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 FEBRUARY 27, 2013 10 11 12 13 14 15 FINAL ACTIONS 16 (CASES HEARD FEBRUARY 26, 2013) 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 Board of Equalization 18 Staff: Lou Ambrose Legal Department 19 20 Jeff Angeja Legal Department 21 22 Deborah Cumins Legal Department 23 24 ---oOo--- 25 26 27 28 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 FEBRUARY 27, 2013 4 ---oOo--- 5 MR. HORTON: Good morning, Members. Let us 6 reconvene the meeting of the Board of Equalization. 7 Ms. Richmond, what is our first item? 8 MS. RICHMOND: Good morning, Chairman and Board 9 Members. 10 Our first item on today's agenda are those 11 matters that were put over from yesterday's meeting. 12 So our first item is B2, Richard B. Pallack. 13 ---oOo--- 14 B2 RICHARD B. PALLACK 15 NO. 527752 16 ---oOo--- 17 MR. HORTON: Okay. Uh, B2, Richard B. -- 18 MS. MANDEL: B2. B2. 19 MR. HORTON: -- Pallack. 20 Is this on? 21 MS. MANDEL: Move the Franchise Tax Board. 22 MS. YEE: Second. 23 MR. RUNNER: How come (inaudible). 24 MR. HORTON: Members, uh, I don't know if our 25 mikes are on. 26 MS. MANDEL: Oh, sorry. 27 MR. HORTON: There we go. 28 MS. MANDEL: There we go. 3 1 MR. HORTON: Okay. 2 My voice wasn't on. I guess the mike wasn't 3 on. 4 Uh, move -- move for the Franchise Tax Board. 5 MS. YEE: I'll second. 6 MR. HORTON: Member Mandel moves to sustain the 7 Franchise Tax Board. Second by Member Yee. 8 Without objection, Members? 9 Hearing none, such will be the order. 10 ---oOo--- 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 4 1 MS. RICHMOND: Our next item is B3, Brian D. 2 Adler and Cheryl Adler. 3 ---oOo--- 4 B3 BRIAN D. ADLER and CHERYL ADLER 5 NO. 601347 6 ---oOo--- 7 MS. STEEL: Can I ask, uh, Appeals Division 8 about just question? 9 MR. AMBROSE: Sure. 10 MS. STEEL: That yesterday it was interesting 11 that Chairman Horton was asking if they made, um, money, 12 you know, on that transaction instead of losing. Then 13 what happened? Wasn't that they supposed to pay double 14 tax? 15 MR. AMBROSE: If they made -- 16 MS. STEEL: Profit. 17 MR. AMBROSE: So -- so who -- who would the 18 gain have been attributable to? Um, I don't know. I 19 mean to be consistent -- 20 MS. STEEL: If they had the profit instead of 21 losing. 22 MR. AMBROSE: Right. Well -- 23 MS. STEEL: Because it was really interesting 24 question, you know, they were keep explaining but I 25 didn't really get the answer from the Franchise Tax 26 Board. 27 MR. AMBROSE: Yeah, I didn't either. But I 28 think the -- the loss was because they lost the option 5 1 money, I believe. So I don't -- I don't know that once 2 they had assigned the contract to the LLC -- 3 MS. STEEL: If they had a profit. I mean 4 you're not really answering either. So I just want to 5 hear that if they -- they were profit instead of loss, 6 then what happened, about the taxation here? 7 MR. AMBROSE: Well, see, I -- what I'm saying 8 is I don't think it was like a profit-making 9 transaction. I think it was the money was put down for 10 the option. And once the deal didn't -- you know, they 11 forfeited the option money, I mean (telephone 12 ringing) -- ooh. That's how I understood it. Um -- 13 MR. HORTON: That's true. 14 MR. AMBROSE: So I'm sorry it doesn't answer 15 your question. But I -- I just don't know. 16 MR. HORTON: The -- if I may, Member Steel? 17 MS. STEEL: Sure. 18 MR. HORTON: The, um -- the intent of the 19 question was to establish or to take a look at the 20 substance over forms issue -- 21 MR. AMBROSE: Mm-hmm. 22 MR. HORTON: -- in trying to get on the intent 23 of the parties at hand, um, and then take the 24 preponderance of the evidence and tie it into the 25 intent. So -- 26 MR. AMBROSE: Right. 