FTB, California tax statute of limitations

What is the statute of limitations for tax collections in California.

Put differently, how long does the state have hit me with taxes?  The typical myth is the statute of limitations is 3 years on a regular tax return, 6 years if the underpayment is 25% or greater.

Keep in mind though that we are talking about a tax code.  There are always twists and turns.

Posted below is a case with a very long term twist.  In June of 2012, the Franchise Tax Board hit the taxpayers with a bill from the taxpayers 2000 return.  A 12 year delay!!!!!

How and why? Time and time again California taxpayers ignore the state income tax ramifications of IRS audits.  When the IRS audits and hits a California taxpayer with more taxes, the taxpayer is supposed to immediately notify the franchise tax board that the California taxpayers owes the Franchise Tax Board (FTB) more money.  I think about 5% of people actually notify the FTB about the tax increase.

Under the California tax code, the statute of limitations for the FTB to charge taxes based on an IRS audit is just 2 years if the taxpayer tells the FTB within 6 months of the tax increase from the IRS audit.  However, if the California taxpayer sticks their head in the sand and ignores the increased tax liability to California, then the FTB has 4 years from the date the IRS tells the FTB of the increase.

Yeah, that’s complicated but lets boil it down.  If the IRS takes 97 years to tell the FTB that the IRS audited and increased the taxes on a California taxpayer, the FTB could still come after the taxpayer 100 years from the date the return was filed.

That’s what happened with this case.  The IRS didn’t send info about the increase in taxes until June of 2011.  Under the California tax code, the FTB has until June of 2015 to go after the California tax payer.

Moral of the story.  Immediately tell the FTB if you are hit with a bigger taxbill from the IRS, otherwise be prepared to be hit with massive taxes, penalties, and interest.

 

 

 

BOARD OF EQUALIZATION
STATE OF CALIFORNIA

In the Matter of the Appeal of:

BARRY ROSSUM AND
DARLENE ROSSUM

SUMMARY DECISION

PERSONAL INCOME TAX APPEAL

Adopted: March 25, 2014 Representing the Parties:

For Appellants:
Barry Rossum and Darlene Rossum

For Franchise Tax Board:
Jean M. Cramer, Tax Counsel IV

Counsel for the Board of Equalization:
Crystal Y. Yu, Tax Counsel

This appeal is made pursuant to sections 19045 and 19104 of the Revenue and Taxation Code (R&TC) from the action of respondent Franchise Tax Board (FTB) on appellants’ protest against the FTB’s proposed assessment of additional tax of $ 9,512.00, plus interest, for tax year 2000, 1 and the FTB’s imposition of an accuracy-related penalty of $ 3,804.80 2 and an estimated post-amnesty penalty of $ 1,796.28 for tax year 2000. The issues presented in this appeal are:

(1) Whether the statute of limitations bars the FTB
from collecting taxes, penalties, and interest for
the tax year 2000;

(2) Whether appellants have shown that the FTB’s
proposed assessment, which is based on federal adjustments
made by the Internal Revenue Services (IRS), is erroneous;

(3) Whether appellants have shown that the FTB abused
its discretion in denying their request for interest
abatement;

(4) Whether the FTB properly imposed an accuracy-related
penalty; and

(5) Whether this Board has jurisdiction over the
estimated post-amnesty penalty.

FINDINGS AND DISCUSSION

Background

Appellants filed a timely joint 2000 California tax return, reporting a federal and California adjusted gross income (AGI) of $ 479,029, total itemized deductions of $ 33,687, California taxable income of $ 445,342, and a total tax liability of $ 37,908. Appellants also reported California income tax withholdings of $ 31,354, which resulted in a balance due of $ 6,554. Appellants remitted this balance to the FTB with their return.

Subsequently, the IRS audited appellants’ 2000 federal return and made multiple adjustments. According to the IRS federal audit report (RAR), the IRS determined that appellants underreported their Schedule C gross receipts or sales by $ 97,200, and made adjustment to their AGI and itemized deductions. The IRS imposed a 20 percent accuracy-related penalty. Appellants signed the IRS Income Tax Examination Changes (Form 4549) in June of 2003, indicating their consent to the federal assessment and collection. Appellants, however, failed to inform the FTB of the federal audit result, and the IRS did not notify the FTB of the federal adjustments until June of 2011. Based on the federal audit report information provided by the IRS, the FTB issued a Notice of Proposed Assessment (NPA) on April 23, 2012. Consistent with the IRS audit report, the FTB increased appellants’ taxable income to $ 547,626. In the NPA, the FTB also proposed additional tax of $ 9,512.00, a 40 percent accuracy-related penalty of $ 3,804.80, a post-amnesty penalty of $ 1,796.28, plus applicable interest.

