1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 1 CIVIC CENTER PLAZA 3 IRVINE, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 JULY 28, 2017 10 11 12 13 14 15 FINAL ACTIONS 16 CASES HEARD JULY 27, 2017 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 of Equalization: Diane L. Harkey 4 Chairwoman 5 Sen. George Runner (Ret.) Vice Chair 6 Fiona Ma, CPA 7 Member 8 Jerome E. Horton Member 9 Yvette Stowers 10 Appearing for Betty T. Yee, State Controller 11 (per Government Code Section 7.9) 12 Joann Richmond 13 Chief Board Proceedings 14 Division 15 For Board of Equalization Staff: Norine Marks 16 Acting Chief Counsel Department of Consumer 17 Affairs 18 For Department of Tax and Fee Administration: Anthony Epolite 19 Tax Counsel IV 20 Lou Ambrose Tax Counsel IV 21 22 ---oOo--- 23 24 25 26 27 28 2 1 1 CIVIC CENTER PLAZA 2 IRVINE, CALIFORNIA 3 JULY 28, 2017 4 ---oOo--- 5 MS. RICHMOND: So next are final actions 6 from our Board meeting yesterday. 7 MS. HARKEY: Item B1. 8 MS. RICHMOND: Item B1, Richard R. Betchley 9 and Kellie S. Brunk. 10 ---oOo--- 11 ITEM B1 12 RICHARD R. BETCHLEY and KELLIE S. BRUNK 13 NO. 874758 14 ---oOo--- 15 MS. HARKEY: Item B1, the Betchleys. 16 Richard R. Betchley and Kellie S. Brunk. 17 MR. RUNNER: I need to amend -- based upon 18 our discussion, I need to amend my -- my -- my 19 prestatement or whatever we're doing, whatever we're 20 calling those. 21 MS. MARKS: Your disclosure? 22 MR. RUNNER: Yeah. 23 MS. HARKEY: What is this for? Is this for 24 Betchley? 25 MR. RUNNER: Yes, it is. 26 MS. HARKEY: Oh, okay. 27 MR. RUNNER: Right, right. 28 MS. HARKEY: Oh, okay. I get it. I get 3 1 it. 2 MR. RUNNER: Yeah. I would -- I already 3 stated my first portion. 4 And my second portion is to provide 5 certainty for this taxpayer, I will disclose that 6 one of my staff did talk with the taxpayer in 7 advance of the previously scheduled hearing last 8 year. There was no record-keeping requirement at 9 that time, but our recollection is that we did not 10 discuss any or receive any materials in that 11 briefing. 12 MS. MARKS: Okay. So you said your staff 13 did talk to them? 14 MS. HARKEY: Right. 15 MR. RUNNER: I will disclose that one of my 16 staff talked to the taxpayer in advance. 17 MS. MARKS: Okay. 18 MS. HARKEY: A long time ago. 19 MS. MARKS: Right. Well the -- 20 You're from Appeals, right? 21 MS. HARKEY: I don't know that you have to 22 do that because you said to the best of your 23 knowledge. 24 MS. MARKS: Because they would have the 25 opportunity to comment. 26 MR. RUNNER: I'm sorry, what was that? 27 MS. MARKS: The parties would have the 28 opportunity to comment on that. 4 1 MR. RUNNER: I'm sorry, who? Why does -- 2 the Department's get to comment on my statement? 3 MS. MARKS: Would have the opportunity to 4 comment on whatever the communication was. 5 You're saying specifically that the 6 communication, that there were no additional facts 7 or analysis that was otherwise reflected in the 8 briefs? 9 MS. HARKEY: Nothing that wasn't shared. 10 MR. RUNNER: There was no record-keeping 11 requirement at that time. 12 MS. MARKS: Okay. 13 MR. RUNNER: But our recollection is that 14 we did not discuss or receive any materials. 15 MS. MARKS: Oh, that you did not. 16 MR. RUNNER: We did not. 17 MS. MARKS: Oh, I'm sorry. 18 MS. HARKEY: Okay. We've borne our chest 19 here. 20 Anyway, okay. On Betchley, B1, do I have a 21 motion? 22 MS. STOWERS: Madam Chair, for this 23 particular one we have heard it earlier, last year, 24 and then it came back. And we were really trying to 25 focus the parties on proving the basis of the 26 property. And based on the testimony and the 27 evidence presented, I do not believe that the 28 taxpayer provided any credible evidence to support 5 1 that the basis should be any more than what the 2 Franchise Tax Board had already allowed. 3 So my motion is to sustain the Franchise 4 Tax Board on all issues. 5 MS. MA: Second. 6 MS. HARKEY: There's a motion and a second. 7 Is there any objection? 