27 MR. HORTON: -- um -- and it appeared that the 28 intent of the party was not to have a situation that 6 1 they would have a loss. That they didn't go into this 2 transaction or structure it in such a way for that 3 purpose. 4 So, uh -- and the way that they originally 5 structured it, uh, would have been the most protective 6 way for them to structure it, uh, in -- in anticipation 7 of success, not failure. 8 The subsequent, uh, mistake or argument 9 relative to a mistake was because there was a loss. 10 MR. AMBROSE: Mm-hmm. 11 MR. HORTON: And I couldn't quite -- I, too, 12 couldn't -- FTB wasn't quite clear on their position in 13 that regard. 14 MR. AMBROSE: Well -- 15 MR. HORTON: Member Yee. Then, uh -- 16 MR. AMBROSE: Sorry. 17 MR. RUNNER: Member Runner. 18 MS. YEE: I mean, I think it's, uh -- I mean, 19 what was difficult for me was to really, uh, follow the 20 Franchise Tax Board's logic, uh, because there really, 21 uh, hadn't been, I thought, a period that marked a 22 closed and completed transaction until, uh -- well, 23 until, frankly, the obligations were assigned and -- 24 and -- 25 MR. AMBROSE: Mm-hmm. 26 MS. YEE: So, to me, it seems like the LLC is 27 entitled to the loss deduction and in fact my motion 28 will suggest that we modify Franchise Tax Board's action 7 1 by allowing 525,000 of additional loss to the LLC, um, 2 and adjusting the penalty accordingly. 3 But that's really the event that I think, um -- 4 then should carry the thinking through in terms of, um, 5 how the assignment took place and to whom. 6 MR. AMBROSE: Mm-hmm. 7 MS. YEE: And I just didn't feel like the 8 Franchise Tax Board carried that all the way through. 9 Because it was a continuous transaction. 10 MR. HORTON: No, I agree. 11 Member Runner. 12 MR. RUNNER: Yeah, what convinced me was the -- 13 was I think the before -- the -- the beginning, which 14 was clearly when the escrow was opened. It was -- it 15 was opened with the individual's Social Security number, 16 therefore, assuming that then there would be personal 17 liability and personal exposure, uh, at that point was 18 opened in his personal name. 19 Um, and then we've got this -- what I think is 20 the anomaly which is the, um, the Adler, Inc., um, on 21 the purchase agreement. To which then the taxpayer 22 said, hey, I didn't even draw it up. I signed it, but I 23 didn't draw it up, that was a mistake. And then, 24 basically then you see the next event which is then the, 25 uh, the going out and getting the loans which were then 26 back on the -- back against him as a -- as an 27 individual -- 28 MR. AMBROSE: Right. 8 1 MR. RUNNER: -- on his personal side. 2 So it seemed to me that the bookends of what 3 was taking place there was truly around an LLC personal 4 event as opposed to a corporate event, and that's why I 5 believe that, indeed, I was convinced that it was indeed 6 an error at that point. 7 MR. AMBROSE: Mm-hmm. 8 MR. HORTON: Member Yee. Is there a motion? 9 MS. YEE: Uh, yeah. I'll move to, uh, modify 10 the Franchise Tax Board's action by allowing the 525,000 11 of additional loss and adjusting the accuracy-related 12 penalty accordingly. 13 MS. MANDEL: Um, I'm confused. 14 MR. HORTON: Member Mandel. 15 MS. MANDEL: No, I'm just confused a little 16 bit. Five hundred and -- I'm sorry, give it to me 17 again. 18 MS. YEE: It's the difference between the 750 19 and what was already, um, allowed, the 225; 525,000. 20 MS. MANDEL: And it's being allowed to whom? 21 MR. AMBROSE: To the La Quinta Travertine 22 LLC. 23 MS. YEE: To the LLC. 24 MR. AMBROSE: Yeah. 25 MS. YEE: Which is -- yeah. 26 MS. MANDEL: Which isn't before us. 27 MS. YEE: But then the loss would pass to the 28 appellant, yes? Is that how it works? 