 ---o0o--- 3 B15 4 MARIE R. SANDERS 5 NO. 522825 6 ---o0o--- 7 MR. HORTON: Is there a motion, Members? 8 MS. YEE: Oh, yeah, move to sustain the 9 Franchise Tax Board. 10 MR. HORTON: It's been moved by Member Yee to 11 sustain the Franchise Tax Board. 12 Second by -- Member Mandel. 13 Without objection? 14 MR. RUNNER: Object. 15 MR. HORTON: Objection by Mr. Runner. 16 Ms. Olson, please call the roll. 17 MS. OLSON: Mr. Horton? 18 MR. HORTON: Aye. 19 MS. OLSON: Ms. Steel? 20 MS. STEEL: No. 21 MS. OLSON: Mr. Runner? 22 MR. RUNNER: No. 23 MS. OLSON: Ms. Yee? 24 MS. YEE: Aye. 25 MS. OLSON: Ms. Mandel? 26 MS. MANDEL: Aye. 27 MS. OLSON: Motion carries. 28 MS. OLSON: Our next item is B16, Pluria W. 10 1 Marshall, Junior. 2 ---o0o--- 3 B16 4 PLURIA W. MARSHALL, JR. 5 NO. 533146 6 ---o0o--- 7 MR. HORTON: Is there a motion, Members? 8 MS. YEE: Move to sustain the Franchise Tax 9 Board. 10 MR. HORTON: Move to sustain the Franchise Tax 11 Board. 12 Is there a second? For discussion purposes is 13 there a second? 14 MS. MANDEL: Second. 15 MR. HORTON: Second for discussion. 16 Discussion, Members? 17 MS. STEEL: This is the one went Manhattan 18 Beach address that was the home address, right? 19 MR. HORTON: Yes. 20 MS. STEEL: It's not like the other case that 21 they sent out to the law office address? 22 MR. THOMPSON: No -- let me double check. 23 MR. RUNNER: This was an issue of number of 24 days, correct? 25 MR. THOMPSON: Yes. 26 MR. RUNNER: Yeah, yeah, okay, okay, I am back 27 on this one now. 28 This was -- this was an issue to where there 11 1 seemed to be a -- the -- the -- what the -- we were 2 talking about like 80 days difference instead of -- 3 MR. THOMPSON: That's right. 4 MR. RUNNER: -- right? 5 MR. THOMPSON: That's right. There was a 6 demand for a tax return due February 25th and -- 7 MR. RUNNER: And the taxpayer actually paid the 8 tax prior -- well, we know -- FTB received it like on 9 April 15th or something, correct? 10 MR. THOMPSON: Well, correct, I think through 11 withholding FTB had been paid. 12 But there was a demand with a due date of 13 February 25th. 14 MR. RUNNER: Excuse me, they had received his 15 return -- 16 MR. THOMPSON: Oh, his return? 17 MR. RUNNER: -- on his -- they returned -- they 18 received his return on -- 19 MR. THOMPSON: Correct. 20 MR. RUNNER: -- on April 15th. 21 MR. THOMPSON: Correct, you're right. 22 MR. RUNNER: And the -- and the date that FTB 23 would have required him to make a timely response to the 24 demand was -- 25 MR. THOMPSON: February 25th. 26 MR. RUNNER: -- the 25th? 27 MR. THOMPSON: Yes. 28 MR. RUNNER: So, the thought is -- it was -- 12 1 again trying to figure what's happening in the mind of a 2 taxpayer, but -- 3 MS. MANDEL: Well, he -- this is another one 4 where, you know, he -- he claimed he'd never got the -- 5 MS. YEE: Right. 6 MS. MANDEL: -- demand. 7 MR. RUNNER: That's correct, right. 8 MS. STEEL: But that was the right address? 9 MS. YEE: Yeah, the attorney had the right 10 address. 11 MS. STEEL: They had an address, it's a home 12 address, it's -- 13 MR. THOMPSON: It looks like, perhaps, he may 14 have filed the return after -- between the due date of 15 the demand letter, which was February 25th, they issued 16 an NPA. 17 MR. RUNNER: Right, right. 18 MR. THOMPSON: And, so, it looks like maybe 19 that reminded him. Or if he hadn't seen it, he saw 20 that, because it was filed a couple weeks after the NPA. 21 MR. RUNNER: Right. No tax due. It was just a 22 matter of this was subtracted from his -- from his -- 23 MS. MANDEL: Refund. 24 MR. RUNNER: -- refund. 25 MR. THOMPSON: Right. 26 MS. MANDEL: Yeah, this is the one penalty 27 that's still based on -- without regard to any credits. 28 MR. RUNNER: What is our -- what -- in terms of 13 1 the issue of our response here, our choices, is -- is 2 the issue the -- the -- before us the issue of being 3 able to deny the -- deny the petition or -- or find for 4 the taxpayer? 