Appellants protested the NPA, claiming that they filed their 2000 federal and state returns based on the information they had at that time. After they discovered a missing Form 1099 that was not included in the calculation of tax, they refiled their tax returns with the corrected information and sent the additional taxes to the IRS and the FTB by mail. Appellants were surprised that the FTB did not receive their amended return and payment check, and claimed that they should not be assessed interest and penalties twelve years later due to an apparent mailing failure and the FTB’s delay. Appellants asserted that the NPA was issued beyond the statute of limitations period, and that they did not have any federal or state income tax documents for 2000-2004 because the IRS only required them to retain tax records for five years, so they already destroyed all their financial information and audit documents for 2000. Appellants further claimed that they were in extreme financial hardship at the time of protest and that they lacked resources to pay the proposed assessment. In August of 2012, the FTB sent a letter to appellants in response to their protest, informing them that the NPA was based on the federal adjustments made on their 2000 return. The FTB explained that the NPA was timely issued under R&TC sections 18622 and 19060, because neither appellants nor the IRS notified the FTB of the federal changes until the FTB received the RAR from the IRS in June of 2011. The FTB also invited appellants to provide additional documents showing the revised federal determination for further review. When no reply was received by the deadline provided in the letter, the FTB affirmed the NPA in a Notice of Action (NOA) on November 26, 2012. Appellants then filed this timely appeal.

Contentions

Appellant’s Contentions

Appellants appeal the amount of tax, interest and penalties for 2000, alleging that they filed their federal and state amended returns and paid the taxes due to the IRS and the FTB after the federal audit was completed. However, appellants claim that they were not aware that the FTB never received the amended state return and payment check until 2012. Appellants reiterate their financial hardship, and contend that they have destroyed all financial records over the years, so they cannot provide copies of their amended 2000 state return and payment check. Appellants assert that the FTB’s proposed assessment was barred by the statute of limitations, and that they should not be responsible for the accrued interest and penalties caused by the FTB’s delay in notifying appellants that it did not receive the alleged amended return and missing payments. At the close of their appeal letter, appellants concede the amount of additional tax due, but contend that the interest and penalties should be abated. Appellants attach the NPA and NOA with the appeal letter, but do not submit any additional documentation to support their contentions.

Respondent’s Contentions

The FTB asserts that the NPA was not barred by the statute of limitations. The FTB explained that R&TC section 19057 sets forth a general four-year statute of limitations, but a proposed assessment based on federal adjustments is one of the express statutory exceptions. Under R&TC sections 19059 and 19060, subdivision (b), if the federal determination is reported within six months of the final federal determination date, the FTB has two years to notify the taxpayer of its proposed assessment. But if the FTB is notified of the federal determination after the six-month period, the FTB has four years from the date of notice to mail the proposed deficiency assessment.

The FTB submits appellants’ federal account transcript showing the IRS audit was final in August of 2003, and contends the federal account transcript does not indicate that appellants ever filed federal or state amended returns. Regarding appellants’ assertion that they submitted full payment to the IRS with the amended federal return, the FTB points out that their account transcript contains no record showing such a payment. Rather, appellants’ records show that they made two advance payments to the IRS in 2003 and entered into an installment agreement with the IRS in 2004, thereafter they submitted monthly payments to the IRS until June of 2008. The FTB also submits a copy of its electronically stored record showing that it never received appellants’ 2000 amended return or their payment of the proposed assessment. The FTB argues that appellants should have noticed a higher balance on their bank account years ago, which presumably would put them on notice that their payment check was not sent to the FTB. Citing this Board’s decisions, the FTB further argues that appellants failed to meet their burden to produce proof of mailing showing they filed the amended return. (Citing Appeal of Thomas T. Crittenden, 74-SBE-043, Oct. 7, 1974; Appeal of La Salle Hotel Co., 66-SBE-071, Nov. 23, 1966.) As a result of appellants’ failure to notify the FTB of the federal determination, the FTB did not receive the information until the IRS transmitted the report in June of 2011. Under R&TC section 19060, subdivision (b), the FTB contends that the NPA was timely issued and not barred by the statute of limitations.