9 1 MR. AMBROSE: I -- I don't -- I don't know that 2 that money ever went into the LLC that way. Um, 3 that's -- I -- I don't think it did. But I -- you know, 4 I can't say that with complete certainty. 5 But I -- I think what happened was they 6 borrowed the money and they mortgaged their house and, 7 you know, um, and borrowed that or used that money to 8 put down on the option to purchase contract. And then 9 when the deal fell through, they lost that money. But I 10 don't -- and they assigned the contract price to the 11 LLC, but I don't know that the money ever went into the 12 LLC so that the LLC was paying it out and then, you 13 know, would have sustained a loss as a result. 14 MS. YEE: Mm-hmm. 15 MR. AMBROSE: You know that -- I don't think 16 that was -- at least that didn't come across to me in 17 the record. 18 MS. STEEL: So then it goes back to the, um, 19 the issue one, that money never went into LLC. That was 20 a personal use, then everything was in personal use and 21 he can deduct from his personal account. 22 MR. AMBROSE: That's how it looks -- 23 MS. STEEL: So -- 24 MR. AMBROSE: Yeah. I'm sorry. That's how it 25 looks to me. 26 I -- I didn't -- they -- I don't think that FTB 27 showed that it went into the corporation. And, you 28 know, they testified that it didn't. 10 1 So, um, yeah. 2 MS. MANDEL: I think FTB was treating it as a 3 capital contribution. 4 MR. AMBROSE: As a capital contribution, 5 right. 6 MS. MANDEL: That's what they were -- 7 MR. AMBROSE: Right. But I don't -- I don't 8 know that they -- I didn't see that they established 9 that the corporation had actually paid the money, you 10 know, it had gone through the corporation. 11 I mean, what I saw, you know, as -- as Senator 12 Runner pointed out was they put their -- you know, on 13 the escrow procedure or transaction, um, they put the 14 money into escrow, you know, directly. They didn't -- 15 they didn't contribute to the corporation, have the 16 corporation pay it in. 17 So, um, I mean the whole -- I mean the way this 18 thing looks to me, it looks like, yeah, they did all 19 this, you know, individual. The -- the corporation's 20 name was on there, but it was sort of like two 21 different, you know, things going on. So -- 22 MS. MANDEL: So you're saying the complete form 23 of the transaction taking into account what they -- I 24 mean FTB is just going by the four corners -- 25 MR. AMBROSE: Right. 26 MS. MANDEL: -- of the -- what's the document, 27 the option document? 28 MR. AMBROSE: The option and purchase 11 1 agreement, right. 2 MS. MANDEL: They're going by the four corners 3 of that. 4 MR. AMBROSE: Right. Right, and I think, you 5 know, the way he, you know, recited the law, I think 6 that's true. I mean I think that's correct, you know, 7 his -- his -- his recitation of the law. But, you know, 8 unless there's other evidence, you know -- 9 MS. MANDEL: The parol evidence, which is a 10 fancy word for "other evidence," right? 11 MR. AMBROSE: Right, yeah. Exactly. 12 I mean, but ordinarily, you know, when you have 13 a writing like that, or especially a deed, you're 14 supposed to have contemporaneous, uh, you know clear and 15 convincing evidence to rebut the presumption that that 16 is correct. 17 Um, here you don't have, you know -- well, you 18 know, in bits and -- you know, you don't have like one 19 document that says, you know, like the reformation of 20 the contract that says, no, we did this wrong. They 21 just kind of carried it through -- or they didn't -- 22 carried it through until they assigned it and then the 23 corporation was out of the picture. 