8 Okay. Such will be the order. 9 ---oOo--- 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6 1 MS. HARKEY: Okay. The next one is 2 Fuscoe -- Fuscoe Engineering, Eric Armstrong, 3 Olivier, Tokihiro and Patrick Fuscoe, and all of the 4 spouses, looks like. That's Item B2a, b, c and d 5 and e. 6 MS. RICHMOND: Correct. 7 ---oOo--- 8 ITEM B2a-B2e 9 FUSCOE ENGINEERING, INC., et al. 10 ---oOo--- 11 MR. RUNNER: And I'm going to amend my 12 statement. 13 MS. HARKEY: Okay. 14 MR. RUNNER: To provide certainty for this 15 taxpayer, I will disclose that I did meet with this 16 taxpayer and representative last year, on November 17 10th, 2016. As the taxpayer indicated yesterday, we 18 discussed the case and the nature of the case's 19 business and the taxpayer did send us follow-up 20 videos regarding the business. 21 My staff did speak with the taxpayer 22 representative on the phone a number of times in the 23 past as the case was previously scheduled a number 24 of times. There was no record-keeping requirement 25 at that time, but to our knowledge we did not 26 discuss or receive any materials that did not -- 27 that -- materials that were not in the briefing, 28 except for the videos. 7 1 MS. HARKEY: Those were project videos, I 2 take it. Just project videos. 3 Okay. 4 MS. MARKS: The Board could vote and the 5 parties would have 10 days to respond. 6 MS. HARKEY: Okay, thank you. 7 I am going to make a motion to grant the 8 appeal, which was reduced down to the 47 percent 9 claim for refund, based on all of the data provided 10 and that I thought it met the criteria for the 11 credit. 12 MR. RUNNER: I'll second. 13 MS. HARKEY: There's a motion and a second. 14 Is there any discussion? 15 MS. STOWERS: I have a comment. 16 MR. EPOLITE: May I? Madam Chair, may I 17 interrupt? I don't believe it's necessary for you 18 to put into your motion the 47 percent. 19 MS. HARKEY: Because that's what the case 20 was. 21 MR. EPOLITE: Appellants have already 22 conceded -- 23 MS. HARKEY: Okay. 24 MR. EPOLITE: -- that the 47 percent is the 25 revised refund amount. So on appeal that is the 26 revised refund claim. So it's not necessary for you 27 to include that in your motion. 28 MS. HARKEY: Okay. Strike that motion. 8 1 And do you want to remove your second? 2 MR. RUNNER: Yeah. 3 MS. HARKEY: Okay. Then the new motion is 4 I would like to grant the appeals in B2a, B2b, B2c, 5 B2d and B2e. 6 MR. RUNNER: Second. 7 MS. STOWERS: Madam Chair. 8 MS. HARKEY: Yes. 9 MS. STOWERS: Although the appellant did 10 make some concessions -- I'm afraid to give the 11 percentage -- but they conceded 52.6 percent. And 12 then it was asserted that 47.4 percent of the 13 remaining contracts with the expenses as qualified 14 research because they were fixed contracts. 15 However, I note that in the record we only 16 have contracts for 12, meaning that we're not -- 17 it's not in the record the 1,240 contracts that 18 comprise of this research credit. 19 I also note that I do believe that some 20 research did take place, but the evidence doesn't 21 support or explain what the exact business component 22 was. I mean they talked about certain projects, but 23 they really did not provide evidence that would do 24 the shrink-back that's required under law. 25 MS. HARKEY: Thank you. 26 MR. HORTON: Madam Chair, if I may. You 27 know, this is one of those situations where the 28 administrative process is really creating a 9 1 disadvantage for both the appellant and the 2 respondent. 3 In this particular case, additional 4 evidence was presented on the record and there was a 5 discussion about that evidence as to whether or not 6 it could be presented and considered. And the 7 Department was provided an opportunity to respond, 8 to provide additional briefings. 