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 JULY 24, 2012 10 CORPORATE FRANCHISE AND PERSONAL INCOME TAX HEARING 11 APPEAL OF 12 DANIEL R. MARCOTTE 13 NO. 547815 14 AGAINST PROPOSED ASSESSMENT OF 15 ADDITIONAL INCOME TAX 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 For the Board Jerome E. Horton of Equalization: Chairman 3 4 Michelle Steel Vice-Chair 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 Lou Ambrose Equalization Staff: Staff Counsel 17 18 19 For Franchise Tax Kristen Kane Board: Tax Counsel 20 Natasha Page 21 Tax Counsel 22 For Appellant: Daniel R. Marcotte 23 Taxpayer 24 Chris McDowell 25 Witness 26 27 ---oOo--- 28 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 JULY 24, 2012 4 ---oOo--- 5 MR. HORTON: Ms. Richmond, our next item? 6 MS. RICHMOND: Our next item is B6, Daniel R. 7 Marcotte. 8 Please come forward. 9 MR. HORTON: Mr. Ambrose, would you please 10 introduce the issues in this case? 11 MR. AMBROSE: Uh, good morning, uh, Chairman 12 Horton, Members of the Board. 13 Uh, the issues in the matter of this appeal of 14 Daniel R. Marcotte -- or the issue, I should say, is 15 whether Appellant resided on the reservation during the 16 year at issue so that his reservation-sourced income is 17 sub -- is not subject to California tax. 18 MR. HORTON: Thank you very much. We would ask 19 that the taxpayer introduce yourself for the record. 20 You will have ten minutes to make your presentation. 21 MR. MARCOTTE: All right. 22 My name is Daniel Marcotte. My partner was 23 here. I don't know, he must have went to the 24 bathroom. 25 MR. HORTON: Um, if you like, we can -- we 26 can -- 27 MS. YEE: Take a -- take a break? 28 MR. HORTON: -- take a five-minute break -- 3 1 MR. MARCOTTE: Okay. Thank you. 2 MR. HORTON: -- to allow your partner some 3 time. 4 MR. MARCOTTE: All right. 5 MR. HORTON: Okay? 6 Members. 7 (Recess taken.) 8 MR. HORTON: Welcome back to the meeting of the 9 Board of Equalization. We will reconvene. 10 We were at the taxpayer's introduction for the 11 record. Uh, again, I will share that you have ten 12 minutes to make your presentation. 13 We'll then go to the Department; they'll have 14 ten minutes to make their presentation. And we'll 15 return and allow you five minutes on rebuttal. 16 MR. MARCOTTE: Go ahead? 17 MR. HORTON: Commence at will. 18 MR. MARCOTTE: All right. 19 My name is Daniel Marcotte. My witness, Chris 20 McDowell. 21 I'm here because of, uh, the Tax Board 22 saying that it's not -- 23 MR. HORTON: Sir, can you pull the mic closer? 24 MR. MARCOTTE: -- feasible to them that I allow 25 him to stay in my house, my investment property, which 26 is a four-bedroom house, is what they say. It's not 27 feasible to them that he -- that he be allowed to stay 28 there in exchange for taking care of the place, knowing 4 1 that I wasn't there. 2 So, um, he filed his taxes there. He -- you 3 know, he stayed there for me. He is my -- one of my 4 best friends. I allowed him to stay there in exchange 5 for taking care of the place. 6 I would lose money regardless if I rented the 7 place. I couldn't sell the place and make money. I had 8 it. I just recently sold it and took a loss on it, 9 basically because I can't go through this stuff, uh, 10 thinking, you know, how can I have an investment 11 property if the State Board's going to keep on telling 12 me that you can't have that; you can't allow somebody to 13 stay there unless it's feasible to them? 14 So, I really don't have more or anything less 15 to say on that. That's what I'm here for. And that's 16 where we're at. 17 MR. HORTON: Thank you. Would your witness 18 like to say anything for the record? 19 MR. McDOWELL: He said it. I was staying 20 there. I filed my taxes there from '06, when I moved 21 in, 'til recently when I moved out. 22 Um, I have paperwork saying I was living there. 23 I have court paperwork. I have the taxes saying I was 24 living there. I was exchanging -- he didn't want a 25 renter in there for the fact that renters ruin houses. 26 Some -- who knows what you get with a renter. 27 He is my close friend. He knew I wasn't going 28 to ruin the house. He wanted to sell it, so I was 5 1 there. 2 MR. HORTON: Okay. 3 We'll now go to the Department. The Department 4 will have ten minutes to make their presentation. We 5 would ask that you commence with your introductions for 6 the record. 7 MS. KANE: Good morning, Chairman, Members of 8 the Board. 9 My name is Kristen Kane, and sitting with me is 10 Natasha Page; and, together, we'll be representing 11 Respondent Franchise Tax Board. 12 Uh, in 2006, Appellant, Mr. Marcotte, excluded 13 over $391,000 from his California adjusted gross income, 14 resulting in negative California AGI and zero tax due. 15 He received the excluded income as a distribution from 16 the Morongo Indian Tribe of which he is an enrolled 17 member. 18 As Mr. Marcotte is a California resident, 19 California may tax this distribution unless Appellant 20 can show that three requirements are met. Only one 21 requirement is at issue in this appeal, and that is 22 whether or not Mr. Marcotte lived on or off the Indian 23 reservation in 2006. 24 Appellant has failed to establish that he lived 25 on the reservation in this case. In fact, the balance 26 of the evidence shows that he, in fact, lived in the 27 home he owned in Beaumont, California, off the 28 reservation. 6 1 Appellant owns the off-reservation home but has 2 not shown that he owns an on-reservation home. 3 Appellant claims that he rented out the home he owned in 4 Beaumont during 2006; however, he had his personal tax 5 documents, such as his 1099, uh, interest statements and 6 his 1098 mortgage interest statements sent to the 7 Beaumont home. 8 According to utility information gathered by 9 Respondent, Appellant initiated utility service in 2003 10 at the Beaumont home which was not interrupted by an 11 interceding start-of-service by a different person 12 through 2006. 