24 MS. YEE: Mm-hmm. 25 MR. AMBROSE: So they acted as though the -- 26 yeah, they acted as though the corporation was still the 27 party to the contract or the option to purchase 28 agreement. But, um, just I guess as they've done in all 12 1 their other transactions, once they assign the rights to 2 that contract, uh, you know, they did it just as they 3 would have done in any other transaction where the 4 corporation was never named as a party, you know. 5 MS. MANDEL: Was the funding of the escrow was, 6 uh, after the assignment or before the assignment? 7 MR. AMBROSE: I understood it was before the 8 assignment. 9 MS. YEE: Before the assignment. 10 MS. MANDEL: It was before the assignment. 11 MR. AMBROSE: Yeah. 12 MR. RUNNER: So -- so if we just -- if we just 13 made a motion favoring the taxpayer, then we are 14 basically agreeing with the taxpayer's argument? 15 MR. AMBROSE: Correct. 16 MR. RUNNER: And how it is that they then -- 17 MR. AMBROSE: Right. 18 MR. RUNNER: -- um, used and the -- the -- the 19 loss. How they posted the loss to their own taxes, 20 correct? 21 MR. AMBROSE: Right. Exactly. And -- and I, 22 you know -- I mean, I think they reported it that way 23 because they borrowed the money from people they knew 24 and, you know, I guess I'm assuming they had to pay that 25 back -- 26 MR. RUNNER: Mm-hmm. 27 MR. AMBROSE: -- you know, without -- 28 MS. MANDEL: So to -- 13 1 MR. AMBROSE: -- anything to show for it. 2 MS. MANDEL: So to prove a -- to prove a 3 mistake in the contract -- 4 MR. AMBROSE: Mm-hmm. 5 MS. MANDEL: -- he has, his testimony, he 6 doesn't have any contemporaneous writing to a lawyer or 7 anything else saying, uh, what's up? 8 MR. AMBROSE: Right. 9 MS. MANDEL: You know, that's not -- that 10 wasn't the deal or that's not how it's supposed to be or 11 Adler, Inc.'s not ADG. 12 MR. AMBROSE: Right. 13 MS. MANDEL: You have his -- his testimony, the 14 other declarations don't -- I'm not sure that -- that's 15 where FTB was saying they didn't go to that point 16 because they just -- they went to who the ultimate buyer 17 was supposed to be, which doesn't necessarily go to why 18 Adler, Inc. was named instead of Adler Development Group 19 or Mr. Adler personally. 20 MR. AMBROSE: Right. 21 MS. MANDEL: In the option agreement. 22 MR. AMBROSE: Right. 23 MS. MANDEL: And then you have just the way 24 that he funded -- 25 MR. AMBROSE: Mm-hmm. 26 MS. MANDEL: -- the escrow. 27 MR. AMBROSE: Um, yeah, I -- I guess I can't 28 disagree with that. But I don't -- I don't know that it 14 1 doesn't -- or, you know, that it disproves what they're 2 arguing, you know, just because the -- the declarations 3 weren't that pointed or that direct. I mean, you know, 4 could have been, you know, an attorney didn't want to 5 admit that he made a mistake, you know. I mean that 6 sort of -- I'm not saying that that was the intent. 7 But, you know, who knows why they worded it the way they 8 did. 9 MR. HORTON: I believe it was the FTB's 10 testimony that, relative to the declarations, that the 11 declarations actually refuted each other. I mean they 12 contradicted, uh, had contradicting statements, which 13 could speak to, um, just lawyer -- I mean a lawyer's way 14 of indemnifying themself. 15 MR. RUNNER: I dis -- that was the FTB's 16 opinion. I didn't necessarily think that that was the 17 case. 18 MR. HORTON: Well, I'm not saying it's my 19 opinion. 20 MR. RUNNER: Yeah. 21 MR. HORTON: I'm just pointing out that they, 22 um -- 23 It's sometimes troubling when you're in a 24 situation where you have so many experts that are 25 involved, lawyers, accountants, CPAs and individuals 26 themselves, um, to cure the situation's relatively 27 easy. 28 MR. AMBROSE: Mm-hmm. 15 1 MR. HORTON: Uh, so "Why not do it?" is sort of 2 the conscious question here. And the response, if I 3 recall correctly is, "We didn't have time." We -- we 4 just wanted to protect the -- our investment and so we 5 didn't send an e-mail, we didn't call, we didn't send a 6 note to correct, uh, or to indicate that there was a 7 mistake. So we have subsequent testimony, subsequent 8 evidence when it's so easy to -- to have cured this, if 9 in fact that was the true intent. 