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 APRIL 26, 2012 10 11 SALES AND USE TAX APPEAL HEARING 12 APPEAL OF 13 JAMES EUGENE GOLDSTEIN 14 NO. 442332 (AC) 15 AGAINST PROPOSED ASSESSMENT OF 16 SALES AND USE TAX 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 For the Board Jerome E. Horton of Equalization: Chairman 3 4 Michelle Steel Vice-Chairwoman 5 6 Betty T. Yee Member 7 8 George Runner Member 9 10 Marcy Jo Mandel Appearing for John 11 Chiang, State Controller (per Government Code 12 Section 7.9) 13 Joann Richmond 14 Chief Board Proceedings Division 15 16 For Board of David Levine Equalization Staff: Tax Counsel IV 17 18 For the Department: Cary Huxsoll Tax Counsel 19 Robert Tucker 20 Tax Counsel IV 21 Kevin Hanks Chief, Headquarters 22 Operations Division 23 For Petitioner: James Eugene Goldstein Taxpayer 24 Warren Nemiroff 25 Attorney 26 27 ---oOo--- 28 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 APRIL 26, 2012 4 ---oOo--- 5 MR. HORTON: Good morning. Let us reconvene 6 the meeting of the Board of Equalization. 7 Members, we're going to take up C19 as an 8 accommodation to one of our taxpayers who has some, uh, 9 challenges, uh, that are above and beyond the norm. 10 So, with that said, Ms. Richmond, what is our 11 next scheduled item? 12 MS. RICHMOND: Good morning, Mr. Chairman and 13 Members. 14 Our first item on this morning's agenda is Item 15 C19, James Eugene Goldstein. 16 Please come forward. 17 MR. HORTON: Mr. Levine, as the taxpayer comes, 18 would you please introduce the issues in this case. 19 MR. LEVINE: Good morning, Chairman Horton, 20 Members. 21 MR. HORTON: Good morning. 22 MR. LEVINE: David Levine for the Appeals 23 Division. 24 The issues in this petition of James Goldstein 25 are whether petitioner is personally liable under 26 Revenue and Taxation Code Section 6829 for the tax debts 27 of National Imaging Company, Inc.; whether adjustments 28 are warranted to the underlying liability; whether the 3 1 fraud penalty was properly imposed; and whether there is 2 a basis for relief of the late prepayment and finality 3 penalties. 4 I note that this was a companion case to 5 another case that was originally scheduled on the same 6 calendar; we normally bring these up together. This 7 case had been postponed twice because of the other case. 8 The other case has now gone into settlement. 9 We decided not to pull this case further. And if you 10 decide you want to wait for a decision until the case 11 comes out of settlement, if ever, you can do that. But 12 they're not directly -- they're related, but it's not a 13 case where only one can be liable as you understand. 14 So, there's no need to wait. 15 MR. RUNNER: Can I just follow up on a -- just 16 a -- a procedural question on that, just for my 17 information? 18 MR. HORTON: Sure. 19 MR. RUNNER: Um, other side -- part of it goes 20 into settlement. If a settlement is then arrived at, 21 then that decreases the, uh -- the, uh, amount then that 22 basically the other parties are -- 23 MR. LEVINE: To the -- the extent of actual 24 payment -- 25 MR. RUNNER: Payment, now, okay. 26 MR. LEVINE: -- reduces it. 27 MR. RUNNER: Not agreement, right. 28 MR. LEVINE: Practically speaking, I think that 4 1 if the settlement -- if a settlement went through for, 2 say, all of it -- 3 MR. RUNNER: Mm-hmm. 4 MR. LEVINE: -- that -- and you upheld the 5 liability here, that the Department probably would want 6 to wait to collect, unless there was some risk, to see 7 if the payment under the settlement came through. 8 Because we certainly don't -- can't get more than is 9 due. 10 So I think that there will be some tying 11 together if there is a payment plan. 12 MR. RUNNER: Okay. Okay, thank you. 13 MR. HORTON: Okay. 14 Good morning and welcome. The taxpayer has 10 15 minutes to make their presentation. I would ask that 16 you begin with your introductions for the record. 17 MR. NEMIROFF: Warren Nemiroff for the 18 taxpayer, Your Honor. 19 MR. GOLDSTEIN: James Goldstein. 20 MR. HORTON: Okay. Could you please pull the 21 mikes just a little bit closer. 22 MR. NEMIROFF: Can you hear me now? 23 MR. HORTON: Yes, sir. 24 MR. NEMIROFF: Okay. 25 Uh, for the record that, uh -- what was just 26 told to me is the first time I realized that the real 27 principal in this case was in settlement negotiations 28 with the State. 5 1 Uh, I represent here a party whose only 2 responsibility would be as a responsible party. He was 3 not a shareholder. He was not an owner. He had no 4 control of the books and records. He had no control of 5 the money. 6 He got on an account for a few times because of 7 financial problems of the owner who was, by the way, 8 quite substantial, and has never corresponded to us. We 9 have never seen the books and records. 10 My client never had control over the bank 11 accounts. He signed a few returns. And the State has 12 known this from day one. 13 We're here not even knowing what the total 14 liability may be. I mean, if the other case settles, he 15 may have no exposure whatsoever or he may have some. 16 But he should not be before this Board. As far as I'm 17 concerned, he's a -- he's a pawn. I would use the word 18 "dupe." He was a minor employee at most times and he 19 never had control of any of the money. 20 And you'll notice, the real case is, quote 21 unquote, "being settled." 22 MR. HORTON: Does that conclude your -- 23 MR. NEMIROFF: Opening statement, yes. 24 MR. HORTON: Thank you very much. 25 You have five minutes, sir. So if you'd like 26 to share anything else, you're welcome to do so. 27 MR. NEMIROFF: Mr. Goldstein, would you like to 28 talk? 6 1 MR. HORTON: I mean 10 minutes. My apologies. 