13 Uh, Appellant has provided no utility 14 statements in his name for the on-reservation home, nor 15 has he explained why he started utility services in his 16 name at a home he expected to be an investment or rental 17 home. 18 Uh, furthermore, Respondent has requested from 19 Appellant significant documentation within Appellant's 20 control that could have supported his position that he 21 lived on the reservation. Respondent requested but has 22 not received Appellant's 2006 1099 from the Morongo 23 Tribe; utility statements, gas or electric, for either 24 of the on- or off-reservation home; homeowner's 25 insurance documents for the on- or off-reservation home; 26 bank statements for specific months of 2006; a copy of 27 Appellant's car registration for 2006; a copy of 28 Appellant's cell phone reg -- uh, bills showing a 7 1 physical address where the cell phone bill was 2 delivered. 3 Appellant's failure to provide the requested 4 information creates a presumption that were it provided 5 it would tend to show that he lived off the reservation 6 rather than on the reservation. Appellant did provide 7 limited support, uh, for his assertion that he lived on 8 the Morongo Tribe; however, the provided documentation 9 is insufficient to establish that assertion as a fact. 10 Uh, Appellant first provided a note from the 11 Morongo, uh, Band of Mission Indians stating that 12 Appellant lived on the reservation; that Appellant was 13 an enrolled member of the tribe; and that he received 14 all of his income from on-reservation sources. 15 While Respondent accepts this letter, um, as 16 documentation that he is an enrolled member of the 17 tribe, Respondent notes that the other two claims made 18 are not within the direct knowledge of the Morongo 19 Tribe. 20 The Morongo Tribe has over 950 enrolled members 21 and sprawls over 32,000 acres. Uh, the Tribal 22 Government has not claimed or shown that they have 23 firsthand knowledge of the day-to-day living 24 arrangements of each of its members. 25 Uh, the note is actually incorrect in its 26 statement that all of Appellant's income was from 27 reservation sources. Um, Appellant's, uh, federal 28 account transcripts for the 2006 year show significant, 8 1 uh, interest that -- uh, income that is not 2 reservation-source income. 3 Due to the lack of firsthand knowledge and 4 error shown in this note, Respondent cannot accept it as 5 proof of residency on the Morongo reservation for 2006. 6 Next, Appellant provided a second note from the 7 Chairman of the Morongo Band of Indians stating that 8 Appellant was an enrolled member, lived on the 9 reservation in 2006, and that he was told, um, that the 10 house -- the off-reservation house was rented out during 11 2006. 12 Um, again, the note -- the author of this note 13 says he was told. We don't know by what sources or by 14 whom, or that it was ever in his knowledge that it was 15 rented out. Um, and so for this reason we're not 16 accepting this as proof of residency on the reservation. 17 Finally, Appellant provided a rental contract 18 allegedly signed on January, uh, 1st, 2006 between 19 himself and Mr. McDowell. The rental contract lacks 20 veracity for several reasons. 21 First, uh, the rental agreement was provided 22 for the first time on May 10th, 2011 after Respondent 23 had requested it from Appellant at protest. On the top 24 of this online rental agreement are Google ads for 25 similar online contracting sites. One is for 26 EasyLandlordForms.com. 27 On the "about us" page of 28 EasyLandlordForms.com, it notes that the company did not 9 1 launch the alpha version of its website until 2006. An 2 alpha version of a website is a pre-commercial test 3 website. Therefore, it's highly questionable whether 4 this rental agreement, which carries a commercial 5 advertisement for a website that was not commercially 6 available during the beginning of 2006, was completed, 7 signed, and, uh, dated by January 1st, 2006. 8 The terms of the rental agreement required, uh, 9 the renter to pay no monetary rent, make no security or 10 cleaning deposits, and the generous terms of this rental 11 agreement seemed to be for a limitless period of time. 12 Furthermore, on Appellant's 2006 tax return, he 13 took the home mortgage interest deduction. Uh, the 14 booklet for the home mortgage interest deduction clearly 15 explains that if the home is a rental for any portion of 16 the year, you must exclude the portion of income -- of, 17 uh, interest paid, uh, from the deduction. 18 Appellant took 100 percent of his mortgage 19 interest deduction, thereby claiming under penalty of 20 perjury that the home was not rented out for any portion 21 of 2006. 22 Additionally, the DMV records for the claimed, 23 uh, tenant Mr. McDowell show that as of March 22nd, 24 2006, his residential address was 1322 Pennsylvania 25 Street, Beaumont, California, which is not the home 26 owned by Appellant. And Mr. McDowell's 2006 tax 27 documents, such as his W-2 information, uh, were sent to 28 the 1322 address. 10 1 I would like to note, um, that Appellant has 2 claimed that his 2006 tax return listed, uh, the 3 Appellant's address. We have purged that document, so I 4 cannot check that. I'm talking about the W-2 and tax 5 information that was sent to the IRS where I can verify 6 that information. 7 Um, the evidence presented by Respondent shows 8 that Appellant owns the Beaumont home but does not 9 appear to own an on-reservatin home; shows Appellant 10 received his important tax documents at the 11 off-reservation home; shows that Appellant started 12 utility service that was not disrupted from 2003 through 13 2006. These facts, coupled with Appellant's failure to 14 provide sufficient documentation to show that he lived 15 on the reservation in 2006, um, show that Appellant has 16 failed to meet his burden that he lived on the 17 reservation. Therefore, he is not entitled to exclude 18 the $391,000 of tribal source income from his taxable 19 income, and Respondent's position should be sustained. 20 MR. HORTON: On rebuttal. 