10 MS. MANDEL: Yeah, I think he thought it didn't 11 matter because his deal was going to go through -- 12 MR. RUNNER: Right. 13 MS. MANDEL: -- when he was going to have the 14 property and the LLC with the other investors and it 15 would go on, so -- 16 MR. RUNNER: Yeah, I think that was -- 17 MS. MANDEL: He didn't anticipate that the deal 18 was going -- it just didn't -- he just didn't think it 19 made a difference, so he didn't bother, I think is what 20 he said. 21 MR. HORTON: Yes. 22 MS. MANDEL: Just wanted -- you know, he just 23 wanted to get the deal done. Which I guess is kind of 24 what you're saying, he just wanted to get the deal 25 done. 26 MR. HORTON: No, uh, yeah, it was just -- 27 MR. RUNNER: Well, to simplify, let me just 28 make a motion to -- was there a second on that motion? 16 1 I'm sorry. I wasn't sure. 2 MR. HORTON: The Member withdrew the motion. 3 MS. YEE: Yeah. 4 MR. RUNNER: I'll just make a motion to grant 5 for the taxpayer. 6 MS. STEEL: Second. 7 MR. HORTON: Objection, Members? 8 MS. MANDEL: I'm going to abstain, I guess. 9 Was there a second? 10 MR. HORTON: It's been moved and second. 11 Uh, objection noted. 12 Ms. Richmond, please call the roll. 13 MS. RICHMOND: Mr. Horton. 14 MR. HORTON: Abstain. 15 MS. MANDEL: I might change my mind from 16 abstaining. 17 MS. RICHMOND: Ms. Steel. 18 MS. STEEL: Aye. 19 MS. RICHMOND: Mr. Runner. 20 MR. RUNNER: Aye. 21 MS. RICHMOND: Ms. Yee. 22 MS. YEE: Aye. 23 MS. RICHMOND: Ms. Mandel. 24 MS. MANDEL: I'm going to go no. 25 MS. RICHMOND: Motion carries. 26 ---oOo--- 27 28 17 1 MS. RICHMOND: Our next item is B4, Alfred M. 2 Humphries and Jill Humphries. 3 ---oOo--- 4 B4 ALFRED M. HUMPHRIES and JILL HUMPHRIES 5 NO. 598220 6 ---oOo--- 7 MR. HORTON: Members? 8 MS. STEEL: Question. 9 MR. HORTON: Question? 10 MS. STEEL: What kind -- um, is it any -- I 11 mean this is the one -- 12 MR. HORTON: Is there a motion? 13 MS. STEEL: Should we make a motion? I just 14 grant -- 15 MS. MANDEL: Move to -- oh. 16 MR. HORTON: Member, uh -- Member Steel -- 17 MS. STEEL: Thank you. 18 MR. HORTON: -- moves to grant. Member Runner 19 seconds. 20 MR. RUNNER: There you go. 21 MR. HORTON: Without objection, Members. 22 MS. MANDEL: Uh, objection. 23 MS. YEE: Objection. Question. 24 MR. HORTON: Objection noted. 25 Ms. Richmond, please call the roll. 26 MS. RICHMOND: Mr. Horton. 27 MR. HORTON: Aye. 28 MS. RICHMOND: Ms. Steel. 18 1 MS. STEEL: Aye. 2 MS. RICHMOND: Mr. Runner. 3 MR. RUNNER: Aye. 4 MS. RICHMOND: Ms. Yee. 5 MS. YEE: No. 6 MS. RICHMOND: Ms. Mandel. 7 MS. MANDEL: No. 8 MS. RICHMOND: Motion carries. 9 ---oOo--- 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 19 1 MS. RICHMOND: Our next item is B5a, 2 Christopher Lim; B5b, Gregory J. Lim and Mya Lim; B5c, 3 James E. Lim and Melinda Lim; and B5d, Paul T. Liu and 4 Christiana Liu. 5 This is a waived appearance. 6 ---oOo--- 7 B5a CHRISTOPHER LIM 8 No. 599567 9 B5b GREGORY J. LIM and MYA LIM 10 No. 599568 11 B5c JAMES E. LIM and MELINDA LIM 12 No. 599575 13 B5d PAUL T. LIU and CHRISTIANA LIU 14 No. 599583 15 ---oOo--- 16 MR. HORTON: Members? 17 MS. MANDEL: Um -- 18 MS. YEE: I'm going to move to deny the appeal 19 for lack of jurisdiction. 20 MR. HORTON: So moved. Second by Member 21 Mandel. 22 Without objection, Members, such will be the 23 order. 24 ---oOo--- 25 26 27 28 20 1 MS. RICHMOND: Our next item is B6, Antonio 2 Gallo. 3 ---oOo--- 4 ANTONIO GALLO 5 No. 595225 6 ---oOo--- 7 MR. HORTON: Members? 