The FTB notes that appellants indicate they are appealing the proposed assessment of additional tax in the first sentence of their appeal letter, and argues that appellants failed to meet their burden of proving error in the federal adjustments or in the FTB’s determination based on the federal adjustments. The FTB cites R&TC section 18622, subdivision (a), and contends that appellants must either concede the accuracy of the federal determination or prove that the federal adjustments were erroneous. The FTB further contends that, as the NPA was based on federal adjustments, it is presumptively correct and thus, appellants bear the burden of proving that the federal adjustments were erroneous. The FTB maintains that the IRS did not revise or revoke its assessment, nor did appellants challenge the validity of the federal adjustments, and hence the FTB’s proposed additional tax based on federal adjustments was correct.

The FTB contends that appellants did not show any ground for abatement of the 40 percent accuracy-related penalty. Under IRC section 6662, the IRS imposed a 20 percent accuracy-related penalty based on appellants’ substantial understatement of income tax. The FTB argues that in accordance with R&TC section 19164 and Internal Revenue Code (IRC) sections 6662 and 6664, it imposed a 40 percent accuracy-related penalty on appellants’ 2000 tax year deficiency based on the IRS’s imposition of the accuracy-related penalty. Because the FTB’s proposed deficiency assessment was issued on April 23, 2012, after the amnesty period, and was for taxable year 2000, the accuracy related penalty was 40 percent of the underpayment under the amnesty provisions of R&TC section 19164, subdivision (a)(1)(B). 3 The FTB maintains that appellants did not raise any grounds to challenge the accuracy-related penalty under IRC section 6662(d)(2)(B)(i) and (ii), and further, appellants did not show any reasonable cause for the underpayment, an exception set forth in IRC section 6664(c). 4

The FTB argues that interest on unpaid tax accrues from the due date of the return until the taxpayer pays off the deficiency. The FTB contends that its action was timely because it issued the NPA within the four-year statute of limitations under R&TC section 19060 and within the notification period set forth in R&TC section 19116. The FTB further contends that appellants do not qualify for abatement of interest because they did not meet the requirements set forth in R&TC section 19104 for several reasons. One requirement is that there must be an unreasonable error or delay in the FTB’s performance of a ministerial or managerial action occurring after its first contact. The FTB maintains that there is no evidence showing it received or lost the amended return or payment check, so it could not notify appellants of the alleged mailing failure. Conversely, appellants should be aware of their own bank account balance if they indeed made any payment to the FTB. Another requirement for interest abatement is that appellants did not contribute to the delay. The FTB argues that appellants failed to notify it of the federal adjustments and failed to notice that the FTB did not receive their alleged amended return and payment check. The third requirement is no interest can be abated prior to the date of the FTB’s first written contact regarding the deficiency. Thus, the FTB contends that regardless of the length of time between the date appellants filed their return and the date the FTB sent them the NPA, the interest accrued prior to the NPA cannot be abated. With respect to appellants’ claim that they are suffering extreme financial hardship, the FTB finds that appellants did not meet the requirements of R&TC section 19112, under which the FTB has discretion to abate interest if the taxpayer shows his or her inability of paying a deficiency was solely due to extreme financial hardship caused by significant disability or other catastrophic circumstance. The FTB further contends that this Board does not have jurisdiction over interest abatement appeals based on a claim of financial hardship under R&TC section 19112.

The FTB contends that this Board does not have jurisdiction over the post-amnesty penalty for appellants’ 2000 deficiency. Citing R&TC section 19777.5, subdivision (a)(2), the FTB argues that the tax amnesty program was instituted for taxable years prior to 2003 to waive most penalties for eligible participants. However, for those taxpayers who did not choose to participate in the tax amnesty program, the FTB imposed a post-amnesty penalty on amounts that became due and payable after March 31, 2005, the last date of the amnesty period, which equaled to 50 percent of the interest computed under R&TC section 19101 on final deficiencies and self-assessed amount, for the period beginning on the last date prescribed by law for the payment of tax and ending on March 31, 2005. The FTB maintains, that in accordance with R&TC section 19777.5, subdivisions (a)(2) and (d), the post-amnesty amount referenced in the NPA and the NOA is an estimated amount and not part of the deficiency, and the FTB will recalculate the post-amnesty penalty once the proposed deficiency becomes final and if the final deficiency amount exceeds appellants’ prepayments of tax made before March 31, 2005. Since the proposed deficiency for appellants’ 2000 tax year has not yet become a final liability and not been paid, the FTB contends that the post-amnesty penalty is not part of the proposed deficiency subject to the instant appeal, and this Board does not have jurisdiction over the proposed post-amnesty penalty.