5 I mean, there's -- is there any middle ground 6 in this issue for us? 7 MR. THOMPSON: I -- I don't really see a middle 8 ground. I think it's a question of whether the penalty 9 can be abated. 10 MR. RUNNER: Okay. I would do a substitute 11 motion to abate the penalty. 12 MS. STEEL: Second. 13 MR. HORTON: Discussion, Members? 14 MS. YEE: Objection. 15 MR. HORTON: Objection noted. 16 Actually, initially I was concerned about the 17 overlap in time and that it would seem that the overlap 18 would have implied that one of two things could have 19 occurred -- the taxpayer could have -- the document, 20 obviously, was mailed. 21 And apparently, based on the history, was 22 actually received at the home. 23 Whether or not a parent or husband or wife 24 opened it and responded or reacted to it is still the 25 item in question. 26 However, they were in the process of preparing 27 the return when they received the demand letter and, so, 28 the demand letter should have prompted them to call, in 14 1 that there was a response -- there was language or 2 verbiage on the document itself that said, "Call if you 3 want an extension." 4 Such that that call didn't take place and they 5 are in the process of filing the return -- 6 MR. RUNNER: But he argued that he never -- 7 never got the letter, correct? The demand? 8 MR. THOMPSON: That's correct. 9 MS. YEE: Right. 10 MR. HORTON: Question of the -- the demand 11 penalty, is it due because the Notice of Demand is sent, 12 received or you have knowledge of it -- taxpayer has 13 knowledge of it? 14 MR. THOMPSON: The -- the statute provides that 15 if the taxpayer fails or refuses to respond, then it 16 accrues. 17 And then the regs they're under state that the 18 taxpayer should -- it will be be imposed if taxpayer 19 fails to file -- timely respond to the demand in the 20 manner prescribed in the demand. 21 MS. MANDEL: And the -- the basis for an excuse 22 is a reasonable cause. 23 MS. YEE: Reasonable cause. 24 MS. MANDEL: Right? 25 MR. THOMPSON: Yes. 26 MS. MANDEL: Reasonable cause, ordinary 27 business prudence and care, and not willful neglect. 28 MR. THOMPSON: Yes, thank you. 15 1 MS. MANDEL: So, the question then is if -- 2 if -- it's kind of the question that came up in the 3 hearing, I think, which if you -- if the mailing is all 4 that FTB has to show and it's presumed that it gets 5 there. 6 But if the assertion is it never showed up, "I 7 never got it," at what -- if that -- if -- if the Board 8 were to conclude that the facts were demonstrated I 9 think that was your -- kind of your question? 10 MR. RUNNER: Right. 11 MS. MANDEL: Does all FTB have to do, drop it 12 in the mail and it doesn't show up, you still get hit 13 with the penalty? 14 But if it -- really, if the facts are -- if the 15 Board concludes that, as a matter of fact, he never -- 16 MR. THOMPSON: Right, there's a presumption 17 there, but it's not an irrebuttable presumption. 18 MR. HORTON: I mean, when -- when we inquired 19 about the activity that occurred between January and the 20 subsequent filing date, it wasn't clear to me what -- 21 the taxpayer didn't quite provide any additional 22 information as to what was going on, even though it's 23 difficult for us to determine what's going in an 24 individual's mind. 25 And certainly the challenge I have is 26 presenting evidence on behalf of the taxpayer when the 27 taxpayer's in front of us. 28 So -- 16 1 MR. RUNNER: And the 30 days, just to clarify, 2 that is not statute? 3 MR. THOMPSON: It is not set forth in the 4 statute. 5 MS. YEE: Mr. Chairman, there was also -- 6 MR. HORTON: Yeah? 7 MS. YEE: -- there was also a history of a 8 delinquent return for another year as well, right? Is 9 this the one? 10 MR. THOMPSON: That's correct. 11 MS. MANDEL: Yeah, there was a request in the 12 prior year. 13 MS. YEE: 2006. 14 MS. MANDEL: -- this a -- this is a -- this is 15 the last penalty in California that's based without -- 16 MS. YEE: Right. 17 MS. MANDEL: -- credits. 