9 And so just based on the evidence presented 10 thus far, I do believe that there's an element of 11 research and development and that there is a 12 business component. The inherent challenge is how 13 do you -- I don't necessarily believe it was 47 14 percent. And without each -- both parties being 15 able to provide additional briefing and additional 16 evidence, it just puts a burden on this body to try 17 to come up with what that percentage is. 18 So anyway, that's just my concerns. 19 MS. HARKEY: If -- if I could just comment. 20 I do believe that the -- that the -- at least in my 21 file, it was the appellant and the Department that 22 worked together. The appellant did submit how they 23 calculated the 47 percent. So they were trying to 24 negotiate, as I understood the file to read. 25 MS. STOWERS: She explained how she got to 26 the 47 percent, but -- and she said she looked at 27 it, I believe, as the contract as being paid. But 28 we don't -- we didn't have those records, the source 10 1 records. And even her spreadsheet, her H2, she left 2 out some contracts that she later said should be 3 there. So it raised some question in my mind how 4 accurate her calculation is. But -- 5 MS. HARKEY: Well, I think -- I think 6 because there were, what -- I had in my file 791 7 contracts and we were only actually looking at 12 8 individual projects, that that was the problem. It 9 was a sample. 10 MS. STOWERS: Mm-hmm. 11 MS. HARKEY: And of the sample I found some 12 justification on all that I had contracts for, but 13 we didn't see the whole 791; I think that was the 14 deal. 15 Okay. Member Ma. 16 MS. MA: Oh, yeah. We also felt there was 17 some element of research and development given the 18 nature of their business and the type of solutions 19 that they come up with. They're not cookie-cutter, 20 but they're really hired to figure out the best 21 solution economically, environmentally, socially, 22 for -- for their projects. 23 I want to thank Ms. Harkey for her 24 extensive research looking into this. I felt that 25 Ms. Harkey's evaluation was very fair and thorough, 26 and I am going to be voting with Ms. Harkey based on 27 the amount of work that she's done to kind of give 28 me more confidence in the type of work that they do 11 1 and the credits that they would be eligible for 2 under the code. 3 MS. HARKEY: Thank you, Member Ma. 4 So I think we have a motion, a second. And 5 it looks like we need to call the roll. 6 MS. RICHMOND: Chairwoman Harkey. 7 MS. HARKEY: Aye. 8 MS. RICHMOND: Mr. Runner. 9 MR. RUNNER: Aye. 10 MS. RICHMOND: Mr. Horton. 11 MR. HORTON: I abstain. 12 MS. RICHMOND: Ms. Ma. 13 MS. MA: Aye. 14 MS. RICHMOND: Ms. Stowers. 15 MS. STOWERS: No. 16 MS. RICHMOND: Motion carries. 17 MS. HARKEY: Thank you. 18 ---oOo--- 19 20 21 22 23 24 25 26 27 28 12 1 MS. HARKEY: Okay. The next one -- the 2 next one is Moffatt. 3 MS. RICHMOND: Yes. B3, Jeffrey Moffatt 4 and Staretta Moffatt. 5 ---oOo--- 6 ITEM B3 7 JEFFREY MOFFATT and STARETTA MOFFATT 8 NO. 878764 9 ---oOo--- 10 MS. HARKEY: B3 Jeffrey Moffatt and 11 Staretta Moffatt. 12 I believe you recused yourself. 13 MR. RUNNER: Yeah, I did not participate. 14 MS. HARKEY: He did not participate. 15 I will entertain a motion. 16 I'll make a motion to deny the appeal. 17 MR. RUNNER: Do you have a question 18 about (inaudible)? 19 MS. HARKEY: Oh, okay. 20 MR. RUNNER: I don't care. 21 MS. HARKEY: Why don't you just go to the 22 back. 23 MR. RUNNER: Well, we can just ask the 24 attorney. 25 MS. MARKS: I'm sorry, I didn't catch what 26 you said. 27 MR. RUNNER: The question is, since I 28 had -- since I did not participate in this, is it 13 1 sufficient for me to sit here quietly? Or do I need 2 to leave? 3 MS. MARKS: You recused yourself from the 4 discussion, the vote? 5 MR. RUNNER: Yes. 6 MS. MARKS: Yeah, if you just don't 7 participate, please. 8 MR. RUNNER: Okay, thank you. 9 MR. HORTON: Second. 10 MS. HARKEY: Okay. I have a motion and a 11 second to deny the appeal. 12 Is there any objection? 13 Okay, please show -- show that there was no 14 objection. The motion passed to deny the appeal, 15 and that Member Runner recused himself and was not 16 present -- or did not discuss the motion. 