21 MR. MARCOTTE: I don't know what to say to all 22 of that, other than I do have a house on the 23 reservation. It's, uh, my mother's house. It's the 24 12730. We've lived there all our lives. We've always 25 owned it. 26 And, uh, as far as bills and stuff like that, 27 everything is still in my mother's name which is 28 deceased. We just never changed it because, you know, 11 1 we just continue to pay it. We didn't, uh, think of 2 nothing as far as this, you know, I mean that we'd have 3 to show for it or anything like that. 4 I did go and change the Edison just recently 5 because of the simple fact that I was coming to this 6 Board hearing. 7 I don't know what more I can do or say of that 8 state, you know? Um, I do -- we do own a home on the 9 reservation. It is the 12730 Ruiz Road where we've been 10 our whole lives. So -- it's a one-acre parcel that was 11 given to us through our grandfather, to my mother, and 12 then to us when she was deceased. 13 So, um -- I don't know how that doesn't prove I 14 don't have a home on the reservation when everything 15 from my reservation is sent to that home. That's 16 where -- that's where it has to go, you know. So -- 17 well, I don't know if it has to go there, but that's 18 where it's always gone since I turned 18 and started 19 getting a check from there. 20 That's all I really have to say. 21 MR. HORTON: Thank you very much. 22 Discussion? 23 Member Runner. 24 MR. RUNNER: Yeah, just to kind of, um -- first 25 to FTB. Um, you stated that the individual didn't 26 own -- taxpayer didn't own a home on the reservation, 27 correct? 28 MS. KANE: I said the evidence presented as he 12 1 hasn't shown any evidence of it. 2 MR. RUNNER: But it doesn't require them to own 3 a home there, does it? 4 MS. KANE: No, it does not require that they 5 own a home. 6 MR. RUNNER: To reside on it. 7 MS. KANE: Mm-hmm. 8 MR. RUNNER: Okay. I just wanted to clarify 9 that -- that at that point. There's no home ownership 10 on the reservation that's required, correct? 11 MS. KANE: No. No. 12 MR. RUNNER: Just residence. 13 Um -- the, um -- the letter that came from the 14 Tribal Government, um, that said that he resided on the 15 reservation, remind me again why does it is that we do 16 not take that as evidence for his residency? 17 MS. KANE: Uh, the reasons that I stated were 18 that there is -- that the day-to-day residence on the 19 reservation is not within and hasn't been asserted that 20 it was in -- within the direct knowledge of the tribe. 21 Also, there are errors in that document. 22 MR. RUNNER: Doesn't the letter say that? I -- 23 I'm trying -- I'm confused, I guess, by that point. 24 You're saying that -- that -- that the tribe doesn't 25 have the knowledge of where it is that a individual 26 lives, but the letter says that they do. 27 MS. KANE: Personal knowledge. So what we're 28 looking for is some sort of "I know Mr. Marcotte. He is 13 1 my neighbor. Um, I've seen him on the reservation. It 2 was within my personal knowledge that he is on the 3 reservation." 4 MR. RUNNER: So a personal note is more weighty 5 than a Tribal Government letter? 6 MS. KANE: A note showing personal knowledge 7 does tend to show, uh -- is a tie to the reservation. 8 And we are looking for the strength of ties to the 9 reservation home and the strength of ties to the 10 off-reservation home. 11 MR. RUNNER: Why -- why -- why does -- why does 12 this letter not reflect personal knowledge? 13 MS. KANE: Because it's not been stated how 14 they know that the person lives at that address. 15 MR. RUNNER: Could -- 16 MS. KANE: If they had said, "It's within our 17 tribal records. We send his bills there. We send 18 his -- his tax documents there. We send his check 19 there. That's how we know he gets his mail" -- 20 MR. RUNNER: Are all those things done? 21 MS. KANE: Not to my knowledge. 22 MR. MARCOTTE: That's where they go, yes. 23 MR. RUNNER: Are all those things that she just 24 named off sent to that home? 25 MR. MARCOTTE: Yes. 26 MR. RUNNER: So, if indeed they would have 27 reflected what the record is, which is all those things 28 are sent, that would have satisfied? 14 1 MS. KANE: We have requested those documents 2 from Appellant and not received them. 3 MR. MARCOTTE: I have sent them -- or I have, 4 uh, check stubs that we get every month, my tax -- 5 whatever that's called, the 1022 or whatever it is, that 6 comes from them. That -- that all -- through my tax 7 guy, that all is the same every year. 8 MR. RUNNER: And you have -- why have you not 9 provided those? 10 MR. MARCOTTE: They asked me for so much stuff. 11 When I first started doing this, I started -- I 12 got bank -- I printed out bank statements from '06, the 13 months that they wanted. And then I kept trying to get 14 everything. And then it finally came to, it was like, 15 "You're taking too long." And they said, "The only 16 thing you can do now is either go to this Board hearing 17 or" -- so I just said, "Well, I'll just go to Board 18 hearing on it." 19 And I recently -- me and my wife, she's from -- 20 we're -- she's from the reservation, too. We're kind of 21 splitting up, so there's a lot of mixup in between all 22 my stuff and her stuff right now. I'm going this way. 23 She's going that way. 24 That's what I told Chris I had -- I told him I 25 have a lot of stuff to bring, but I don't have nothing 26 now. We're just going to have to go in there and talk 27 to them, and that's that. You know what I mean? That's 28 all I can do. 15 1 I, uh -- if there's -- I could show my check 2 stubs every month. I get one every month. If I go and 3 get my tax files, it shows, you know -- 4 MR. RUNNER: Where's your car registered? 5 MR. MARCOTTE: On 12730 Ruiz Road. 6 MR. RUNNER: Your car registration, DMV? Not 7 your driver's license, but your DMV. 8 MR. MARCOTTE: It's in my car, actually. But, 9 uh, I might have my motorcycle one. 10 MR. RUNNER: Okay. Well, that's good. Okay. 11 So -- so -- so -- so your car registration. 12 Uh, your driver's license? 13 MR. MARCOTTE: No, my driver's license is the 14 1588 Willow Place out of Banning that I need to change. 