2 MR. GOLDSTEIN: The reason that I was put on 3 the bank account is because of, uh, the owner had 4 problems. I guess he was kiting checks, whatever this 5 means, where he was, uh, giving one check to cover 6 another check. And what this is -- he got a letter 7 from, uh, Check Systems telling him he had 30 days to, 8 uh, close the accounts. And that's when he asked me if 9 I could, uh, open up the accounts, um, and I did. And 10 he put me on the corporation. But prior to that, I 11 never was on the corporation. 12 But anything that had to do with financial or 13 even the preparation, the checks would be prepared and 14 all's I did was sign the checks. I didn't know what the 15 totals -- how they came up with that amount. It was 16 done with the owner and the accountant at all times. I 17 never had access to that stuff. 18 And even when you guys audit him the first 19 time, he took care of that audit. The second time, 20 which was this period that we're talking about now, he 21 took all the books and records, hired an accountant, 22 then fired that same accountant and cut all 23 communications off. 24 Uh, I never had privy to any of this stuff. I 25 never was the business owner or anything. 26 MR. HORTON: Okay. 27 MR. NEMIROFF: Uh, may I ask the taxpayer a few 28 questions? 7 1 MR. HORTON: Sure. 2 MR. NEMIROFF: Okay. All right. 3 You don't have any of the books and records? 4 MR. GOLDSTEIN: No, I don't. 5 MR. NEMIROFF: You've never had any of the 6 books and records? 7 MR. GOLDSTEIN: Never. 8 MR. HORTON: Sir, I would encourage you to 9 speak into the mike. 10 MR. NEMIROFF: Oh, sorry. Sorry. 11 MR. HORTON: You can turn it either way you 12 want. 13 MR. NEMIROFF: Is this -- this a little bit 14 better? 15 MR. HORTON: Yeah. 16 MR. NEMIROFF: Okay. All right. 17 You never had any of the books and records? 18 MR. GOLDSTEIN: No, I didn't. 19 MR. NEMIROFF: You've never had any of the 20 books and records? 21 MR. GOLDSTEIN: No. 22 MR. NEMIROFF: Okay. Um, you were never a 23 shareholder, correct? 24 MR. GOLDSTEIN: No. 25 MR. NEMIROFF: You were never a part-owner, 26 correct? 27 MR. GOLDSTEIN: No. 28 MR. NEMIROFF: Okay. 8 1 Did you yourself ever control a statement of 2 domestic stock corporation that would have made you an 3 owner? 4 MR. GOLDSTEIN: No. 5 MR. NEMIROFF: Okay. 6 Um, did you ever have any control over the bank 7 accounts? 8 MR. GOLDSTEIN: No, other than signing checks, 9 and that was the last year and a half or so of the 10 business. 11 MR. NEMIROFF: And they put the checks in front 12 of you, right? 13 MR. GOLDSTEIN: They put -- they -- they would 14 have the totals and the checks. And you can tell, if 15 you look at the copies of the check, that they were 16 pre-done and all's I did was sign them. None of that 17 was my writing. 18 MR. NEMIROFF: In fact, we put, um, in front of 19 the State Board as -- as an exhibit today the fact that 20 even in one case they forged your signature -- 21 MR. GOLDSTEIN: Yes. 22 MR. NEMIROFF: -- on one of the State 23 returns? 24 MR. GOLDSTEIN: That was the last one. That 25 wasn't even -- if you notice the prior ones, you can 26 look at the signature; it doesn't even match the last 27 signature. 28 MS. YEE: Is that something presented today? 9 1 MR. NEMIROFF: Yes, it was. And it was also 2 presented to the State Board some time ago, like three 3 weeks ago. 4 I believe it's Exhibit 3. 5 MR. HORTON: Okay. Thank you. 6 Please continue. Does that conclude? 7 MR. NEMIROFF: Well, not quite. 8 You never were involved with the preparation of 9 any of the sales tax returns? 10 MR. GOLDSTEIN: No. I never did the sales tax 11 returns, never. 12 The IRS returns I've never seen. I never had 13 anything to do with any of these returns. 14 MR. NEMIROFF: Did you ever control the money 15 of the Mobil station itself? 16 MR. GOLDSTEIN: No. That was, uh, a routine 17 that was done on a daily basis where 90 percent of the 18 money that came in was through credit cards, and it went 19 through the system where you didn't have a handle on 20 it. 21 MR. NEMIROFF: Okay. Um, was there a previous 22 audit done to this -- 23 MR. GOLDSTEIN: There was a previous audit done 24 the quarter before these three quarters that we're 25 talking about. And Mr. Moore had come up with a 26 settlement with the State Board, and I believe he paid 27 them. I'm not sure. 28 MR. NEMIROFF: Was there a de minimus result? 10 1 MR. GOLDSTEIN: I'm not sure of that. 2 MR. NEMIROFF: Okay. 3 So you wouldn't even know what he paid 4 previously? 5 MR. GOLDSTEIN: Right. I don't know. 6 MR. NEMIROFF: Okay. 7 And you don't know what he's doing today or -- 8 MR. GOLDSTEIN: He stopped all communications 9 with me ever since I -- when I got the first audit under 10 my name here, I tried to call him. And he said he was 11 handling things, to not worry about it. This is his 12 business, he would handle it. It wasn't my problem, and 13 this is the response that I got from him. And he's 14 never called me back or taken any initiative to take 15 care of this situation from the beginning. 16 MR. NEMIROFF: Has his attorney ever contacted 17 you? 18 MR. GOLDSTEIN: Never. 19 MR. NEMIROFF: Okay. And he handled all -- 20 Mr. Moore handled all the bookkeeping? 21 MR. GOLDSTEIN: All the bookkeeping. I -- I 22 had no privy to it at all. 23 MR. NEMIROFF: Okay. 24 When did this company close? 25 MR. GOLDSTEIN: Uh, it closed, I believe -- uh, 26 I have it marked here. April 24th of 2007. 