1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 5901 GREEN VALLEY CIRCLE 3 CULVER CITY, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 OCTOBER 24, 2012 10 11 12 13 14 15 FINAL ACTIONS 16 17 18 19 20 21 22 23 24 25 26 27 REPORTED BY: Kathleen Skidgel 28 CSR NO. 9039 1 1 P R E S E N T 2 3 For the Board Jerome E. Horton of Equalization: Chairman 4 5 Michelle Steel Vice-Chairwoman 6 7 Betty T. Yee Member 8 9 George Runner Member 10 11 Marcy Jo Mandel Appearing for John 12 Chiang, State Controller (per Government Code 13 Section 7.9) 14 Joann Richmond 15 Chief, Board Proceedings Division 16 17 For Staff: David Levine 18 Tax Counsel IV 19 20 21 22 ---oOo--- 23 24 25 26 27 28 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 OCTOBER 24, 2012 4 ---oOo--- 5 MR. HORTON: Next item. 6 MS. RICHMOND: Our next item is C5, Macradij 7 Sarkis Yacoubian. 8 ---oOo--- 9 C5 MACRADIJ SARKIS YACOUBIAN 10 NO. 508838 (AC) 11 ---oOo--- 12 MS. MANDEL: Um, I move a 30/30/30. 13 MS. YEE: Second. 14 MR. HORTON: There's a motion for a 30/30/30 15 with a -- by Member Mandel. Second by Member Yee. 16 Objection or discussion? I think discussion. 17 MS. STEEL: Um, discussion. The taxpayer want 18 to close this case and he was making payments. So, um 19 -- and then Department agreed that there's always, um -- 20 um, the repossessions of vehicles for this kind of 21 business. 22 So can I make, um, also motion that allow 15 23 percent deduction of audited taxable sales to reflect 24 bad -- bad debt, tax paid on parts and repossession, and 25 remove the, uh, negligence penalty because it was a 26 first audit and this taxpayer admitted that it was 27 wrong. 28 So, um, that's my -- is that okay to make 3 1 alternate motion? 2 MR. HORTON: Um, we have a motion and a second 3 on the floor. It would be a subsequent motion -- 4 MS. STEEL: Subsequent motion. 5 MR. HORTON: -- that would supercede the motion 6 unless there's an objection by the makers of the 7 original motion and they want to take that up. 8 MS. MANDEL: Uh -- 9 MS. STEEL: It's going to take more hours of 10 taxpayer and plus Department has to go through all the 11 documents again on the top. I think, um, taxpayer had 12 good intention to make payments since the audit -- audit 13 started. I think it's about time to close it. That's 14 what taxpayer wanted, and I think my -- that's the 15 reason that I make this motion. 16 MR. HORTON: Mr. Levine, is there any -- 17 anything -- light you can shed on this? 18 MR. LEVINE: Um, as I mentioned, uh -- 19 MS. MANDEL: I don't -- do we know how many 20 cars he -- I mean, because he claimed 20 to 25 as 21 repossessed. He had different issues. 22 MR. LEVINE: Well, I thought he said he -- he 23 had -- 24 MR. HORTON: Twenty to thirty. He had ten with 25 him. 26 MS. MANDEL: He had ten done. 27 MR. LEVINE: And then there were like a hundred 28 more that he hadn't reviewed. 4 1 So I don't know if we have a number. And I 2 don't know if we have a -- a clue on what, um, he might 3 be entitled to, if anything, on resales or tax paid 4 purchase resold. Maybe those are insignificant, but 5 they haven't been looked at. 6 MS. MANDEL: Right. And what -- and -- and 7 there was a part of his -- his acknowledged, um, error 8 seemed to be the ones where they may have overlapped the 9 time that somehow fell out of the reporting. 10 All I'm saying is it's not -- if he -- if he 11 had twenty or twenty-five -- which is, I guess, what he 12 was saying at the appeals conference according to the 13 D&R -- that he thinks were repos. I don't know what his 14 total volume of what was picked up in relation to what 15 her number is that she's proposing. That's what I was 16 wondering. 17 MR. LEVINE: And he may also envision that if 18 he re -- does a repossession, that he's entitled to a 19 bad debt deduction for the full original sale price. 20 And that would not be correct. 