15 That was where my girl -- my wife's home was. 16 MR. RUNNER: Oh, okay. That's a different 17 house altogether. 18 MR. MARCOTTE: That's not -- nothing, yeah, to 19 do with this at all. 20 My tribal ID will show you 12730 Ruiz Road, you 21 know, Banning, California. 22 MR. RUNNER: Okay. 23 Um, you had mentioned, too, that you discounted 24 it because that -- it -- there was a statement that said 25 "all the income is derived." 26 MS. KANE: Yes. 27 MR. RUNNER: And then you felt that because 28 there was -- that wasn't all the income, that you felt 16 1 that that was undermining the -- the credibility of the 2 letter? 3 MS. KANE: It lends weight to the fact that the 4 letter was not carefully reviewed. 5 MR. RUNNER: Okay. Let me ask you -- well, 6 again, I kind of have a little issue with that because I 7 think with -- because what -- what isn't -- what isn't 8 in this letter would be investment interest or -- or 9 investment interest, is that what was also shown in 10 the -- in his -- in his -- in his, uh, income tax? 11 MS. KANE: Uh, there's 1099 interest income. 12 MR. RUNNER: Right. Right, right. 13 So, again, I -- I would think somebody writing 14 a letter, who's writing a letter that says all of his 15 income comes from that, they're talking about his tribal 16 income, not necessarily -- I -- I -- I have trouble 17 discounting that particular issue only because the 18 individual also had investment income, which it seemed 19 to me the letter is talking about his tribal income. 20 MS. KANE: The letter does not say that. 21 MR. RUNNER: Okay. Okay. That all income is 22 derived from tribal sources. 23 So what you're saying is because you invested 24 some of your tribal resources into an investment, 25 therefore, that's not tribal income because it's through 26 the investment, correct? 27 MS. KANE: Correct. 28 MR. RUNNER: Okay. 17 1 Um, can -- can an individual have two homes, 2 and still -- can an individual -- can an individual own 3 two homes or have two -- two places to live? 4 MS. KANE: Yes. 5 MR. RUNNER: Okay. And can that individual -- 6 does that automatically mean that if -- if you were, uh, 7 therefore getting reservation income, that you 8 automatically would be disqualified because you have two 9 places to live? 10 MS. KANE: No. When a -- when a, uh, 11 reservation -- when you have both an on-reservation and 12 an off-reservation home -- 13 MR. RUNNER: Uh-huh. 14 MS. KANE: -- we look at the strength of ties 15 to connections to both the on- and off-reservation 16 home -- 17 MR. RUNNER: Mm-hmm. 18 MS. KANE: -- to see which ones are more 19 substantial. 20 MR. RUNNER: And, at this point -- it seems to 21 me a lot of what you're talking about had to do with 22 this -- had to do with this, um, renter issue. 23 See, I don't think this has anything to do with 24 the renter, myself. I mean, to me, he could have an 25 empty house over there in Banning, no problem, and it's 26 a rental, and it just -- or it's a -- it's an investment 27 property, and it's just there and it's empty for -- for 28 all I care. But he still can still reside somewhere 18 1 else. 2 MS. KANE: He could also still reside in the 3 house with the renter. 4 MR. RUNNER: He -- he could and -- and remind 5 me what was your -- what was the -- the -- the 6 great fact -- in priority, what were the -- what were 7 the most sub -- substantial items that you felt 8 demonstrated that that was his primary place of 9 residence? 10 MS. KANE: Uh, I believe that the tax 11 documents, having your personal tax documents sent to a 12 reservation -- or the off-reservation address is very 13 substantial. 14 MR. RUNNER: Personal tax documents sent. That 15 would be like your W-2? Or you're talking about your 16 returns or what? 17 MS. KANE: Yeah, your W-2s your 1099s. Uh, 18 there are many factors that can be considered. It's the 19 weight of the factors. 20 MR. RUNNER: Okay. That was -- you gave me 21 one. Give me another one that you think substantially 22 shows that he lived -- his main residence was there in 23 Banning. 24 MS. KANE: That the utility statements were in 25 his name. 26 MR. RUNNER: Utility statements, okay. 27 MS. KANE: And those facts coupled with the 28 fact that we have no other documentation tying him to 19 1 the reservation address other than the statements. 2 MR. RUNNER: Other than a letter from the 3 Tribal Government. 4 MS. KANE: Correct. 5 MR. RUNNER: Okay. 6 Um, let me ask you about the 1099s and the -- 7 and the W-2s. Uh, why would they have been mailed to 8 that particular address? 9 MR. MARCOTTE: The -- the 1099 is the one that, 10 uh -- that's sent out, that you take to your tax guy? 11 Is that what the 1099 is? 12 MR. RUNNER: Yeah, the 1099 you probably got on 13 your -- on your -- on your investment income. 14 MR. MARCOTTE: Mm. Why would it be sent to 15 the -- I don't believe that it was. If it was, that 16 was -- 17 You know, like I said, I had everything -- 18 MR. RUNNER: And we show that it was sent -- 19 MR. MARCOTTE: I had everything -- 20 MR. RUNNER: We show it was sent to that other 21 address? 22 MS. KANE: Yes. 23 MR. RUNNER: Okay. 24 MR. MARCOTTE: I left all the utilities, 25 everything, open. I was trying to sell the house. This 26 guy was the only one there -- 27 MR. RUNNER: Hang on. 28 MR. MARCOTTE: So, you know. 20 1 MR. RUNNER: It's okay. 2 Yeah. Again, I -- the utility issue -- again, 3 if you have two homes, you're going to have -- you're 4 going to have both those utilities in your name. So the 5 utilities themselves are not persuasive, to me -- 6 MR. MARCOTTE: The utilities are still in my 7 mother's name now. 8 MR. RUNNER: -- because you're going to have 9 utilities -- if you're going to utilities, you're going 10 to have both of those, potentially, in your name anyhow 11 because you have two homes. And then -- and then the 12 issue is -- is -- is, you know, do you actually 13 absolutely reside, um, in -- in -- in -- in which one of 14 them? And, I think, at this point we're trying to find 15 the -- the balance. 16 MR. MARCOTTE: Right. 17 MR. RUNNER: Um -- okay. Thanks. 