27 MR. NEMIROFF: Okay. Were you ever compensated 28 by this Mobil station? 11 1 MR. GOLDSTEIN: No. He owed me a lot of money 2 still, but, uh, he never paid me. 3 MR. NEMIROFF: How much money did he owe you? 4 MR. GOLDSTEIN: Probably $6,000, $7,000, 5 somewhere in there. 6 MR. NEMIROFF: Why would he owe you six or 7 $7,000? 8 MR. GOLDSTEIN: Because I stopped getting paid 9 the last several months because, uh, he kept telling me 10 that he'll pay me, he'll pay me, he'll pay me, and he 11 never did. 12 MR. NEMIROFF: Um, what was your compensation 13 when you were paid for a short period of time? 14 MR. GOLDSTEIN: I was making 500 a week. 15 MR. NEMIROFF: Okay. 16 I have no further questions. 17 MR. HORTON: Uh, thank you. 18 We'll now go to the Department. Department has 19 10 minutes to make their presentation. 20 MR. HUXSOLL: Good morning, Mr. Chairman, 21 Members of the Board. 22 I'm Cary Huxsoll from the Legal Department, 23 along with Robert Tucker and Kevin Hanks representing 24 staff. 25 Petitioner is liable as a responsible person 26 for the unpaid liabilities of National Imaging Company. 27 National Imaging Company operated a gas 28 station. Its liability was based on an audit for the 12 1 period of January 1st, 2004 to April 24th, 2007 and a 2 Notice of Determination issued for January 1st, 2003 3 through September 30th, 2003. 4 Four conditions must be met for personal 5 liability to attach under Section 6829. Corporate 6 business must be terminated, dissolved or abandoned. 7 The corporation must have included sales tax 8 reimbursement in the selling price of property sold. 9 The person must be a responsible person. Finally, the 10 failure to pay must be willful. 11 There is no dispute that the business is 12 terminated. There's also no dispute that sales tax 13 reimbursement was added to the price of property sold. 14 Petitioner was a responsible person. National 15 Imaging Corporation Statements of Information filed with 16 the Secretary of State on August 15th, 2005 and June 17 6th -- or June 5th of 2006 identify petitioner as CEO, 18 secretary, CFO and director of the corporation. 19 Additionally, petitioner signed these statements as 20 president of National Imaging. 21 ACMS notes indicate that petitioner 22 communicated with the Board regarding sales and use tax 23 matters from times throughout the liability period. He 24 contacted staff to discuss amounts due and how payments 25 would be made on these amounts due. 26 Petitioner signed the sales and use tax returns 27 for the third quarter of 2005 through the first quarter 28 of 2007. On certain returns he provided the title of 13 1 "president" or "owner" of National Imaging Company. 2 Petitioner signed checks payable to the Board. 3 Petitioner was a responsible person for the 4 periods at issue. 5 The failure to pay was willful. The failure to 6 pay is willful because the result of an intentional, 7 conscious and voluntary course of action. It does not 8 require bad purpose or an evil motive. 9 Other creditors were paid during this time 10 period. During the audit, records of National Imaging's 11 fuel supplier indicated that from January 1st, 2005 12 through April 24th, 2007 National Imaging purchased over 13 $7 million worth of fuel, averaging $788,000 per 14 quarter. 15 Petitioner used money collected as sales tax 16 reimbursement from customers to pay other vendors 17 instead of paying the Board. 18 Thus, we concur with the recommendation of the 19 Appeals Division. Thank you. 20 MR. HORTON: Thank you. 21 On rebuttal, please. 22 MR. NEMIROFF: Yes. 23 Uh, Mr. Goldstein, did you control the money in 24 the payment to vendors? 25 MR. GOLDSTEIN: No, I did not. 26 MR. NEMIROFF: Well, you -- would you comment 27 on the statement that was just made? 28 MR. GOLDSTEIN: Well, I mean, the first 14 1 statement that I did call the State Board to come up 2 with some kind of plan because I was instructed to by 3 Mr. Moore because he didn't want to take, uh, initiative 4 to do that. And because my name was involved, of course 5 I'm going to call because I'm not somebody that runs 6 from any kind of responsibility. 7 From the beginning of this, uh, situation, I've 8 gone to the appeals, I've called the State Board. I've 9 always been a responsible party in trying to do the 10 right thing here. And Mr. Moore has never done the 11 right thing with this whole situation. 12 Um, this situation, when the amounts are due or 13 the totals are due, that was all handled through CK 14 Financial and Mr. Moore. I had no privy to know if the 15 amounts of the taxes were right, what was being paid or 16 wasn't being paid, or other vendors that were being 17 paid. 18 I mean, there would be vendors that I would 19 sign a check to, to pay them, but that's not knowing 20 that I'm using State Board money paying those vendors. 21 I had no privy or knowledge to this. 22 MR. NEMIROFF: So other parties were making 23 the -- the determinations as the control of the money, 24 correct? 25 MR. GOLDSTEIN: Yes. 26 MR. NEMIROFF: And it was never you? 27 MR. GOLDSTEIN: It was never me that made the 28 decision-making on that stuff. 