8 MS. MANDEL: Um, move to sustain the Franchise 9 Tax Board. And, uh, he may want reference to the 10 payment options that they might have to offer. 11 MR. HORTON: Member Mandel moves to sustain the 12 Franchise Tax Board. 13 MS. YEE: Second. 14 MR. HORTON: And to notify taxpayer of payment 15 options. 16 Second by Member Yee. 17 Objection, Members? 18 Hearing none, such will be the order. 19 ---oOo--- 20 21 22 23 24 25 26 27 28 21 1 MS. RICHMOND: Our next item is B7, Richard A. 2 Hall. 3 ---oOo--- 4 B7 RICHARD A. HALL 5 No. 533898 6 ---oOo--- 7 MR. HORTON: Discussion, Members? 8 MS. YEE: Move to sustain the Franchise Tax 9 Board. 10 MR. HORTON: Member Yee moves to sustain the 11 Franchise Tax Board. Second by Member Mandel. 12 Objection? 13 MR. RUNNER: Object. 14 MS. STEEL: Objection. 15 MR. HORTON: Objection noted. 16 Ms. Richmond, please call the roll. 17 MS. RICHMOND: Mr. Horton. 18 MR. HORTON: Aye. 19 MS. RICHMOND: Ms. Steel. 20 MS. STEEL: No. 21 MS. RICHMOND: Mr. Runner. 22 MR. RUNNER: No. 23 MS. RICHMOND: Ms. Yee. 24 MS. YEE: Aye. 25 MS. RICHMOND: Ms. Mandel. 26 MS. MANDEL: Aye. 27 MS. RICHMOND: Motion carries. 28 ---oOo--- 22 1 MS. RICHMOND: Our next item is B8, Gabriel 2 Rufus and Shirley Rufus. 3 ---oOo--- 4 B8 GABRIEL RUFUS and SHIRLEY RUFUS 5 No. 599989 6 ---oOo--- 7 MR. RUNNER: I'll make the motion to, um, grant 8 for the taxpayer. 9 MR. HORTON: Member, uh, Runner -- 10 MS. STEEL: Second. 11 MR. HORTON: -- moves to grant for the 12 taxpayer. 13 Member Steel -- second by Member Steel. 14 Objection, Members? 15 MS. MANDEL: No, he -- he also gets the extra 16 mortgage interest. 17 MR. EPOLITE: Yes. 18 Chairman, I would note that the FTB has 19 conceded the additional $7,728 in additional mortgage -- 20 MR. RUNNER: That was on his personal home, 21 correct -- 22 MS. MANDEL: Yes. 23 MR. RUNNER: -- that they had (inaudible) at 24 one time? 25 MS. MANDEL: Yes. 26 MR. EPOLITE: The home that was sold during the 27 year. 28 MR. RUNNER: Okay. So I guess the motion would 23 1 include -- 2 MR. EPOLITE: Yes. 3 MR. RUNNER: -- that. 4 Okay, thank you. 5 MR. HORTON: Acknowledging the concessions of 6 the FTB relative to the home mortgage and personal 7 mortgages, Member Runner moves to grant in favor of the 8 taxpayer. Second by Member Steel. 9 Without objection, Members, such will be the 10 order. 11 ---oOo--- 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 24 1 MS. RICHMOND: Our next item is B9, Cornelis A. 2 Van Diepen. 3 ---oOo--- 4 B9 CORNELIS A. VAN DIEPEN 5 No. 560406 6 ---oOo--- 7 MS. YEE: I'll move to sustain the Franchise 8 Tax Board and impose a frivolous appeal penalty of 9 $750. 10 MR. HORTON: Member Yee so moves. Second 11 by Member -- 12 MS. STEEL: I second that, and -- 13 MR. HORTON: -- Steel. 14 MS. STEEL: I want to make a comment. 15 MR. HORTON: Member Steel. 16 MS. STEEL: I heard the Webcast for this case 17 and I wish that this taxpayer was explaining about that 18 why his income was less than $45,000. But he was 19 talking about irrelevant stuffs, that, you know, 20 auditor's last name is same as our -- you know, one of 21 our Board Members. And it was really interesting that I 22 didn't hear the facts that why his income was much less. 23 So that's why I'm seconding it. 24 MR. HORTON: Objection, Members? 25 Hearing none, such will be the order. 26 ---oOo--- 27 28 25 1 MR. HORTON: Ms. Richmond. 2 MS. RICHMOND: Our last item that was submitted 3 for decision is H1, Legal Appeals Matters, H1.1, East 4 Coast Foods, Inc. 5 ---oOo--- 6 H1.1 EAST COAST FOODS, INC. 7 NO. 444779 (AS) 8 ---oOo--- 9 MR. HORTON: Okay. Give us a second. 10 MR. RUNNER: Okay. 11 MS. STEEL: Um, question. 12 MR. HORTON: Member Steel. 