Finally, with respect to appellants’ financial hardship, the FTB contends that no statute authorizes it to withdraw or abate the proposed tax due to financial hardship. However, the FTB suggests three collection programs for appellants to consider, and attached with its brief instructions and application forms for each program.

Discussion

Statute of Limitations

In general, the statute of limitations allows the FTB to issue an NPA within four years of the date the taxpayer filed his or her California return. (Rev. & Tax. Code, section 19057.) However, special statutes of limitations apply when the proposed assessment results from federal adjustments. R&TC section 18622 provides that a taxpayer must report the federal adjustments to his or her gross income and deductions to the FTB within six months of the date the federal changes become final. If the taxpayer complies with this reporting requirement, the FTB may issue the NPA within two years of the date of notification, or within the general four-year period, whichever expires later. (Id. at section 19059.) If the taxpayer notifies the FTB more than six months after the date the federal changes become final, then the FTB may issue the NPA within four years of the date of notification. (Id. at section 19060, subd. (b).) If, however, the taxpayer fails to report federal changes that result in additional state tax, then the FTB may issue the NPA at any time. (Id. at section 19060, subd. (a).) The California Supreme Court has held that the specific language of R&TC section 19060 applies notwithstanding R&TC section 19057. (Ordlock v. Franchise Tax Bd. (2006) 38 Cal.4th 897, 909-912.)

Here, appellants did not timely report the federal adjustments to the FTB. According to the IRS report and the account transcript that the FTB submits on appeal, appellants signed the IRS Form 4549 in June of 2003, acknowledging the federal adjustments to their AGI and itemized deductions, and the IRS audit was completed in August of 2003. The FTB, however, was not made aware of the federal changes until June of 2011, when the IRS notified it of the federal audit result. Thus, under R&TC section 19060, subdivision (b), the FTB has four years from the IRS notification date to issue a proposed assessment for tax year 2000. The FTB issued the NPA in April of 2012, less than one year after receiving notice of the federal adjustments, and therefore the NPA is timely.

At protest, appellants claimed that after filing their 2000 federal and California returns they discovered a missing Form 1099 and refiled their returns with payments of additional taxes due to the IRS and the FTB, and assert that the IRS received the amended federal return and payment check, and then resolved the issue in 2001. On appeal, appellants make self-contradictory statements that they refiled their returns and mailed payment checks after the federal audit was completed in 2003. In any event, appellants failed to provide any documentation, such as a mailing receipt or their bank statement, to support any of their statements. The FTB, on the other hand, submits appellants’ federal account transcript, which indicates that the IRS never received appellants’ amended return. The federal account transcript also shows that contrary to appellants’ contentions, they made installment payments to the IRS for the tax and interest due for tax year 2000 from 2004 to 2008, rather than making a lump sum payment to the IRS for the balance due. The FTB also provides its own records confirming that it never received an amended California return or any payment from appellants for the additional tax due before or after the federal audit.

Federal Adjustments

R&TC section 18622, subdivision (a), provides in pertinent part that a taxpayer must either concede the accuracy of a federal determination or state where it is erroneous. It is well-settled that a deficiency assessment based on a federal audit report is presumptively correct and the taxpayer bears the burden of proving that the determination is erroneous. (Appeal of Sheldon J. and Helen E. Brockett, 86-SBE-109, June 18, 1986; Todd v. McColgan (1949)89 Cal.App.2d 509, 514.) 5 Unsupported assertions are not sufficient to satisfy the taxpayer’s burden of proof with respect to an assessment based on federal action. (Appeal of Aaron and Eloise Magidow, 82-SBE-274, Nov. 17, 1982.)

It is also well-settled that a presumption of correctness attends the FTB’s determinations on issues of fact and thus, a taxpayer has the burden of proving such determinations erroneous. (Appeal of Oscar D. and Agatha E. Seltzer, 80-SBE-154, Nov. 18, 1980.) To overcome the presumed correctness of the FTB’s findings on issues of fact, a taxpayer must introduce credible evidence to support his or her assertions. (Appeal of Oscar D. and Agatha E. Seltzer, supra.) When the taxpayer fails to support an assertion with such evidence, the FTB’s determinations must be upheld. (Appeal of Oscar D. and Agatha E. Seltzer, supra.)