15 1 MR. NEMIROFF: Would you say it was simply a 2 font for Moore to put you in this position -- 3 MR. GOLDSTEIN: It seems like it now. I 4 mean -- and to put me in all those positions of the 5 corporation. I did not know I was all those positions 6 of the corporation. I was just -- I signed a corporate 7 paper stating that I was going to be on the corporation 8 because he couldn't open up a bank account. That's the 9 only reason that I agreed to be put on an account. Or 10 else I didn't know that I was responsible or be put in a 11 position of being responsible for something like this, 12 or else I would have never agreed to help him and to 13 keep the business going. Because if he had no bank 14 account, that business closed. 15 MR. NEMIROFF: Do you have any accounting 16 experience? 17 MR. GOLDSTEIN: I have none. 18 MR. NEMIROFF: What was -- what is your 19 business? 20 MR. GOLDSTEIN: I've been a jeweler for 28 21 years. And I met Mr. Moore at my jewelry store. And 22 that's how I became friends with him, and I was just 23 trying to do a little bit of a side income because it 24 was only taking a couple hours of my day. And that's 25 all, the only reason I got involved with that. 26 I have no knowledge of this kind of stuff. Um, 27 I was more managing the employees and the day -- you 28 know, those kind of things more than, uh, accounting or 16 1 taxes or anything else. 2 MR. NEMIROFF: Okay. 3 MR. HORTON: Thank you. 4 Discussion, Member Steel. 5 MS. STEEL: Um, so when you sign the papers, 6 you didn't know that you were president and secretary 7 and you were everything on that company? 8 MR. GOLDSTEIN: I'll be a hundred percent 9 honest with you, when I signed the papers, he -- it was 10 blank still. He said he had to fill them out. And he 11 was in a hurry to put me on the corporation so he can 12 get new accounts opened up for the business, to save the 13 business. 14 MS. STEEL: Okay. 15 Tell me one more time then, how much was your 16 salary? 17 MR. GOLDSTEIN: $500 a week. 18 MS. STEEL: Okay. 19 Um, when tax was, uh, reported to BOE, did you 20 sign any tax papers? 21 MR. GOLDSTEIN: Other than these tax returns, 22 no. I never did anything with the IRS tax papers or 23 filing -- 24 MS. STEEL: Only for BOE side. 25 MR. GOLDSTEIN: Just the returns. And what -- 26 the accountant would come to this gas station. The 27 check was already prepared with the amount and the 28 return. I would sign it for the accountant and sign the 17 1 check for the accountant. She would take them and mail 2 them. 3 MS. STEEL: So who prepared, uh, those? 4 MR. GOLDSTEIN: It was all prepaid -- it was 5 all prepared for me. I didn't -- I didn't come up with 6 the totals. I didn't know what -- 7 MS. STEEL: How many hours you were there, a 8 day? 9 MR. GOLDSTEIN: Two to three hours a day, 10 because I had my own business at the -- at the time. 11 And that was just because Mr. Moore was out of town a 12 lot and he was traveling. He's, uh -- he's in the Army 13 Reserves and he was, you know, traveling with the Army 14 Reserves and he was stationed sometimes out-of-state. 15 And -- but he did everything via e-mail with 16 the accountant. And they had a system going to where I 17 didn't -- 18 MS. STEEL: Okay. 19 MR. GOLDSTEIN: It wasn't my business to get 20 involved. 21 MS. STEEL: Thank you. 22 MR. GOLDSTEIN: And second of all, if it was my 23 business, do you think I would let him take the 24 paperwork and do this audit without me doing it? I 25 mean, it -- 26 MS. STEEL: To the Department that he didn't 27 have any power and tax was prepared by somebody else and 28 he just signed it. He didn't have any control over this 18 1 corporation. So how we are going after him? 2 I -- I know your answer, because his name's all 3 over all the documents. But he worked there for $500 as 4 president and controller and everything. I mean -- 5 MR. HUXSOLL: He -- as you said, he's -- he's 6 the president, CEO and CFO of the corporation according 7 to two filings with the Secretary of State. 8 Additionally, on these returns, he signed them 9 and indicated his title was president on one of the 10 returns, and owner of the corporation on two of the 11 other returns. So he was indicating that -- on these 12 returns that he signed, he put those titles on it. 13 MS. STEEL: Okay. 14 Mr. Levine told us that, uh -- so that 15 settlement is not done yet with Mr. Moore at this point. 16 MR. LEVINE: It just went into settlement. 17 But, of course, the liability of each party is 18 determined based on the facts of each party. 19 MS. STEEL: Right. 20 MR. LEVINE: The Board won't collect the 21 liability more than once, of course, but both parties 22 can be liable as responsible parties. 23 MS. STEEL: So it went into settlement. How 24 long it's going to take to find out? 25 MR. LEVINE: I really don't know. 26 MS. STEEL: Okay. Thank you. 27 MR. HORTON: Uh, Member Yee. 28 MS. YEE: Thank you, Mr. Chairman. 19 1 I, uh -- along the same lines as Ms. Steel's 2 inquiry. Uh, a question to the Department -- 3 Well, actually, maybe a question to, uh, 4 Mr. Goldstein first. Your capacity prior to July 1st of 5 '05, um, what was your title or role? 6 MR. GOLDSTEIN: Just the manager. 7 MS. YEE: Okay. Um, I was compelled by the, 8 uh, statement by the bookkeeper, Ms. Kline. 9 MR. GOLDSTEIN: Yes. 10 MS. YEE: And it seems to me there's a bit of a 11 demarcation that can be made here with respect to the 12 dates. That, um, on record you became the president, 13 CEO, secretary and chief financial officer, I think, 14 beginning July 1st, '05. But prior to that time -- and 15 with or without your knowledge -- 16 MR. GOLDSTEIN: Yes. 17 MS. YEE: -- that that certainly is a date 18 that, uh, seems to be important. And yet the Department 19 is asserting that you did have, uh, involvement with 20 sales tax matters prior to that time. 21 And, uh, I guess the question for the 22 Department, the statement by Ms. Kline, does that shed 23 any new light or different light, uh, in terms of what 24 happened? That Mr. Moore, um, was, uh -- had approached 25 the, uh -- the bookkeeper and essentially took all the 26 sales tax records and, uh -- um, did assert that the 27 petitioner was not involved in the, uh, preparation of 28 the returns until sometime in late 2006? 