18 MS. YEE: Based on the tax. 19 MS. MANDEL: But they all used to be that way 20 until relatively recently. 21 MR. HORTON: Uhm-hmm. 22 MS. MANDEL: And the Franchise Tax Board now 23 has the regulation so that they send the request that 24 first time. And there has to be the -- you know, the 25 whole thing with demands and penalties in prior years 26 before they -- 27 MR. THOMPSON: Right. 28 MS. MANDEL: -- a request within the -- 17 1 MR. THOMPSON: Right, FTB's own -- 2 MS. MANDEL: -- recent -- 3 MR. THOMPSON: -- regulation provides that they 4 won't hit someone with demand penalty until -- unless 5 there has been a prior demand. 6 MR. HORTON: Okay. Further discussion, 7 Members? 8 Let's dispense with the subsequent -- 9 MR. RUNNER: Yeah, you have a substitute 10 motion. 11 MR. HORTON: -- substitute motion. 12 Ms. Olson? 13 MS. OLSON: Mr. Horton? 14 MR. HORTON: No. 15 MS. OLSON: Ms. Steel? 16 MS. STEEL: Yes. 17 MS. OLSON: Mr. Runner? 18 MR. RUNNER: Yes. 19 MS. OLSON: Ms. Yee? 20 MS. YEE: No. 21 MS. OLSON: Ms. Mandel? 22 MS. MANDEL: No. 23 MS. OLSON: Motion fails. 24 MS. STEEL: Back to where we start motion. 25 MR. HORTON: Well, Members, we're back to the 26 original motion. 27 Any discussion on that? Is there an objection? 28 MR. RUNNER: Yes. 18 1 MR. HORTON: So noted. 2 Ms. Olson? 3 MS. OLSON: Mr. Horton? 4 MR. HORTON: Wow, this one's -- I've got the 5 law going through my mind all of a sudden here. 6 MS. MANDEL: Do -- 7 MR. RUNNER: Do you want to stop the roll 8 call -- 9 MS. MANDEL: Yes. 10 MR. RUNNER: -- and then go through more 11 discussion or -- 12 MR. HORTON: Yes. 13 MR. RUNNER: Okay. 14 MR. HORTON: -- Members, I -- please. 15 MS. OLSON: You want to go back to this? 16 MR. HORTON: Yes. 17 MS. OLSON: Okay. 18 (Whereupon other proceedings were had.) 19 ---o0o--- 20 21 22 23 24 25 26 27 28 19 1 MS. OLSON: Our next item is B17, William 2 Bowes.. 3 ---o0o--- 4 WILLIAM BOWES 5 NO. 559983 6 ---o0o--- 7 MR. HORTON: Is there a motion, Members? 8 MS. YEE: Move to sustain the Franchise Tax 9 Board and impose a $750 frivolous appeal penalty. 10 MR. HORTON: It's moved to sustain the 11 Franchise Tax Board, imposing a $750 frivolous appeal 12 penalty. 13 Is there a second? 14 MS. STEEL: Second. 15 MR. HORTON: Second by Member Steel. 16 Objection? 17 Hearing none, such will be the order. 18 That was quick. 19 And I had to work for it. 20 MS. YEE: Keep going, we can return to that. 21 ---o0o--- 22 23 24 25 26 27 28 20 1 MR. HORTON: And our return to -- . 2 MS. OLSON: Last one is B16. 3 ---o0o--- 4 RECALLED 5 PLURIA W. MARSHALL, JR. 6 NO. 533146 7 ---o0o--- 8 MR. RUNNER: Forgot about that one. 9 MS. OLSON: Pluria W. Marshall, Junior. 10 MR. HORTON: Okay. Is there a motion, Members? 11 MS. YEE: Move to sustain the Franchise Tax 12 Board. 13 MR. HORTON: Moved by Member Yee to sustain the 14 Tax -- Franchise Tax Board. 15 Is there a second? 16 MS. STEEL: Is it B16? 17 MS. YEE: Uh-huh. 18 MR. RUNNER: This is the one that he -- we were 19 done, he withdrew and then he wanted -- Jerome wanted to 20 think. 21 MR. HORTON: Is there a second, Members? 22 MS. MANDEL: Yeah, second. 23 MR. HORTON: Second by Member Mandel. 24 Objection? 25 MR. RUNNER: Yes. 26 MR. HORTON: Objection noted. 27 Ms. Olson, please call the roll. 28 MS. OLSON: Mr. Horton? 21 1 MR. HORTON: Aye. 2 MS. OLSON: Ms. Steel? 3 MS. STEEL: No. 4 MS. OLSON: Mr. Runner? 5 MR. RUNNER: No. 6 MS. OLSON: Ms. Yee? 7 MS. YEE: Aye. 8 MS. OLSON: Ms. Mandel? 9 MS. MANDEL: Aye. 10 MS. OLSON: Motion carries. 11 That concludes our business for today. 12 ---o0o--- 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 22 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, JULI PRICE JACKSON, Hearing Reporter for the 8 California State Board of Equalization certify that on 9 OCTOBER 28, 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 22 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: NOVEMBER 4, 2011 17 18 19 ____________________________ 20 JULI PRICE JACKSON 21 Hearing Reporter 22 23 24 25 26 27 28 23