Appellants appear to concede on appeal to the amount of additional tax proposed by the FTB. 6 The FTB’s assessment is based on information provided by the IRS. The FTB verified the federal adjustments by reviewing appellants’ federal account transcript and IRS report, and also requested appellants to provide copies of any revised federal audit report if the IRS cancelled or reduced its assessment. Appellants do not contest with any specification the accuracy of the federal adjustments or the FTB’s assessment of additional tax. Rather, appellants claim financial hardship due to limited income and health issues, which does not constitute a ground to challenge the FTB’s deficiency assessment. Accordingly, appellants have failed to provide any evidence to prove error in the FTB’s proposed assessment of additional tax, and therefore the FTB’s deficiency assessment is accurate and proper.

Abatement of Interest

The R&TC grants this Board jurisdiction to review the FTB’s refusal to abate interest for abuse of discretion and to order an abatement of interest if it determines that such an abuse occurred. (Rev. & Tax. Code, section 19104, subd. (b)(2)(B); Appeal of Ernest J. Teichert, 99- SBE-006, Sept. 29, 1999.) This Board has held that interest is not a penalty, but is simply compensation for a taxpayer’s use of money after the due date of the tax. (Appeal of Audrey C. Jaegle, 76-SBE-070, June 22, 1976.) Further, the FTB’s imposition of interest is mandatory, and there is no reasonable cause exception to the imposition of interest. (Appeal of Amy M. Yamachi, 77-SBE-095, June 28, 1977; Appeal of Audrey C. Jaegle, supra.) Here, in accordance with R&TC section 19101, subdivision (c)(1), appellants’ interest on the FTB’s proposed deficiency started accruing on the due date of appellants’ 2000 return.

Under R&TC section 19104, the FTB may abate interest on a proposed deficiency when the aggrieved taxpayer identifies an unreasonable error or delay which: (1) occurred after the FTB contacted the taxpayer in writing with respect to that deficiency or payment underlying the disputed interest; (2) is not significantly attributable to the taxpayer; and (3) is attributable in whole or in part to a ministerial or managerial act performed by an officer or employee of the FTB. (Rev. & Tax. Code, section 19104, subds. (a)(1) & (b)(1); Appeal of Michael and Sonia Kishner, 99-SBE-007, Sept. 29, 1999.) 7 Appellants have the burden to show that the FTB abused its discretion in refusing to abate interest. Interest abatement provisions are not intended to be routinely used to avoid the payment of interest, and abatement should be ordered only “where failure to abate interest would be widely perceived as grossly unfair.” (Lee v. Commissioner (1999) 113 T.C. 145, 149.) The mere passage of time does not establish error or delay that can be the basis of an abatement of interest. (Id. at p. 150.) According to R&TC section 19104, subdivision (b)(1), interest cannot be abated until after the FTB’s first written contact with appellants regarding the underlying deficiency assessment.

As stated above, the FTB timely issued the NPA on April 23, 2012, within the four-year statute of limitations period prescribed under R&TC section 19060. Since the NPA is the FTB’s first written contact with appellants, no interest accrued prior to that date can be abated. Furthermore, R&TC section 18622, subdivision (a), provides that if any gross income or deduction is changed or corrected by the IRS, the taxpayers are obligated to report each change or correction to the FTB within six months after the date of the final federal determination. Here, appellants never notified the FTB of the federal determination. Appellants contend that they mailed an amended return and payment check to the FTB, presumably after completion of the IRS audit. However, the FTB’s records show that it never received the alleged amended return and deficiency payment from appellants, and they cannot provide any documentation, such as copies of the mailed return, check payable to the FTB, bank statement, or mailing receipt showing that they notified the FTB of the federal changes following the IRS audit. In addition, only appellants had access to their own bank account. They should have been aware that the FTB did not receive and deposit the payment check based on the balances shown on their bank statements, but they failed to notify the FTB of the alleged mailing failure. Thus, the alleged delay period for which appellants are requesting interest abatement, the nine-year period from the end of the IRS audit to the issuance of the NPA, appears to be significantly attributable to appellants because they failed to report the federal adjustments to the FTB in a timely manner as required by law. Under R&TC section 19104, subdivision (b)(1), no delay shall be taken into account if a significant aspect of the delay can be attributed to the taxpayers, and therefore, no interest may be abated for this nine-year period.