20 1 MR. HUXSOLL: This is information that we have 2 had before. 3 MS. YEE: Uh-huh. 4 MR. HUXSOLL: The -- the statement that he was 5 not involved until 2006 conflicts with the actual fact 6 that he'd signed returns going -- 7 MS. YEE: No, I understand he signed returns, 8 but he didn't -- he was a manager, and I think he was 9 signing returns -- signing everything that was 10 prepared. 11 MR. GOLDSTEIN: Always prepared. 12 MS. YEE: That he didn't prepare. 13 But I -- I -- I'm trying to just kind of get a 14 chronology of what actually happened and your specific 15 hands-on involvement with the, uh, financial matters of 16 the corporation. 17 Um, all the records for the business are with 18 Mr. Moore? 19 MR. GOLDSTEIN: Yes. 20 MS. YEE: All of them? 21 MR. GOLDSTEIN: I never had privy to the 22 records. I mean, it's his business. 23 MS. YEE: Any applications or anything that you 24 may have in your possession that suggests that -- 25 MR. GOLDSTEIN: No. I mean, when your -- your 26 investigations, when he hired an auditor, Diane Fukuzami 27 (phonetic) -- 28 MS. YEE: Mm-hmm. 21 1 MR. GOLDSTEIN: -- um, you guys interviewed her 2 and she said that Mr. Moore brought all the records to 3 her. And a month later he fired her. 4 Um, I never have privy to this. You know, I 5 never had the records. 6 And number two, if this was my responsibility, 7 I wouldn't let somebody take the records and go and 8 handle an audit that's supposed to be my audit. That 9 would never happen. I would handle, even if there's a 10 difference in pay, you get on a payment plan, you take 11 care of the responsibility and you move forward. 12 I'd never take the records and disappear with 13 the records like Mr. Moore. And that doesn't go away 14 from the State Board. That's not the way things are 15 handled. I would never handle things that way if that 16 was my business. 17 The facts -- all the facts are pointing that it 18 was his business. I was put on there strictly because 19 of Check Systems closing the bank accounts. If Check 20 Systems weren't closing the bank accounts, I would have 21 never been put on the corporation. 22 MS. YEE: Mm-hmm. I can appreciate that. 23 Uh, question for Mr. Levine then. Um, with 24 respect to the two matters -- we have the matter 25 relating to Mr. Moore in settlement; and we have this 26 matter before us here -- all the records are -- seem to 27 be, uh -- uh, with Mr. Moore as relates to his 28 settlement matter. 22 1 Are we -- how does -- how does the Department 2 or Appeals look at, uh, records that may be pertinent to 3 this matter from the settlement case? 4 MR. LEVINE: If there were any records that had 5 been submitted that was relevant to this, we would have 6 taken that into account. For example, if Mr. Moore had 7 submitted in his case records that showed less taxes 8 due, we would have decreased -- we would have 9 recommended a decrease in that matter and a -- a 10 corresponding decrease here. 11 I don't know what records were produced. I'm 12 guessing none. 13 MS. YEE: Mm-hmm. 14 MR. LEVINE: But we would take that into 15 account. And the Department would have taken into 16 account whatever records that it had at the time it was 17 investigating this, from any party. 18 MS. YEE: Okay. And I guess I mean from the 19 Department. 20 MR. HUXSOLL: Yeah, we did not obtain records 21 from Mr. Moore. The audit was completed using, uh, 22 vendor records because Mr. Moore did not turn over the 23 records. 24 MS. MANDEL: Your question may be a little 25 different. Did they find something? 26 MS. YEE: Yeah. I mean, I guess -- okay, 27 that's the past. 28 I guess going forward, if in the process of, 23 1 uh, looking at Mr. Moore's matter before settlement 2 anything should surface, how -- what would take place? 3 MR. LEVINE: We -- I'm not sure of the rules of 4 settlement. We can put an inquiry in that if any 5 records come up, that -- that Settlement gives it to us. 6 But I don't know the rules of settlement, whether it 7 could. It seems like it should. 8 MS. YEE: Mm-hmm. 9 MR. LEVINE: But when the matter is brought -- 10 we never see anything about settlement. 11 MS. YEE: Right, right. I understand. 12 MR. LEVINE: I'm not sure what you see. But 13 you see something when you approve it, so -- 14 MS. YEE: We don't see it until the very end, 15 yes, when there's a recommendation. 16 MR. LEVINE: If it were relevant, you can hold 17 off -- you can hear this case, put it -- put your final 18 decision in abeyance until you see if the Moore thing 19 ever comes out of settlement positively. 20 And at that time, um, again, I'm not sure what 21 you get. So -- but if there's enough information for 22 you to know from the settlement information that there's 23 more records, maybe you can take that into account or 24 can get us the records. 25 But as I say, we will certainly, uh, be happy 26 to put in a request for any records that are relevant to 27 Mr. Goldstein's liability. I just don't know what we'll 28 get. 24 1 MS. YEE: Right. 2 MR. LEVINE: I don't know what Settlement will 3 get. 4 MS. YEE: Okay. 5 MR. NEMIROFF: May -- may -- may I make a 6 comment for the record? 