18 MR. HORTON: Further discussion, Members? 19 Member Yee. 20 MS. YEE: Thank you, Mr. Chairman. 21 I wanted to just clarify, uh, is what is at 22 issue today, um, his residency during this year? 23 MS. KANE: Uh, well -- 24 MS. YEE: The nature of the income -- 25 MS. KANE: -- he is a Cal -- 26 MS. YEE: -- or the source of income? 27 MS. KANE: No. It's -- 28 MS. YEE: Okay. 21 1 MS. KANE: -- if he lives on or off the 2 reservation. He is a California resident being a, uh, 3 member -- 4 MS. YEE: Right. 5 MS. KANE: -- of a tribe that was in 6 California. 7 MS. YEE: I'm sorry, residency with respect to 8 on or off the reservation. 9 MS. KANE: Correct, yes. 10 MS. YEE: Okay. All right. 11 Uh, for Mr. Marcotte, then, uh, with regard to 12 some of the documentation that the Franchise Tax Board 13 would need to see to substantiate your residency on the 14 reservation, uh, you indicated you had, um, car 15 registration documentation that showed an address on the 16 reservation? 17 MR. MARCOTTE: Yes. 18 MS. YEE: Okay. And you have utility bills and 19 other forms -- 20 MR. MARCOTTE: The only utility bill, like I 21 said, that I have is the Edison that I just changed over 22 because I was -- I did that to bring to show for here. 23 Everything else is still in my mother's name which has 24 been deceased for 15 years now. 25 MS. YEE: Okay. 26 MR. MARCOTTE: Okay? 27 MS. YEE: Uh, I believe what we're looking for 28 are documents, um, along the lines of car registration, 22 1 utility bills, um, insurance documents for your rental 2 home, anything that came to your address on the 3 reservation. 4 MR. MARCOTTE: Right. 5 MS. YEE: But for that period, in 2006. So -- 6 and I -- and I, um, certainly am sympathetic to your, 7 um, personal challenges at this point in time. But are 8 those documents attainable? Are you able to get them? 9 MR. MARCOTTE: Yeah, I can try again, yeah. 10 Like, through the DMV, like I had to go to 11 Sacramento. I called there to get anything from that 12 far back. Um, they were supposed to call me back. 13 Never got a call back from them. Did the same thing 14 again; called, left a number, waited for them to call me 15 back. Never got a call back from them. So -- 16 MS. YEE: How about bank statements? 17 MR. MARCOTTE: Bank statements? Yeah, I had a 18 stack of bank statements that I printed out, you know. 19 MS. YEE: Dating back to 2006? 20 MR. MARCOTTE: Yes. If it's -- if you're 21 asking is it going to show that my utilities were still 22 on over there in my name? Yes, they were. I barely 23 turned them off out of my name just last month 'cause I 24 just sold the house. 25 So, if that's what you're asking, yeah, they 26 all stayed on in my name. I just had my friend staying 27 there. I couldn't sell the place. I couldn't rent the 28 place. I couldn't do nothing with it, you know. I just 23 1 took a loss on the house because of this situation here. 2 I needed to get rid of it so I don't have to deal with 3 it. 4 MS. YEE: No, I understand. Uh, what we're 5 trying to do is to, um, substantiate, uh, your living on 6 the reservation. 7 MR. MARCOTTE: Mm-hmm. 8 MS. YEE: So that, um, we can then, um, not 9 have your reservation-based -- or your tribal-source 10 income subject to tax. 11 And so it's for the year 2006. And so what 12 we're really looking for are documents, um, from that 13 period of time to help us, uh, document that. 14 MR. MARCOTTE: That's a long time ago. 15 MS. YEE: It is, I know. 16 MR. MARCOTTE: A lot of that stuff is hard to 17 get. Cell phone stuff, forget it. Didn't have -- don't 18 even have the same provider, you know. 19 MR. MARCOTTE: Okay. If you felt like you 20 could, uh, obtain those documents, I think we would, um, 21 afford you more time to do that. But if that's not a 22 possibility -- 23 MR. McDOWELL: She stated that the letter from 24 the tribal -- saying that wasn't sufficient. But, like, 25 would a neighbor -- is that what she's looking for, a 26 neighbor saying, "Hey, I saw him there, this is where he 27 was," would that -- is that sufficient enough? Is that 28 what she's looking for? 24 1 MS. YEE: Well, I think it would have to 2 probably be pretty extensive to speak about, um, 3 Mr. Marcotte's involvement on the reservation. Um, and 4 during, again, back at this time in 2006. So, um, if 5 there is a neighbor who has intimate knowledge of that, 6 that could help. 7 MR. McDOWELL: Well, she said a tribal letter 8 stating that he was there isn't enough. I don't 9 understand, like a neighbor -- how would a neighbor be 10 good enough also? 11 MR. MARCOTTE: I don't know. 12 MS. YEE: Let -- let -- let me, uh, turn to the 13 Franchise Tax Board and give you a flavor of what could 14 help. 15 MS. KANE: Statements would also be helpful. 16 They would be given the weight, um, considering how 17 involved the knowledge of the person was. It was 18 someone you worked on a daily reserv -- basis on the 19 reservation. It would be one document, and the weight 20 of that document would be weighted against all of the 21 other evidence that is presented. 22 MS. MANDEL: Mr. Horton, can -- can -- 23 MR. HORTON: Sure. 24 MS. MANDEL: Can I try to put that in, uh, 25 simpler English perhaps? 