21 MR. HORTON: Yeah. The, um -- 22 MR. RUNNER: I don't know what -- he didn't 23 seem to know much about that, did he? 24 MR. LEVINE: No. No. So we don't have a 25 number, I think, even of what he might tell us if he 26 knew all the -- the proper rules. 27 MR. RUNNER: Mm-hmm. 28 MR. HORTON: Under -- even under a 30/30/30, 5 1 Members, I would still recommend that -- that, um -- 2 MS. MANDEL: He have a conversation. 3 MR. HORTON: Not recommend, but, um, certainly, 4 um, ensure that -- encourage staff to ensure that the 5 taxpayer's fully aware of his options in the 30/30 6 environment as it relates to, um -- 7 MS. MANDEL: All his options. 8 MR. HORTON: -- all of his options. Thank you, 9 Member Mandel. 10 Um, and in light of that, the discussion that 11 was presented to us today and all the testimony and so 12 forth, uh, if I had to look at the points of interest 13 from a potential, uh, litigation perspective, does sale 14 for resale exist in this type of industry? Yes. By the 15 testimony of the taxpayer, nominal, not significant. 16 The, uh -- the, uh, bad debt deduction, in and 17 of itself was not -- never -- was never quantified as to 18 what percentage was a direct write-off. But, in fact, 19 was a -- bad debts does exist for this type of industry. 20 The taxpayer testified that they purchased the 21 gas from a local gas station and parts and so forth. 22 Small operator, consistent with industry practice, 23 probably a tax paid resold credit there. 24 Um -- uh, the debate for me is 15 percent, as 25 recommended, seems reasonable given -- and I know we 26 don't necessarily make decisions based on -- on 27 exposure. Uh, but the agency does, in different 28 environments, look at the potential exposure and time 6 1 and cost to the State of California. 2 So, I -- I would be supportive of the motion 3 and believe that it's in -- financially in the best 4 interest of the State for us to resolve this issue. 5 MS. STEEL: Mm-hmm, mm-hmm. 6 MR. RUNNER: So it's 15 percent and the 7 negligence penalty? 8 MS. YEE: Right. 9 MS. STEEL: Right. 10 MR. RUNNER: I would second that. 11 MR. LEVINE: Can -- can I just ask, fifteen -- 12 can you tell me that again? Fifteen percent off the 13 deficiency; was that the motion? 14 MS. STEEL: Right. 15 MR. HORTON: Okay. So there's a motion on the 16 table, um, to adjust the additional taxable measure by 17 fifteen percent downward, um, to reflect the potential 18 credits, and a -- by Member Steel. Second by Member 19 Runner. 20 MS. YEE: And deleting the negligence. 21 MR. HORTON: And deleting the negligence 22 penalty. First time audit. Taxpayer seems to be 23 cooperating. 24 Motion and a second. 25 Objection, Members? 26 Hearing none, such will be the order. 27 ---oOo--- 28 7 1 MR. HORTON: Ms. Richmond. 2 MS. RICHMOND: Our next item is C7, Cafe 976, 3 LLC. 4 ---oOo--- 5 C7 CAFE 976, LLC 6 NO. 479006, 504670 (FH) 7 ---oOo--- 8 MR. HORTON: Uh, is -- 9 MS. STEEL: I have a -- 10 MR. HORTON: Discussion, Members? 11 MS. STEEL: I have a good motion for this. 12 MR. RUNNER: Okay. You're on a roll. 13 MR. HORTON: She's on a roll. Okay. 14 MS. STEEL: Well, we have to really looking at 15 here that, uh, Department would use the taxable sales 16 ratio of 55 percent. But, uh, she started business from 17 1999, so we can just go down little bit for that taxable 18 sales. 19 So 1999 that we buy for 40 percent of taxable 20 sales. And then we went up too because she didn't have 21 any, um, hot food, you know, cooking area. So, uh, 2001 22 we going to have 50 percent. And then 2002 we going to 23 have 55 percent of taxable sales. 24 MS. MANDEL: So the -- but all we have left in 25 the case, I think, is -- I mean, I assume we're knocking 26 out what staff is recommending we knock out, right? So 27 we have the third quarter of 2001. So you're saying 28 that -- for that quarter it be 50 percent -- 8 1 MS. STEEL: Mm-hmm. 2 MS. MANDEL: -- taxable ratio. And then -- 3 MS. STEEL: What's -- what's the, uh, audit 4 period right now? 5 MR. HORTON: I thought she said 40. 6 MS. STEEL: 40 -- 7 MR. HORTON: 45. 8 MS. STEEL: 50, 55. 