7 MS. YEE: On the -- with respect to the 8 records? 9 MR. NEMIROFF: Yeah. I mean, no one seems to 10 be disputing that Mr. Moore has control of the records 11 or had control of the records and his accountants, and 12 that my taxpayer never did. And if Moore has misplaced 13 these records or something hasn't been presented, that 14 impacts negatively, beyond his power, upon him. 15 And I don't see how any decision can be made 16 and should be made as to his liability if Moore has done 17 something with the records of a business that he owns 18 and he's the only one sitting here. I don't see how any 19 decision can ever be made. 20 MS. YEE: It -- it is difficult that we don't 21 have more records before us. 22 MR. NEMIROFF: Yes. 23 MS. YEE: And that is the frustration. 24 Absolutely, I agree with you. 25 However, with the evidence that we do have 26 before us relative to Mr. Goldstein, uh, we have to 27 consider that as well. So it's -- it's challenging. 28 MR. NEMIROFF: But -- can I just make one 25 1 statement in this regard? 2 I mean, I understand -- you know, most of my 3 dealings are with the IRS, so I understand "responsible 4 party" very well. But the simple fact of the matter is, 5 is that if we're sitting here, the -- and the underlying 6 liability could be compromised, okay, the responsible 7 party is the second issue. Okay. So even if his name 8 is on a few documents for records he never controlled, 9 how are we to know really what he should be responsible 10 for if somebody else has the records? 11 MS. YEE: Thank you, Mr. Chairman. 12 MR. HORTON: Thank you. 13 Um, a question of Mr. Levine, just for 14 clarification purposes. Um, is the Board being asked to 15 determine the actual tax liability or -- and -- well, 16 strike that. 17 Um, given a settlement and the tax liability 18 from the Settlement Department, would that alter, uh, 19 the liability of a potential responsible person? 20 MR. LEVINE: No, only to the extent of payment. 21 Unless you find that -- 22 Petitioner here has argued that the liability's 23 excessive. They didn't argue at this hearing, but my 24 understanding is at the appeals conference there was an 25 assertion that it was substantially less than that. 26 If there was some basis to reduce it, that 27 would reduce the liability. The audit was done based on 28 vendor records which, my experience, are pretty accurate 26 1 for a gas station. 2 MR. HORTON: Okay. 3 MR. GOLDSTEIN: Excuse me, counselor. 4 MR. HORTON: My apologies, sir, but I have 5 to -- 6 Mr. Runner. 7 MR. RUNNER: Yeah, just a -- just to follow up 8 on a couple of issues here. 9 Uh, let me just, uh -- the, uh -- remind me 10 what -- what was our attempt to try to get the records 11 from Mr. Moore? 12 MR. HANKS: Mr. Runner, I can -- I can respond 13 to that question. 14 Engagement letters were sent to the -- the 15 corporation, also phone communication was made to the 16 corporation, to arrange an appointment to review the 17 books and records. 18 Um, actually responses were not made to those 19 engagement letters, so repeated attempts were -- were 20 made to contact the business. I believe we sent -- 21 MR. RUNNER: And when you say the business, are 22 you talking about Mr. Moore? 23 MR. HANKS: I'm talking about the corporation. 24 So this is -- this is, uh, the primary account that 25 we're talking about, the retailer, so the gas station. 26 MS. MANDEL: Where does that get sent? 27 MR. RUNNER: Yeah, help me understand how -- 28 let me -- help me understand how it is that we tried to 27 1 get to Mr. Moore. 2 MR. HANKS: Right. Initially the communication 3 that we've got -- and perhaps Mr. Huxsoll can comment on 4 this further -- but the initial communication was mailed 5 to the place of business according to the -- the Board's 6 information on -- on the address of -- of record. So 7 engagement letters were sent to those locations. 8 Subsequently, um, we attempted to contact both 9 Mr. Moore, um, and Mr. Goldstein versus -- using the 10 address information that we had for -- for those 11 gentlemen. 12 Those repeated efforts to obtain the records 13 and even engage with them were not successful. To a 14 limited extent, we were able to talk to the bookkeeper, 15 um, but at that point she identified that there weren't 16 records for us to examine. So it was at that stage 17 that -- that we contacted ExxonMobil to obtain the 18 invoices for all the gasoline purchases made by the 19 business. 20 MR. RUNNER: Any attempt to deal with his, 21 uh -- with the income tax filing for Mr. Moore or the 22 corporation? 23 MR. HUXSOLL: The corporation only filed income 24 taxes for one year, and we did obtain the income taxes 25 for 2004. 26 MR. RUNNER: Okay. And those -- those are 27 consistent with what it is that your finding was in 28 terms of the -- in terms of the underreporting? 28 1 MR. HUXSOLL: It's -- the -- the income tax 2 returns for that year were compared to the reported tax 3 for that year. 4 MR. RUNNER: Were correct. 5 MR. HUXSOLL: And those numbers were consistent 6 in terms of what was reported on the income tax returns 7 and what was reported on the, um, sales tax returns. 8 MR. RUNNER: So they were consistent and 9 correct reporting done that year? 10 MR. HUXSOLL: The -- the -- they matched in 11 terms of what was reported and recorded in terms of 12 the -- 13 MR. RUNNER: Okay. But did not -- but did 14 not -- but did not compare with the other records that 15 were obtained? 