26 My understanding -- and so tell me if I'm 27 wrong, Franchise Tax Board, of what you just are saying, 28 that in terms of both the Tribal Government letter -- 25 1 the Tribal Government letter is, I would characterize 2 your view of it as conclusory because it states the 3 ultimate fact that he lived on the reservation without, 4 uh, background facts leading up to it that establish why 5 the man who -- it was a man, man and a woman, I guess, 6 two different letters -- why the person who signed the 7 letter reached that ultimate factual conclusion which is 8 also a factual statement, but a conclusion that 9 Mr. Marcotte lived on the reservation. It doesn't have 10 all the facts sort of leading up to it. 11 If you had something from a neighbor, just like 12 from the -- uh, Tribal Government that said -- and I 13 think, you know, there's a couple of houses there, 14 nearby that, um, laid out the facts in 2006 of, um, when 15 and how often they, you know, saw Mr. Marcotte, you 16 know. 17 I -- I don't see my neighbors very often. But 18 for all I know they're looking out the window and they 19 see me go out there every morning and pick up my 20 newspaper. Um, you know, that it -- that it needs to 21 have -- what you're talking about is that it needs to 22 have the statement of facts that are sufficient to 23 establish someone's personal knowledge of 24 Mr. Marcotte -- 25 I'm saying your name three different ways. 26 MR. MARCOTTE: Marcotte is -- 27 MS. MANDEL: Marcotte. Um, and -- and -- and 28 that reaches then the ultimate conclusion of "therefore 26 1 he lived here on the reservation." And you would look 2 at all of the evidence together, whether it's Tribal 3 Government letter with underlying facts for the 4 conclusion, neighbor statements, bank statements, stuff 5 that went to the, uh, Beaumont house, that he had the 6 utilities in the Beaumont house. You'd look at 7 everything together then to reach your conclusion of 8 what you think that evidence shows. 9 But in terms of the statements, you're looking 10 for more establishment of underlying facts to support 11 the ultimate -- that wasn't very simple English, but I'm 12 sorry -- the ultimate factual conclusion. 13 MS. KANE: Exactly. Yes. 14 MS. YEE: And -- and -- and could that 15 statement come from the Tribal Government if it had 16 firsthand knowledge of -- 17 MS. KANE: Oh, yes. 18 MS. YEE: Okay. Mr. Marcotte, okay. 19 So it's a piece of what will help us really get 20 a good feel for, um, you know, that you actually lived 21 on the reservation. 22 So, um, given that, do you think you can 23 produce all of that so that we can begin to lay all of 24 the, uh -- the documentation? 25 MR. MARCOTTE: Yeah, I guess it's worth a try. 26 I can get a letter from my neighbors for sure because 27 there's eight acres that are there and it's my whole 28 family, my mom's sisters, my mom's brothers. There was 27 1 four kids and four, uh, sisters. Each one of them got a 2 piece of property from the grandfather. 3 MS. YEE: Okay. 4 MR. MARCOTTE: So -- and my grandmother lives 5 two house up from me, two acres up from me; so, yeah, 6 she sees me all the time. 7 MS. YEE: Okay. And remember, we're talking 8 about 2006, so that's -- 9 MR. MARCOTTE: Well -- 10 MS. YEE: -- dating back. 11 MR. MARCOTTE: Yeah. 12 MS. YEE: Okay. And then the other documents 13 that, um, I had enumerated earlier, are you able to 14 obtain some of those? I know they're tough -- it's 15 tough. It's old -- 16 MR. MARCOTTE: Right. 17 MS. YEE: -- uh, documentation. But, um, 18 certainly bank statements, if you can request those from 19 the time. 20 Um, what the Franchise Tax Board does have, um, 21 and this is the concept of weighing all of the -- the 22 documentation, they have, um, seen, um, tax-related 23 statements, like your 1099, your interest statements, 24 and all of that go to your, uh, Beaumont address. 25 MR. MARCOTTE: Right. 26 MS. YEE: So that works against you in terms 27 of trying to establish -- 28 MR. MARCOTTE: Well, I never -- like I said, it 28 1 was still my house. All he was doing was taking care of 2 it. I still -- you know, I still paid the bills over 3 there and everything. 4 MS. YEE: Mm-hmm. 5 MR. MARCOTTE: It wasn't that I was living 6 there. He was staying there. 7 MS. YEE: No, I understand. 8 MR MARCOTTE: You know what I mean? I couldn't 9 get rid of the house, you know. I wasn't going to rent 10 the house. So, I had -- you know, he didn't have 11 nowhere to go, so he went -- I asked him if he would 12 stay there. 13 MS. YEE: Mm-hmm. 14 MR. MARCOTTE: And, you know, that was that. 15 MS. YEE: Okay. 16 MR. MARCOTTE: So -- 17 MS. YEE: Okay. 18 MR. MARCOTTE: I don't under -- I don't really 19 know if, uh, all those documents are going to help you 20 guys see anything other than, you know, that it was all 21 in my name and -- you know, other than that. So -- 22 MS. YEE: It -- it's -- aside from it being in 23 your name, it is really to give us a better feel for 24 your, uh, time spent, connection to, and, uh, hopefully, 25 um, deep involvement, uh, with respect to your, um, 26 being a resident on the reservation. 27 MR. MARCOTTE: Oh, okay. 28 MS. YEE: Okay? 29 1 MR. HORTON: Okay. 2 MR. RUNNER: Just one quick follow-up. 3 MS. MANDEL: I have some, too. 4 MR. HORTON: Member Runner. 5 MR. RUNNER: Just real quick. It seems to me 6 that the second letter helps do that, too. Um, the 7 second letter from -- from the Tribal Chair indicates 8 that "Based on conversations I had with the taxpayer and 9 others, I was aware that he had rented out his house in 10 Beaumont and was not residing at that address." 11 So it seems to me that if -- 12 MR. HORTON: Question of the Department? 13 MR. RUNNER: Yeah, I guess that's a question of 14 the Department. 15 Why doesn't it -- why isn't that a -- why isn't 16 that the -- the -- I guess you'd call it the personal 17 rendering of -- one was the official government and the 18 other's a personal statement. Why -- why doesn't that 19 meet the test? 20 MS. KANE: Because "based on conversations that 21 I had with other people" is not saying -- is the same as 22 "based on my personal knowledge." It's not saying, "I 23 saw him every day on the reservation. He's my neighbor 24 and I interacted with him. I saw him at the local 25 grocery store," etcetera. You know, uh -- 26 MR. RUNNER: But it's coming from the Tribal 27 Chair. It's coming from -- it's coming from the Tribal 28 Chair who's trying to then make a statement for a Tribal 30 1 Member, and he did -- and he talked to other people who 2 then collaborated his statement. 3 I mean, it's -- it's not just a -- I feel like 4 we're trying to find -- I almost feel like we're trying 5 to put more weight on some neighbor who sees the guy 6 mowing his lawn every day than we are -- than we are a 7 Tribal Government letter and a Tribal Chair letter. 