9 MS. MANDEL: Well, the audit period is -- is 10 longer, but the -- because of the 10-year statute of 11 limitations on the amnesty, the early periods, '99 and 12 2000 and the first two quarters of 2001, Appeals is 13 recommending -- I think maybe even the Department 14 agreed -- that those are outside the statute of 15 limitations. So those are recommended to be deleted in 16 full. So she'd have no tax. 17 MS. STEEL: Oh, really? 18 MS. MANDEL: Yeah. Yeah. 19 MS. STEEL: Okay. So what's the year of that 20 this taxpayer is, uh, responsible for? 21 MR. LEVINE: The remaining liability period is 22 July 1, 2001 through December 31st, 2002. Six 23 quarters. 24 MS. STEEL: Then you know what, I can go for 45 25 and 55. 26 MS. MANDEL: 45 during-- 27 MR. HORTON: 45 for -- 28 MS. STEEL: 2001. 9 1 MR. HORTON: 2001. 2 MS. STEEL: And 2002 -- 3 MR. HORTON: 55. 4 MS. STEEL: -- 55, yeah. 5 MR. HORTON: Member Steel moves to adjust the 6 taxable ratio, um, delineating the years 45 percent in 7 2001, 55 percent in 2002, respectively. 8 Is there a second? 9 Hearing none -- 10 MR. RUNNER: I'm sorry. Second. 11 MS. MANDEL: Wait, wait. Sorry. I was 12 writing. 13 MR. RUNNER: I'll second. 14 MR. HORTON: There's a second, Member Runner. 15 Objection, Members? 16 Hearing none, such will be the order. 17 MS. STEEL: Thank you. 18 ---oOo--- 19 20 21 22 23 24 25 26 27 28 10 1 MS. RICHMOND: Our next item is C9, Miguel 2 Orejel and Magdalena Orejel. 3 ---oOo--- 4 C9 MIGUEL OREJEL and MAGDALENA OREJEL 5 NO. 529908 (AA) 6 ---oOo--- 7 MR. HORTON: Is this the -- this is the -- oh, 8 okay. Wow. 9 MR. RUNNER: This was only the negligence 10 penalty, right? 11 MS. STEEL: Right. 12 MS. YEE: Right. 13 MR. HORTON: Members? 14 MS. YEE: Move to adopt the staff 15 recommendation. 16 MR. HORTON: Member Yee moves to adopt staff 17 recommendation. Second by Member Mandel. 18 Without objection, Members, such will be the 19 order. 20 ---oOo--- 21 22 23 24 25 26 27 28 11 1 MS. RICHMOND: Our next item is C11, Melika, 2 Inc. 3 ---oOo--- 4 C11 MELIKA, INC. 5 NO. 549416 (AS) 6 ---oOo--- 7 MR. HORTON: Members? 8 Discussion? 9 MS. MANDEL: Um, I'd move the staff 10 recommendation. I don't -- I don't -- 11 MS. STEEL: This is the, um -- 12 MS. MANDEL: I don't recall anything specific 13 being said about the measure. Just that -- 14 MS. STEEL: You know, I second that and then we 15 can, um, give advice to the taxpayer that, um -- that if 16 corporation doesn't have any asset to pay for these tax 17 then we can ask tax -- advise taxpayer that when she's 18 liable by herself then she can file the innocence spouse 19 case. Can we, ask? 20 MR. LEVINE: Yes. We don't even know if the 21 Department will pursue her. I have no idea at all what 22 the facts are about that. 23 MS. STEEL: But if they do -- 24 MR. LEVINE: Right. 25 MS. STEEL: -- we just give advice to the 26 claim. 27 MR. LEVINE: Yeah. 28 MS. STEEL: Yeah, taxpayer. Okay. 12 1 MR. HORTON: Moved by Member Mandel to adopt 2 staff recommendation, second by Member Steel, um, 3 directing staff to give advice to -- on -- if warranted, 4 to the, uh, spouse in regards to innocent spouse. 5 Objection, Members? 6 Hearing none, such will be the order. 7 ---oOo--- 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 13 1 MR HORTON: Ms. Richmond. 2 MS. RICHMOND: Our next item is C12, Club Red 3 Square. This was a waived appearance. 4 ---oOo--- 5 C12 CLUB RED SQUARE, LLC 6 NO. 510332 (AC) 7 ---oOo--- 8 MR. HORTON: Members? 9 MS. YEE: Move to adopt the staff 10 recommendation. 11 MR. HORTON: Move to adopt the staff 12 recommendation, Member Yee. Second by Member Runner. 13 Without objection, Members, such will be the 14 order. 15 MS. MANDEL: And they'll be advised, too, I 16 think on installment plans and all that stuff, right? 17 MR. HORTON: Yes. We should all -- that should 18 probably be standard. 19 MS. YEE: Could that just be part of every 20 motion? 21 MR. HORTON: Standard process. 22 MS. MANDEL: Standard operating decision. 23 MR. HORTON: Yeah. 24 MR. LEVINE: I'm sorry. You want them -- I'm 25 sorry. 