16 MR. HUXSOLL: They were not consistent with the 17 subsequent sales made by the corporation in terms of 18 volume of sales and the amounts determined from the 19 records for ExxonMobil for the later portions of the 20 audit period. 21 MR. RUNNER: Let me -- let me go to the 22 other -- the broader issue and that is the idea of being 23 able to hold, um, an individual responsible for an 24 amount to which they cannot demonstrate, nor have 25 records to question the amount. They don't have the 26 ability to get the records. They don't have control of 27 the records. And -- and -- and then -- but yet go after 28 them as a responsible party for that amount. 29 1 Is that -- I mean, how -- this seems a little 2 bit strange to me that we're going to go after this 3 individual for a specific amount, uh, as a, uh, 4 responsible party, but yet the responsible party has no 5 ability to go and question the underlying amount. 6 Is that typical? Do we do that? 7 MR. HANKS: Um, certainly in this case, as well 8 as all the other cases that we've got, petitioners can 9 question the methods that were used to establish the 10 audit liability. 11 So, Mr. Moore or Mr. Goldstein could obviously 12 question, um, the calculations that -- that we've made 13 based on vendor reports that -- that we've received. 14 MR. RUNNER: Well, clearly he can question it, 15 but he has no documents to -- to base his questions on, 16 you know, to -- 17 MR. HANKS: Well, he does in the sense that he 18 has copies of -- of the same information that we 19 obtained from ExxonMobil. So I've got all of the 20 purchase invoices, and in front of me I can actually 21 look at all -- 22 MR. RUNNER: Let me ask him if he has access to 23 those documents? 24 Do you have all the doc -- do you have access 25 to the documents from, uh -- 26 MR. GOLDSTEIN: No, sir. ExxonMobil would 27 never give me those documents -- 28 MR. RUNNER: Okay. 30 1 MR. GOLDSTEIN: -- because I'm not the owner of 2 the business. 3 MR. RUNNER: Okay. 4 Why would we assume he has -- back to the 5 staff. Why would we assume he has access to those 6 documents? 7 MR. HANKS: Because he would have been given a 8 copy of our audit working papers. At the conclusion 9 of -- of our audit -- 10 MR. RUNNER: Okay. 11 MR. HANKS: -- they would have been supplied a 12 copy of all the invoice information we'd received from 13 ExxonMobil. 14 MR. RUNNER: Okay. 15 And did you receive that information? 16 MR. GOLDSTEIN: No. Invoices from ExxonMobil? 17 No, sir. 18 MR. RUNNER: From the doc -- from the audit. 19 Did you receive any information from the audit? 20 MR. GOLDSTEIN: No, sir. 21 MR. RUNNER: Again, how would he have 22 received -- he's the responsible party here. Um, I 23 assume Mr. Moore got all that information. But now 24 how -- as a responsible party, he gets all that 25 information also from that audit? 26 MR. HANKS: All of the -- the business owners 27 would be entitled to receive copies of the audit working 28 papers -- 31 1 MR. RUNNER: Entitled. Hold on. Help me 2 understand. You just said -- 3 MR. HANKS: -- and we would supply. 4 MR. RUNNER: Okay. Just clar -- 5 MR. HANKS: We would supply copies. 6 MR. RUNNER: Okay, there we go. Because you 7 said "entitled." I want to make sure that we actually 8 delivered and supplied that. 9 MR. HANKS: We do. 10 MR. RUNNER: So we actually delivered and 11 supplied to this taxpayer a copy of the audit that had 12 all that information in it? Do we know that? 13 MR. TUCKER: We don't know. Mr. Runner, I 14 don't believe we know whether or not we gave him an 15 actual copy of this audit. However, the audit was 16 provided to the corporation and the corporation is where 17 the underlying liability exists. 18 MR. RUNNER: Okay. But isn't it the core of 19 this discussion that he had no control of the 20 corporation? I mean, I -- I get what you were saying 21 here. But isn't that the core of what he is, that that 22 corporation was just a fig leaf, that he actually had no 23 involvement? 24 MR. TUCKER: Well, that's his claim. However, 25 we see that he signed returns, we see that he made 26 payments. 27 MR. RUNNER: I -- I -- I mean, I get -- I get 28 all of that. But all that still -- so we do not know 32 1 for sure that he received any of this information, is 2 that -- 3 MR. TUCKER: I don't believe we do. 4 MR. RUNNER: Okay. 5 MR. HANKS: The business would have been 6 supplied copies. 7 MR. RUNNER: Okay, the business. 8 MR. HANKS: But we can't tell you that -- 9 MR. RUNNER: Okay. 10 MR. HANKS: -- that we handed Mr. Goldstein -- 11 MR. RUNNER: I get it. I get. And I think 12 that that -- I think that's the crux of the problem here 13 is that -- what the discussion is, is that may have been 14 the case, but what -- what at least what I'm hearing is 15 that, and to use the words of the representative, he was 16 duped into this role and did not have access then to 17 that information as it was delivered. 18 MR. NEMIROFF: That'd be correct. 19 MR. RUNNER: Okay. 20 Let me follow up a couple other questions. You 21 said one of the returns was a fraudulent return because 22 it was signed by somebody else. 23 MR. NEMIROFF: Uh, yes. 24 MR. GOLDSTEIN: Look at the signature, sir, and 25 look at -- 26 MR. NEMIROFF: Exhibit 3 that is presented to 27 the Board. 28 MR. GOLDSTEIN: -- past signatures. 33 1 MS. MANDEL: We -- we don't have a copy. 2 MR. RUNNER: Yeah, I -- I'm not sure. Is that 3 something you handed out just recently? 4 MR. NEMIROFF: I supplied, uh, nine copies of 5 exhibits to the Board this morning. 6 MR. HORTON: Um, sir, can you make that 7 available to -- to us? We will make copies of it and 8 provide it to the Members. 