13 MS. STEEL: If we -- if we give this taxpayer 14 one more chance to meet the auditor, is that going to 15 make -- you know, outcome is going to be different? 16 Because it seems that they've been postponing so many 17 times, tried to get the bank statements, and even they 18 gave the, uh, the Department the tax -- the bank 19 statements, but it was not complete; so from only one 20 store, not all four stores. So is that going to make 21 any difference? 22 MR. ANGEJA: If they were to meet and provide 23 accurate and complete information -- 24 MS. STEEL: Right. 25 MR. ANGEJA: -- we may be able to make a 26 different determination. Those opportunities have been 27 allowed and that hasn't happened. 28 MS. STEEL: How many times we gave them 26 1 chances here? 2 MR. ANGEJA: It's -- 3 MS. MANDEL: Oh, those -- there was a lot of 4 times when I think it said that his wife had passed away 5 and he was having difficulties dealing with things. 6 MS. CUMINS: That -- that's true. 7 MS. MANDEL: So -- 8 MR. ANGEJA: But that was one time. 9 MS. CUMINS: But that was only one or two of 10 the times -- 11 MS. MANDEL: Oh. 12 MS. CUMINS: -- that he made that, I believe. 13 He has had, uh, quite a few opportunities and has not 14 provided complete bank statements. 15 MR. RUNNER: I -- I -- I think I'm prepared at 16 this point to make a decision on this -- on this. And 17 then -- case. And then if he can -- if he can 18 articulate well what his efforts have been in the past 19 and how they weren't met cooperatively, then at that 20 point, um, I'm fine with having a discussion about a 21 rehearing. 22 Um, but at this point I -- I think that it 23 would be good to get this decided. And then, again, let 24 him make the argument back to us as to why a rehearing 25 might be appropriate based upon what he looks at the 26 lack of response. 27 MS. CUMINS: Right. 28 MR. HORTON: Um, yeah, this is one of those 27 1 situations where the Board just really wants to help 2 and, um, has gone above and beyond -- staff has gone 3 above and beyond to -- to accommodate. 4 And so, Mr. Runner's suggestion, I believe, 5 provides another bite at the apple. But at the same 6 time, uh, we exercise our fiduciary responsibility to 7 protect the interests of California taxpayers. 8 So we'll take that as a motion, Mr. Runner. 9 Uh, is there a second? 10 MS. MANDEL: Um, second. 11 MR. HORTON: Second by -- 12 MS. MANDEL: And then -- 13 MR. RUNNER: Let's -- yeah. Can we leave it 14 open to discuss? 15 MS. YEE: You want to talk about the Section 16 40? 17 MR. HORTON: Yeah. Yeah. Sure. 18 MR. RUNNER: Yeah. I'm going to just -- 19 MR. HORTON: Member Yee. 20 MS. YEE: Um, I think what I -- we're going to 21 have a few of these, beginning with this, but perhaps 22 Appeals could explain the options for the Section 40 23 discussion. 24 MR. RUNNER: Yeah, I'd be interested in the 25 guidance that we need to make and the motion regarding 26 how it is that we want to dispose of this particular 27 issue -- 28 MR. ANGEJA: Okay. 28 1 MR. RUNNER: -- given the fact that this is an 2 item that is a Section 40 discussion, correct? 3 MS. YEE: Right. Correct. 4 MR. ANGEJA: Yes. Appeals recommends that the 5 Board consider two options. The first option is to 6 allow the usual -- follow the usual practice in business 7 tax appeals and vote to resolve the issue on the day of 8 the hearing. After final decision has been rendered, 9 uh, we would submit a proposed decision for the Board's 10 consideration and approval on a later calendar. 11 The second option would be that the Board could 12 hold any determination of the appeal in abeyance, uh, 13 and inform Appeals of the Board's tentative 14 determination, the basis for the decision. And then we 15 would come back with a proposed decision that reflects 16 that tentative determination, and then the Board's later 17 vote to adopt a proposed decision, um, would also 18 constitute the Board's vote to resolve the appeal. 