8 Is that -- do you see why -- can you get why 9 I'm feeling that way? 10 MS. YEE: Mm-hmm. 11 MS. KANE: The weight to be accorded to each 12 factor is in the Board's discretion. 13 MR. HORTON: Miss -- 14 MR. RUNNER: Okay. Thank you. 15 MR. HORTON: Okay. 16 Um, couple of questions -- 17 Further discussion, Members? 18 Couple of questions, uh, of the, uh, 19 Department, more for clarification. 20 If the letter from the Chairman was the only 21 document that existed and there was no other 22 documentation that indicated that he lived anywhere 23 else, how would you view that document at that point? 24 MS. KANE: Hypothetically, if we had one 25 document and there were no other documents, that one 26 document would be highly persuasive. 27 MR. HORTON: Okay. And the reason I wanted to 28 point that out is for the taxpayer's benefit, is that 31 1 the Department -- FTB is looking at the preponderance of 2 the evidence, trying to gather all of the facts to 3 determine what the evidence sort of implied, 4 particularly after the fact. And so, um, that's where 5 you could be very helpful to your case, is they have 6 documentation that indicates that you lived off the 7 reservation. 8 And so, if you can accumulate as many pieces of 9 documents that you can, uh, that supports that you 10 actually lived on the reservation, I don't believe that 11 there's a distinction between personal versus the 12 government. And if there is -- it clearly, by your 13 testimony that there is, but I don't think there's any 14 point of law that supports that, that -- that there's a 15 distinction between something that a Tribal Government 16 says versus a personal. And don't want that to be the 17 basis of the decision. 18 Um, so I'm going to ask you a series of 19 questions that may be helpful. Um, you worked on the 20 reservation? 21 MR. MARCOTTE: No. 22 MR. HORTON: Um, where did you work? 23 MR. MARCOTTE: I wasn't working nowhere. 24 MR. HORTON: Um, you spent time on the 25 reservation? 26 MR. MARCOTTE: Yes. 27 MR. HORTON: Doing what? 28 MR. MARCOTTE: I live out there. We do all 32 1 sorts of stuff out there. Go up in our canyons, go up 2 in the hills, go see the lakes up there, you know. 3 Visit our family. 4 MR. HORTON: Are there family members on the 5 reservation? 6 MR. MARCOTTE: Oh, yeah. Everybody's family 7 out there, pretty much. 8 MR. HORTON: You drive on the reservation? 9 MR. MARCOTTE: Yeah, you can drive. You can 10 drive -- 11 MR. HORTON: Do you register your car on the 12 reservation? 13 MR. MARCOTTE: Yes. 14 MR. HORTON: Okay. You have registration? 15 MR. MARCOTTE: Yes. 16 MR. HORTON: Okay. Uh, your driver's 17 license -- 18 MR. MARCOTTE: Yes. 19 MR. HORTON: -- on the reservation? 20 On the home that you lived in, uh, did you pay 21 any of the bills? 22 MR. MARCOTTE: There -- well, there -- 23 MR. HORTON: Or did someone else pay the bills? 24 MR. MARCOTTE: They were all in, uh, like I 25 said, my mother's name, so -- 26 MR. HORTON: Did you pay them? 27 MR. MARCOTTE: Me or my brother would, yes. 28 MR. HORTON: You have cancelled checks 33 1 indicating that you made the payments? 2 MR. MARCOTTE: No, I don't. Not on me, I 3 mean. 4 MR. HORTON: No, not on you. But can you, 5 uh -- can you obtain those documents? 6 MR. MARCOTTE: I can try, yeah, to the bank. 7 MR. HORTON: I'm not necessarily going to 8 continue the line of questioning, but that's what you 9 want to ask yourself and you want to come up with these 10 documents. And then the Department's going to take a 11 look at them and they're going to weigh them to 12 determine, try to -- and our objective -- I mean, not 13 our objective, but -- well, yes, to look at the 14 preponderance of the evidence and try to make a judgment 15 call, uh, as to where you lived, and if you lived on the 16 reservation. Mindful, you can actually live off the 17 reservation as well. 18 MR. MARCOTTE: Right. 19 MR. HORTON: Uh, so it's not necessarily that 20 you rent your home off the reservation in order to 21 qualify. You just have to live on the reservation, that 22 has to be your principal place of residency. 23 MR. MARCOTTE: Mm, exactly. 24 MR. HORTON: The fact that you go visit 25 somewhere else periodically, it's okay to do that. 26 Um -- 27 MS. MANDEL: Mr. Horton. 28 MR. HORTON: Is that helpful? 34 1 MR. MARCOTTE: Yes. 2 MR. HORTON: Okay. Ms. Mandel. 3 MS. MANDEL: Um, sure. I -- I know you stated 4 it here today, and, um, it was actually something I had 5 seen in the public record, but I don't know that FTB had 6 heard it before today, was that -- that the property 7 on-reservation, um, had been your mother's property and 8 that -- that she is deceased. 9 MR. MARCOTTE: Right. 10 MS. MANDEL: And I -- I, um -- and your mother 11 was -- what was her name? 12 MR. MARCOTTE: Elaine. 13 MS. MANDEL: Elaine, yeah. Um, and that, 14 uh, she was -- and when was -- what's -- when was she 15 born and passed? 16 MR. MARCOTTE: I don't know. 17 MS. MANDEL: Yeah. 18 MR. MARCOTTE: I would have to pull up her 19 card. 20 MS. MANDEL: That's about -- okay. 21 MR. MARCOTTE: It's been a while. 22 MS. MANDEL: I mean, I -- I think I found it in 23 a public record on Lexis. Um, so -- um -- uh, because 24 it was interesting to me, you know, how many different 25 people there were and how many properties were right 26 there, which you -- I was looking to see if you would 27 explain it today and you've -- you've talked about it 28 some. But, um, I -- I didn't know if you all at FTB 35 1 were aware of that before. 2 MS. KANE: We did look at the LexisNexis 3 records on the on-reservation address, and it does -- 4 it -- it lists several, um, people as -- 5 MS. MANDEL: Right. 6 MS. KANE: -- in connection with that property. 7 And, uh -- 8 MS. MANDEL: Yeah. 9 MS. KANE: -- some of them have the same last 10 name as the -- as the Appellant and some of them do not. 11 And, you know, based on age we could try to figure out 12 the relation. But given that I didn't really -- 13 MS. MANDEL: Oh, I did a little more, okay. 14 MS. KANE: Given that I didn't really know the 15 connections -- 16 MS. MANDEL: Right. 17 MS. KANE: -- between, I didn't want to make 18 any statements about that today. 