17 Okay. 18 MR. HORTON: Good work. 19 MS. HARKEY: Well, I used to sit on the 20 City Council. It's coming back. 21 ---oOo--- 22 23 24 25 26 27 28 14 1 MS. HARKEY: Okay. The next one is Item 2 B5a and B5b, Schotts, Richard Schotts and Andrea 3 Schotts. 4 ---oOo--- 5 ITEM B5a 6 RICHARD SCHOTTS, JR. 7 NO. 798666 8 ITEM B5b 9 ANDREA SCHOTTS 10 NO. 800099 11 ---oOo--- 12 MS. MA: Waived appearance. 13 MS. HARKEY: It was a waived appearance. 14 Is there a motion? 15 MS. STOWERS: This is Schotts. Oh, he got 16 lucky. 17 Yeah, my motion is to sustain the Franchise 18 Tax Board on this matter. 19 MR. HORTON: Second. 20 MS. HARKEY: Is there any objection? 21 MS. STOWERS: But he didn't appear here. 22 MS. HARKEY: Okay. Such will be the order. 23 The motion is to sustain the Franchise Tax Board. I 24 guess that's what "deny the appeal" means, too, 25 right? Okay. 26 ---oOo--- 27 28 15 1 MS. HARKEY: Okay, the next one is Item B9 2 Dmitry Berius (verbatim) and Larisa -- no, Beinus. 3 Beinus, B-e-i-n-u-s. 4 ---oOo--- 5 ITEM B9 6 DMITRY BEINUS and LARISA BEINUS 7 NO. 987583 8 ---oOo--- 9 MR. HORTON: Madam Chair, I have a B8, but 10 I'm not really following so -- 11 MS. HARKEY: B8 was withdrawn or wasn't of 12 record. 13 MR. HORTON: Okay. 14 MS. HARKEY: That was Lwanga. 15 MS. RICHMOND: It was postponed. 16 MR. HORTON: All right. 17 MS. HARKEY: Yeah, it was postponed. 18 So B9 Dmitry Berius (verbatim). 19 MR. HORTON: Move to sustain the FTB. 20 MS. STOWERS: Second. 21 MS. HARKEY: There's a motion and a second 22 to sustain the FTB. 23 Any objection? 24 No? Okay, such will be the order. 25 ---oOo--- 26 27 28 16 1 MS. HARKEY: The next one is Item B10 Keith 2 William Brown. 3 ---oOo--- 4 ITEM B10 5 KEITH WILLIAM BROWN 6 NO. 984954 7 ---oOo--- 8 MR. HORTON: Move to sustain the FTB. 9 MS. STOWERS: Second. 10 MS. HARKEY: Motion and a second. 11 Any objection? 12 No? Okay, such will be the order. 13 ---oOo--- 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 17 1 MS. HARKEY: Mary Dougherty was worked out 2 with the FTB; they withdrew that. 3 So then there's Victoria Joy Le Beau. This 4 is the elderly couple, Item B14. 5 ---oOo--- 6 ITEM B14 7 VICTORIA JOY LE BEAU 8 NO. 946248 9 ---oOo--- 10 MS. STOWERS: Madam Chair -- 11 MR. RUNNER: I need to amend my statement 12 on that one. 13 MS. HARKEY: Okay. Member Runner needs to 14 amend his statement. 15 MR. RUNNER: To provide certainty for this 16 taxpayer, I will disclose that the taxpayer did 17 contact my office last month and speak to one of my 18 staff regarding the issues in the case. There was 19 no record-keeping requirement at that time, but our 20 recollection is that the staff member did not 21 discuss or receive any materials not in the 22 briefing. 23 MS. MARKS: So you don't recall that there 24 were any additional facts or analysis or argument? 25 MR. RUNNER: I'm sorry, what? 26 MS. MARKS: There were no additional facts 27 or analysis or arguments? 28 MR. RUNNER: There was no record-keeping at 18 1 that time, but our recollection is that the staff 2 person did not discuss or receive any materials -- 3 MS. MARKS: Oh, did not. 4 MR. RUNNER: -- not in the briefing. 5 MS. MARKS: Okay, there were -- so there 6 was none. 7 MS. HARKEY: No new information. 8 MS. MARKS: Okay. I'm sorry, it's hard to 9 hear. 10 MS. HARKEY: Okay. This was a very tough 11 case for me. I wasn't predisposed to help at all. 12 But I did -- we did ask about the interest and the 13 penalties on the 57940 for the year that's -- I 14 would kind of even be predisposed to grant the whole 15 appeal, but 1995 was the year that I think is really 16 in question and the lien on the property and all of 17 that. 18 So I'd like to make a motion to grant 19 relief for 1995 with regard to the amount of the 20 deficiency -- or actually -- no, excuse me. 21 Withdraw that. 22 I would like to grant relief for the 23 deficiency for all years because I have looked 24 through the file and looked through, read through 25 the case and the previous case that was brought up, 26 I reviewed that again. And it appears that there is 27 a strong case to grant relief deficiency for all 28 years. Not the tax liability, but the deficiency. 