19 MR. RUNNER: Okay. My -- my -- my motion is 20 option one. 21 MR. ANGEJA: Okay. 22 MS. MANDEL: Where's my note? 23 MS. STEEL: What's option one? 24 MS. MANDEL: Option one is the usual, right? 25 MR. ANGEJA: Usual, in which case, once a final 26 decision has been rendered, we would then submit a 27 proposed decision that will try to accommodate and 28 account for the record -- 29 1 MS. MANDEL: Right. So -- 2 MR. ANGEJA: -- on which you're deciding 3 this. 4 MS. MANDEL: -- option one is off the -- off 5 the vote today, the Notice of Redetermination goes out. 6 He gets to petition for rehearing. And when the thing 7 is finally, finally done, that's when a written thing 8 would come back for -- 9 MR. ANGEJA: That's correct. 10 MS. MANDEL: Okay. 11 MR. RUNNER: Yeah. 12 MR. HORTON: That "finally, finally done" threw 13 me off a little bit. 14 MS. MANDEL: I mean after petition for 15 rehearing, if there is one or not. 16 MR. HORTON: Oh, okay. All right. I'm there. 17 So, uh, the second remains? 18 MS. YEE: Yeah. 19 MR. HORTON: The motion by Mr. Runner as 20 modified, uh, to reflect that the Board -- option number 21 one. Second by Member Mandel. 22 MS. YEE: I have a further question on that. 23 MR. HORTON: Uh, further discussion. 24 MS. YEE: I don't think -- I don't believe I 25 have a concern about the motion. But in this case, 26 because we do have a written decision that's coming back 27 at a later time, the petitioner would not have the 28 benefit of that before filing the petition for 30 1 rehearing? Is that -- 2 MR. ANGEJA: That's correct. 3 MS. YEE: Okay. 4 MR. RUNNER: That's correct, which would be 5 normal. 6 MS. YEE: I just wanted to clarify. 7 MR. RUNNER: Which would be the normal process, 8 correct? 9 MS. YEE: Yes. 10 MR. ANGEJA: Yes. 11 MR. RUNNER: Okay. 12 MS. YEE: Okay. 13 MR. ANGEJA: And just to clarify the motion, I 14 understand between option one and two, but it's staff's 15 recommendation? 16 MR. RUNNER: Staff's recommendation, correct. 17 Staff's recommendation is -- is -- is -- is item -- or 18 is choice number one, correct? 19 MR. HORTON: They actually -- 20 MR. ANGEJA: Staff's recommendation is on the 21 substance, the merits of the case. 22 MR. RUNNER: Correct. Oh, I see what you mean. 23 Okay. Yes. On staff's recommendation using -- using, 24 um, option one. 25 MR. ANGEJA: Thank you. 26 MS. MANDEL: Do we have to decide at this point 27 if it's, uh -- when it ultimately comes back, what kind 28 of decision it is? Or we wait on that? 31 1 MR. ANGEJA: If you don't give us a 2 recommendation, our routine procedure would be to bring 3 back a summary decision -- 4 MS. MANDEL: Okay. 5 MR. ANGEJA: -- which is nonprecedential. 6 MS. YEE: Nonprecedential, yeah. 7 MS. MANDEL: Okay. Thanks. 8 MR. ANGEJA: You could direct otherwise. 9 MS. MANDEL: Oh. Thanks. 10 MR. RUNNER: Just to clarify, this particular 11 procedure brings back a summary decision, correct? 12 MR. ANGEJA: Yes. 13 MR. RUNNER: Okay. 14 MS. MANDEL: Okay, thanks. 15 MR. RUNNER: We'll get through this. 16 MR. HORTON: Okay. 17 MS. MANDEL: You'll get us trained on option 18 one and option two. 19 MR. HORTON: That's a good example. 20 Okay. So moved. 21 Objection, Members? 22 Hearing none, such will be the order. 23 ---oOo--- 24 25 26 27 28 32 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 February 27, 2013 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 32 constitute a complete and accurate 14 transcription of the shorthand writing. 15 16 Dated: May 7, 2013 17 18 19 ____________________________ 20 KATHLEEN SKIDGEL, CSR #9039 21 Hearing Reporter 22 23 24 25 26 27 28 33