9 MR. RUNNER: Yeah. And staff says we were 10 aware of that assertion, that it was -- that it was a, 11 uh -- that it was a fraudulent copy or a signature? 12 MR. HUXSOLL: No, we have never heard that this 13 signature for this particular return is fraudulent. 14 MR. RUNNER: Okay. To the representative -- 15 MR. NEMIROFF: All right. About four weeks ago 16 I was contacted by either a law clerk or some 17 representative working with one of the attorneys up in 18 Sacramento. And the exhibits, of which I prepared nine 19 copies this morning, including Exhibit 3, were 20 presented. And Exhibit 3 is a -- is a -- is a return 21 that bears a fraudulent signature. 22 And that, by the way, is the last quarter. 23 MR. RUNNER: Oh, okay. Okay. 24 Let me just -- I'm going to -- I'm going to try 25 to take another turn here. And that is, I think, number 26 one, there's a lot of issues that it seems to me that 27 there are parts and pieces that may need to get worked 28 out on this. 34 1 But the issue, it seems to me, is very clear 2 that there is -- that there is a, uh -- a pending 3 settlement. And so, you know, at this point I would -- 4 I would like to move that we actually put this in 5 abeyance; we move this off of our calendar, wait 'til 6 it's settled, see what happens with settlement. 7 Uh, I think there's lots of paperwork that 8 still needs to be examined. So I would say that we move 9 this off our calendar, move it in abeyance 'til 10 settlement is identified. 11 MS. MANDEL: Um, can I just -- I just want to 12 get a little bit more on the record from Mr. Goldstein 13 about -- there's a lot of focus on responsible person 14 and his titles and what dates. But the other element 15 of, uh, willfulness, um, doesn't that go to whether he 16 would have the ability, um, to get the taxes paid? Or 17 is that -- Mr. Levine? 18 MR. LEVINE: Yes, we would normally look, for 19 example, the power to direct check-writing or 20 check-writing. 21 MS. MANDEL: Just check-writing in and of 22 itself? 23 MR. LEVINE: Well, that's one element. 24 MS. MANDEL: Right, but that's why, um -- uh -- 25 MR. LEVINE: We look at authority. 26 MS. MANDEL: Yeah. 27 MR. LEVINE: We look at the -- if some -- if 28 you -- the bottom line is, if you -- there are, like the 35 1 Members understand, the record -- I would view the 2 record, um, and the words, with all due respect, he'd 3 have to be a dupe, which happens. 4 MS. MANDEL: Yeah, it does happen. 5 MR. LEVINE: It happens. But there were a 6 number of mistakes, so you'd have to look at that. But 7 if you conclude that he actually had no power, no 8 authority to pay it, then that would fail the 9 willfulness test. If you look at the records and the 10 signatures, that's the hurdle he's got to overcome. 11 MR. RUNNER: Just to clarify, we -- if -- if -- 12 if we put this aside and let the settlement go forward, 13 we can -- this will come back to us as we deal -- if 14 indeed there's -- there's some liability here, and we 15 can deal with the issue of, uh -- of the, uh -- this 16 party's responsibility at that time, correct? 17 MR. LEVINE: Yes. You just need to tell me 18 exactly -- it can be put over and brought back on a 19 nonappearance calendar. Or if you wanted a new hearing, 20 if -- unless for some reason the Department -- if all 21 the money were collected from Mr. Moore, that would 22 resolve this. 23 MR. RUNNER: I would not be satisfied with a 24 nonappearance hearing because I -- 25 MS. MANDEL: That's why I was asking. 26 MR. RUNNER: -- I still question -- I still 27 question this taxpayer's liability. Um, so I would not 28 want him to not -- to be in a position where he doesn't 36 1 have the ability to come forth and argue his case. 2 I still think there's a lot of questions in 3 regards to his liability. I just think we kind of -- 4 our hands are a little bit tied because of the 5 settlement issue. 6 MS. MANDEL: That -- that -- that's why I was 7 asking the question because I thought it might come back 8 on a nonappearance -- 9 MR. RUNNER: No my -- my preference -- 10 MS. MANDEL: -- and he wouldn't have the 11 opportunity to make a record. 12 MR. RUNNER: -- would be for it to come forward 13 as an appearance. We just need to see what happens to 14 this settlement process. And I'll be the first to say 15 that I think some -- some of the responsible party 16 arguments are fairly weak, in my opinion right now. 17 So my motion would still be put in abeyance, 18 come back as a -- as a, uh -- as a hearing. 19 MS. YEE: I'll second that motion, Mr. 20 Chairman. 21 MR. HORTON: It's been moved by Mr. Runner to 22 put this case in abeyance pending a settlement. Second 23 by Member Steel. 24 Without objection, Members, such will be the 25 order. 26 I would encourage the Department to look at the 27 discussions relative to demarcation, uh, shared by 28 Member Yee. 37 1 Thank you very much for appearing before us. 2 MR. NEMIROFF: Thank you. 3 MR. HORTON: The Board will -- well, we won't. 4 MR. NEMIROFF: I don't think you will. 5 MR. HORTON: Thank you very much for appearing 6 before us. 7 ---oOo--- 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 38 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 April 26, 2012 I recorded verbatim, in shorthand, to the 10 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 38 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: June 19, 2012 17 18 19 ____________________________ 20 KATHLEEN SKIDGEL, CSR #9039 21 Hearing Reporter 22 23 24 25 26 27 28 39