19 1 And I would like to -- I would like to 2 ensure that the prop -- the lien on the property, on 3 the residence has been appropriately removed. 4 MR. RUNNER: I just need some information 5 what that means, the "deficiency." 6 MS. HARKEY: The deficiency -- 7 MR. RUNNER: So I know what we're dealing 8 with. 9 MS. HARKEY: The, uh -- not -- let me see, 10 grant relief for deficiency. Deficiency was what 11 they were billed after the time. 12 They sent in a tax payment in one year. 13 And if you didn't pay it, that's a nonpayment. But 14 if they went back and reaudited years later, a 15 couple years -- many years later actually, and found 16 that there was a deficiency or something wrong with 17 the way that it was reported to begin with. And I 18 believe in this case it was IRS or something that 19 happened. I can get it out. But then that would be 20 something that the, uh -- that Victoria Joy Le Beau 21 would not have signed. She didn't sign that item on 22 the tax return. She signed the tax return as 23 presented. 24 And later on the Department disallowed, I 25 think, exemptions, is what happened. And so there 26 was a deficiency assessment on all of the tax years. 27 And rather than -- I don't -- I do believe she was 28 responsible for the tax that she signed for and that 20 1 she thought was legitimate. But the deficiency in 2 particular for 1995 that caused a big problem, 3 57940, plus interest and penalties, is -- you know, 4 that's -- that's a huge amount. 5 I don't think the law that I've read, that 6 I'm reading in this case (inaudible). 7 MS. STOWERS: Madam Chair? 8 MS. HARKEY: Yes. 9 MS. STOWERS: Not a second, but I do want 10 to speak. 11 MS. HARKEY: Okay. 12 MR. RUNNER: I'm sorry, what -- 13 MS. HARKEY: And in this case, it was 14 taxpayer Exhibit B14, I actually didn't have time 15 to -- the Wilson case that was being argued, and it 16 was in -- it's in the file. But I just got ahold of 17 the whole case and I read through it. And I found 18 out that, um -- see, I think she could qualify for 19 the equitable relief, but I think we don't have to 20 make that case because it was a -- there was 21 actually a deficiency and -- 22 So anyway, that's kind of where I'm going. 23 MR. RUNNER: Can you monetize that 24 deficiency? I -- I'm -- I'm -- 25 MS. HARKEY: What were the -- we -- what 26 were the deficiencies for the three years in 27 question? I don't know that we can go back and get 28 those monetized, but maybe we can. Because I think 21 1 they should pay the tax, but just not the 2 adjustments that came years later that she clearly 3 did not sign returns for. 4 MS. STOWERS: Maybe I can help here. 5 MS. HARKEY: Okay, good. Please do. 6 MS. STOWERS: So we're looking at '94, '95 7 and '97. 8 MR. RUNNER: Mm-hmm. 9 MS. STOWERS: '95 is the deficiency year 10 being that after they filed the return, which was 11 late, the Franchise Tax Board received information 12 from the Federal Government adjusting the income and 13 disallowing expenses and issued an assessment. 14 That's the deficiency year. 15 The other two years are self-assessed 16 no-pay returns. 17 MS. HARKEY: Okay. 18 MS. STOWERS: They are not deficiency. 19 MR. AMBROSE: Mm-hmm. 20 MS. STOWERS: With respect to the 21 deficiency for '95, the assessment -- 22 MS. HARKEY: I had 57940. 23 MS. STOWERS: Yeah, the additional tax from 24 the assessment was $48,284 and the interest -- 25 excuse me, the penalty is 9,656.80, and that way you 26 get your $58,000. 27 MR. AMBROSE: Mm-hmm. 28 MS. STOWERS: That is for the '95 year. 22 1 With respect to the comments that we made 2 yesterday that required a lien, I know I asked 3 Appeals to do some research on whether or not the 4 lien was issued in error. And I would like to see 5 if Appeals can address that now? 6 MR. AMBROSE: Certainly. 