19 MS. MANDEL: Okay. 20 MR. HORTON: Okay. Um, possibly the Department 21 as well could request of DMV, um, the documents back to 22 2006. Did you attempt to do that? 23 MS. KANE: Um, I did do our general DMV search 24 that we have available to us at the Department. But -- 25 and I may be incorrect in what we have access to -- but 26 the general DMV search that we do only catches the 27 current, uh, information at the DMV. It catches the 28 last time an address was updated, the last time an 36 1 address was changed. Which is why I had Mr. McDowell's 2 address as of 2006 was because that was the last time it 3 was updated in the system. 4 When I did a DMV search for the Appellant 5 himself, um, I came up with a 2010 address. 6 MR. HORTON: Okay. 7 MS. KANE: And, again, I didn't bring that up 8 because I didn't think it shed light. 9 Um, if we are able to look -- I will check to 10 see if we are able to look further back. And if we are, 11 I will certainly do so. 12 MR. HORTON: Yeah. To the extent that there 13 are state and federal documents that we can acquire, uh, 14 let's do what we can. 15 It appears that the Board may be leaning 16 towards a 30/30/30 to allow the taxpayer additional 17 time. I would, uh, share with the taxpayer, uh, failure 18 to provide those -- these documents during the audit 19 period or during the time that they are requested, uh, 20 weighs against you as well, uh, in trying to deliberate 21 and determine, um, the essence of the transaction. 22 But, uh, with that said, uh, Member Steel. 23 MS. STEEL: Can I just make one thing here? It 24 seems like we just keep raising bars here. 25 So after this Appellant is going to prepare all 26 the paperworks and then we going weigh on -- weigh on 27 it, um, why don't we just give him exactly what we need 28 from him and then these documents that you prove it, 37 1 then, you know, you're allowed not to -- I mean, you 2 know, uh, this -- this tax is -- you know he doesn't owe 3 these taxes. 4 So, I want to make a little more clear for him 5 that what he really needs to prepare while you are going 6 to DMV to look for the 2006 records, but at the same 7 time that, you know, from his family's records and his 8 grandmother's statements and, you know, his, um -- just 9 let's make it very clear here to him that if you bring 10 these documents, then you are relieved from these tax 11 matters. 12 So I -- I need a little more clear because we 13 are giving him a lot of ideas here. But, you know, 14 after he brings all those documents, Franchise Tax Board 15 is going to say no, no, no, still, you know, it's not 16 sufficient enough so it's going to be denied. Then -- 17 then what? 18 So I think it's better that you meet after the 19 meeting that, you know, with the taxpayer, this -- these 20 are the documents of the -- you know, proof of the 21 documents that we really need. And I really want 22 Franchise Tax Board to specify that. 23 And what's on each documents, too. That, you 24 know, 2006 that he, uh, took the trash out every day, 25 you know, something. Something that, you know, we 26 really have to tell him that specific, uh, you know -- 27 the things that he has to bring. Because we are giving 28 him so broad ideas right now. And he goes out there and 38 1 bring it. No, still that is not enough. I don't want 2 to hear that. So -- 3 MS. KANE: Um, unfortunately, everyone's 4 personal documents are -- are very different. Uh, and 5 there is no one specific document that could be perfect 6 proof. I would be happy to speak with Appellants about 7 what -- you know, the previous documents that we've 8 requested and not received would be a -- a great start. 9 Um, and, you know, the ideas that your Board 10 has shared would also be very good. Uh, you know, and 11 some of it will be what he has access to. And I would 12 hope -- I mean, we will weigh all of that information 13 fairly. 14 MS. YEE: Mr. Chairman. 15 MR. HORTON: Member Yee. 16 MS. YEE: I think in addition to the documents 17 you certainly have enumerated, and others, uh, here, um, 18 the personal statements, I think, are going to be very 19 helpful as well, particularly from those who have 20 firsthand knowledge of, uh, your particular activities 21 and involvement on the reservation in 2006. 22 MR. MARCOTTE: All right. 23 MS. YEE: Okay. 24 MR. HORTON: Be mindful, this is not advice. 25 We can only give you ideas, um, but we're not in a 26 position to provide advice on how to defend your case. 27 One idea might be, I think, on the tax return, 28 the claiming of mortgage interest on an investment 39 1 property, may want to amend that return, uh, to reflect, 2 at least from an income tax perspective, that it was 3 not, uh -- that it was an investment property. 4 With that, uh, is there a motion, Members? 5 Moved my Member Yee a 30/30/30. Second by 6 Member Steel. 7 Without objection, Members, such will be the 8 order. 9 MS. YEE: Mr. Chairman, maybe we'll have 10 Appeals explain what that means. 11 MR. HORTON: Yes. 12 MR. AMBROSE: Yes, we will. 13 MR. HORTON: Sir, thank you very much for 14 appearing before us today. Uh, the Franchise Tax Board, 15 the Board has asked them to, uh, meet and confer with 16 you on the type of items that they'd like to see. They 17 delineated those through their testimony, but hopefully 18 they can provide you written documentation on what those 19 items are. 20 Uh, the Department may be able to codify some 21 of the ideas expressed by the Board, uh, and they will 22 certainly share with you what the 30/30/30 means. 23 Thank you again for appearing before us. 24 MR. MARCOTTE: Thank you. 25 MR. HORTON: Members, um, why don't we take 26 a -- a lunch break and return at 1:45. 27 ---oOo--- 28 40 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 July 24, 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 40 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: August 14, 2012 17 18 19 ____________________________ 20 KATHLEEN SKIDGEL, CSR #9039 21 Hearing Reporter 22 23 24 25 26 27 28 41