26 MR. HORTON: The Board just made a policy. 27 MR. LEVINE: To advise -- 28 MR. HORTON: It was not intended but we did. 14 1 MS. MANDEL: No. This one looked like they 2 might be -- need to be advised of the payment options. 3 That's what I was saying. 4 MR. HORTON: And -- and that that should be 5 standard operating policy. And I agree. I mean, we 6 should always advise them. 7 MS. YEE: And offer-in-compromise where 8 appropriate. 9 MR. HORTON: Yes. 10 MS. MANDEL: So we can stop saying -- 11 MR. HORTON: Staff should have discretion to do 12 that. 13 Did we dispense of this? Yes, we did. Okay. 14 ---oOo--- 15 16 17 18 19 20 21 22 23 24 25 26 27 28 15 1 MR. HORTON: Ms. Richmond. 2 MS. RICHMOND: Our next item is C14, Nabil W. 3 Waniss. This was also a waived appearance. 4 ---oOo--- 5 C14 NABIL W. WANISS 6 NO. 491575 (EA) 7 ---oOo--- 8 MR. HORTON: Motion? 9 MS. YEE: Move to adopt the staff 10 recommendation. 11 MR. HORTON: Move to adopt staff 12 recommendation, Member Yee. Second by Member Mandel. 13 Without objection, Members, such will be the 14 order. 15 ---oOo--- 16 17 18 19 20 21 22 23 24 25 26 27 28 16 1 MR. HORTON: Ms. Richmond. 2 MS. RICHMOND: Our next item is C15, Jose E. 3 Sanchez. 4 ---oOo--- 5 C15 JOSE E. SANCHEZ 6 NO. 489568, 505671 (EA) 7 ---oOo--- 8 MR. HORTON: Discussion, Members? 9 MS. STEEL: I have question to Mr. Levine here 10 that, um, relief of finality penalty was recommended, by 11 the Department? 12 MR. LEVINE: Yes. There's no -- no 13 penalties. 14 MS. STEEL: Okay. 15 MS. YEE: Move to adopt the staff 16 recommendation. 17 MR. HORTON: Moved by Member Yee to adopt staff 18 recommendation. Second by Member Mandel -- 19 MS. STEEL: I second. 20 MR. HORTON: -- Member Steel. 21 Without objection, Members, such will be the 22 order. 23 ---oOo--- 24 25 26 27 28 17 1 MR. HORTON: Ms. Richmond. 2 MS. RICHMOND: Our next item is C16, Heidi 3 Rachael Mendez, Edgardo Mendez and Rachel Mendez. 4 ---oOo--- 5 C16 HEIDI RACHAEL MENDEZ, EDGARDO MENDEZ 6 and RACHEL MENDEZ 7 NO. 495816 (FH) 8 ---oOo--- 9 MR. HORTON: This may truly be something 10 Offer-in-Compromise should take a good look at. 11 MS. YEE: I think this is a claim for -- 12 MR. HORTON: Claim for refund. We can't. 13 Sorry. 14 MS. MANDEL: Claim for refund. 15 MS. STEEL: Is she still in the business? 16 MR. LEVINE: It sounded like she's not. 17 MR. HORTON: No. 18 MS. STEEL: Not. 19 MR. LEVINE: Though it looked like it was still 20 active when we issued the D&R. But from what his 21 comments were, it sounded like they're out of business 22 by now. 23 MR. HORTON: The challenge for me, Members, was 24 just substantiating that the tax was paid. Had I been 25 able to substantiate that the tax was paid, then clearly 26 there was some room, uh, to rule, to some degree, in 27 favor of the taxpayer. 28 But we can't give away something we haven't 18 1 necessarily received. Or, shouldn't use that term "give 2 away," but -- 3 MS. MANDEL: Move the staff recommendation. 4 MS. YEE: Second. 5 MR. HORTON: Member Mandel moves staff 6 recommendation. Second by Member Yee. 7 Without objection, Members, such will be the 8 order. 9 Ms. Rich -- Ms. Richmond. 10 MS. RICHMOND: That concludes our business for 11 today. 12 MR. HORTON: Okay. Thank you very much. We 13 will continue to meeting of the Board of Equalization 14 'til tomorrow at, uh, 3:30. 15 Ah, just kidding. 9:30. 16 ---oOo--- 17 18 19 20 21 22 23 24 25 26 27 28 19 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, KATHLEEN SKIDGEL, Hearing Reporter for the 8 California State Board of Equalization certify that on 9 October 24, 2012 I recorded verbatim, in shorthand, to 10 the best of my ability, the proceedings in the 11 above-entitled hearing; that I transcribed the shorthand 12 writing into typewriting; and that the preceding pages 1 13 through 19 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: November 1, 2012 17 18 ____________________________ 19 KATHLEEN SKIDGEL, CSR #9039 20 Hearing Reporter 21 22 23 24 25 26 27 28 20