7 Okay, so we start in Article III, 8 deficiency assessments. So under 19033, R&T Code 9 section 19033, if FTB determines that the tax 10 disclosed on the return is in error, is less than 11 the tax disclosed by its examination, it shall mail 12 a notice to the taxpayer of the deficiency proposed 13 to be assessed. So that's their authority to issue 14 the NPA. 15 Under 19041 if within -- within 60 days 16 after the mailing of the NPA, the taxpayer may file 17 a protest. And under 19042 if no protest is filed, 18 the amount of the proposed deficiency assessment 19 becomes final. 20 Then jump to Article II, lien of tax, under 21 R&T Code section 19221 it says if any taxpayer or 22 person fails to pay any liability imposed under part 23 10, which is what we're under, such that at the time 24 it becomes due and payable, then that amount, which 25 is, you know, the tax, the penalty, the additions to 26 tax, together with any costs, shall thereupon be a 27 perfected and enforceable state tax lien. 28 And then you jump down to subsection (b) 23 1 and it says, for purposes of this section, amounts 2 that are due and payable are -- and in this case the 3 date the assessment is final. 4 MS. HARKEY: Okay. We're dealing with the 5 innocent spouse release -- innocent spouse relief 6 that was mentioned by the Department that is an IRC 7 code or -- yeah, Internal Revenue. 8 MS. STOWERS: Right. But you had said 9 that -- or I asked the Department to explain the 10 lien procedures because part of the issue here is 11 that the appellants argued that the lien was issued 12 in error. 13 MS. HARKEY: Yeah, well, I think that's 14 because when we were listening to the hearing the, 15 um -- the lady with the dark hair -- 16 MS. STOWERS: Yeah, FTB commented that 17 they -- with respect to the -- FTB was responding to 18 whether their request for innocent spouse relief was 19 timely or not because I had asked a question, "Was 20 it timely?" because the hearing summary indicated 21 that with respect to traditional relief and separate 22 allocation for the 1995 year it was not timely 23 because the request for relief was made, requested 24 in 2015 and the first collection notice was in 2003, 25 so it exceeded the two-year statute of limitations. 26 FTB clarified that, although they too have 27 a two-year statute of limitations for requesting 28 relief, the taxpayer's request for relief was timely 24 1 because the collection notice did not inform the 2 taxpayers about innocent spouse relief. 3 And that was the whole point of that 4 exchange. It wasn't to say that FTB, in their 5 opinion, had done something improper with respect to 6 filing a lien or in their opinion denying the 7 request for relief. 8 MS. HARKEY: But if they hadn't offered it, 9 then the timing was still on when she requested 10 it. 11 MS. STOWERS: Yes. So that's when they 12 said she had a timely request for relief. 13 MS. HARKEY: So the, uh -- then the lien, 14 had they followed the law, probably wouldn't have 15 been there. 16 MS. STOWERS: No, the lien would have still 17 been there, Madam Chair, because FTB issued their 18 collection notice December 3rd, 2003 and January 19 16th, 2004, and those collection notices are in 20 FTB's exhibit, Exhibit L. And in those notices it's 21 for the '97, '95 and '94 year, and those notices 22 explained to the taxpayers, both of them, that if 23 they don't pay the tax within 30 days, they may file 24 a lien. 25 MS. HARKEY: Okay. 26 MS. STOWERS: And then, since they did not 27 pay the tax after January 16th, 2004, FTB did file a 28 lien on March 30th, 2004. 25 1 MS. HARKEY: But they placed -- 2 MS. STOWERS: And the taxpayer filed -- 3 MS. HARKEY: They filed the lien on her 4 property without -- 5 MS. STOWERS: Because she was liable for 6 the tax; they filed a joint tax return. 7 MS. HARKEY: I -- I know. 8 MS. STOWERS: So until we decide that she 9 does -- she gets credit innocent spouse relief, it's 10 still a joint and several liability. So at that 11 time FTB was in the right to file the lien against 12 the property. 13 MS. HARKEY: Okay. Well, I'm sure if I had 14 an FTB attorney here that understood it, I could 15 argue it with you. You're making a very remarkable 16 case. 17 However, in this case that was argued, this 18 was on -- this is on equitable relief. I am -- I'm 19 not thinking we should have equitable relief because 20 I think she's entitled to relief. And one of -- one 21 of the issues is that she -- it came after the fact, 22 and in this case -- 23 Let me just read the Wilson case here. 24 Okay. First, it was denied in 2004 because without 25 substantiation it appeared that half of the business 26 income on the tax returns was attributable to the 27 wife. And her failure to disclose information about 28 the income of other household members and her 26 1 awareness of past taxes owed at the time she signed 2 the returns and that she was still living with her 3 husband. So that was denied. 4 Then the law changed again. She petitioned 5 the tax court for review of administrative denial of 6 her claim for equitable innocent spouse relief at 7 this time. Later she obtained a divorce which had 8 become final, and so the tax court reopened the 9 record, held the second trial where Wilson again 10 testified. 11 The government took the new evidence and 12 they determined that she was eligible for equitable 13 relief. Number one, the court said she was now 14 divorced, that was the point, even though she wasn't 15 at the time she signed the, uh -- the returns. 16 Number two, she had no knowledge of the tax 17 underpayment, which I don't believe this spouse had 18 any knowledge of the tax underpayment. 19 I think that she signed the original return 20 and I'm always -- you know, I'm always skeptical 21 when people just sign blank returns, but I know 22 people do that, or sign at will. 23 The tax court also concluded that Wilson 24 would suffer significant economic hardship. I think 25 that's apparent in this case. And the tax court 26 also concluded that the tax liability was solely 27 attributed to the husband. So they issued a final 28 equitable judgment in her case. 27 1 And this is United States Court of Appeals 2 for the Ninth Circuit, Karen Marie Wilson, 3 petitioner, and Commissioner of Internal Revenue was 4 respondent-appellant. And that was filed January 5 15th, 2013. So this is kind of a fairly recent case 6 on equitable spouse relief. 7 And I would submit that I'm -- I'm 8 primarily arguing from my perspective for 1995. I 9 think that is the big year when everything came back 10 and -- and -- and she had never worked. It was a 11 deficiency. She -- they are now divorced, even 12 though it's retrospective, that's -- that's what 13 happened exactly in this case. And so I would argue 14 that at least for 1995 that we allow her to have 15 equitable spouse relief. 16 And so that would be my motion. I'd like 17 to grant it all, but I don't think I can get there. 18 But I'm hoping for 1995 I will get the votes to do 19 so. 20 Do I hear any second? 21 No? 22 Okay. Next. 23 MS. MA: Move for the FTB. 24 MS. STOWERS: Second. 25 MS. HARKEY: Object. 26 Would you call the roll, Ms. Richmond. 27 MS. RICHMOND: Chairwoman Harkey. 28 MS. HARKEY: No. 28 1 MS. RICHMOND: Mr. Runner. 2 MR. RUNNER: Aye. 3 MS. RICHMOND: Mr. Horton. 4 MR. HORTON: Aye. 5 MS. RICHMOND: Ms. Ma. 6 MS. MA: Aye. 7 MS. RICHMOND: Ms. Stowers. 8 MS. STOWERS: Aye. 9 MS. RICHMOND: Motion carries. 10 ---oOo--- 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, Kathleen Skidgel, Hearing Reporter for 8 the California State Board of Equalization certify 9 that on July 28, 2017 I recorded verbatim, in 10 shorthand, to the best of my ability, the 11 proceedings in the above-entitled hearing; that I 12 transcribed the shorthand writing into typewriting; 13 and that the preceding pages 1 through 29 constitute 14 a complete and accurate transcription of the 15 shorthand writing. 16 17 Dated: August 3, 2017 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL, CSR #9039 22 Hearing Reporter 23 24 25 26 27 28 30