Finally, appellants allege that the FTB took too long to notify them that it did not receive their amended return and payment check. However, appellants did not provide any evidence showing that the interest imposed was due to any unreasonable error or delay committed by an FTB employee in the performance of a ministerial or managerial act after the FTB received notice of the final federal determination. The IRS notified the FTB of the federal adjustments in June of 2011, and the FTB issued the NPA within one year of receipt of the IRS audit report. Appellants then filed a protest in June of 2012, and the FTB responded to their protest within three months explaining its position. When no additional information or reply was received by the deadline provided in the response letter, the FTB issued the NOA in November of 2012. Thus, the FTB’s processing timeline of appellants’ case does not reveal any irregularity or unreasonable delay committed by the FTB employees. Appellants have failed to show an unreasonable error or delay resulting from a ministerial or managerial act by the FTB’s officers or employees for which interest may be abated, and have failed to show that the FTB abused its discretion in denying appellants’ request for interest abatement. 8

Accuracy-Related Penalty

R&TC section 19164, which incorporates the provisions of IRC section 6662, provides for an accuracy-related penalty on the applicable underpayment. The penalty applies to the portion of the underpayment attributable to negligence or to the disregard of rules and regulations, or to any substantial understatement of income tax. (Int.Rev. Code, section 6662(b).) There is a “substantial understatement of income tax” when the amount of the understatement for a taxable year exceeds the greater of ten percent of the tax required to be shown on the return, or $ 5,000. (Id. at section 6662(d)(1).) In this instance, appellants’ underpayment of tax for 2000 is $ 9,512, a substantial amount under IRC section 6662(d)(1). 9 The FTB’s NPA was issued in April of 2012, after the amnesty period set forth in R&TC section 19731 (beginning February 1, 2005, and ending March 31, 2005), and the assessment is for 2000, a tax year beginning prior to January 1, 2003. Thus, under R&TC section 19164, subdivision (a)(1)(B), the FTB imposed a 40 percent accuracy-related penalty, in the amount of $ 3,804.80, on appellants’ 2000 deficiency assessment.

There are three potential exceptions that may provide relief from the imposition of the penalty. First, IRC section 6662(d)(2)(B)(i) provides that the amount of the understatement of tax is reduced by the portion of the understatement that is attributable to the tax treatment of any item by the taxpayer if there is, or was, “substantial authority” for such treatment. Second, IRC section 6662(d)(2)(B)(ii) provides, in pertinent part, that the amount of the understatement of tax is also reduced by the portion of the understatement that is attributable to any item if: (a) the relevant facts affecting the item’s tax treatment are “adequately disclosed” in the return or in a statement attached to the return, and (b) there is a “reasonable basis” for the tax treatment of such item by the taxpayer. Third, IRC section 6664(c)(1) provides, in pertinent part, that no penalty shall be imposed under IRC section 6662 with respect to any portion of an understatement if it is shown that there was a reasonable cause for such portion and that the taxpayer acted in good faith with regard to that portion. Appellants have not alleged or produced evidence to prove they met any of these exceptions. To the contrary, in their protest letter, appellants explained that their miscalculation of the 2000 AGI was because one Form 1099 was missing, so they did not take it into account in their calculation of tax. Since appellants have failed to prove any exception for abatement of the accuracy-related penalty, this Board finds the FTB’s imposition of the accuracy-related penalty is proper.

Post-Amnesty Penalty

In 2004, the California Legislature enacted the income tax amnesty program. (Rev. & Tax. Code, section 19730-19738.) Eligible taxpayers could participate in amnesty by filing an amnesty application and paying their outstanding liabilities of tax and interest, or entering into an installment payment plan, during the period of February 1, 2005, through March 31, 2005, inclusive. (Id. at section 19730 & 19731.) For liabilities that remained outstanding after the last day of the amnesty period, a post-amnesty penalty was imposed, which equaled 50 percent of the accrued interest payable. (Id. at section 19777.5, subd. (a).) This Board’s jurisdiction to review the post-amnesty penalty is extremely limited. For example, a taxpayer has no right to an administrative protest or appeal of an unpaid post-amnesty penalty. (Id. at section 19777.5, subd. (d).) A taxpayer also has no right to file an administrative claim for refund of a post-amnesty penalty, except upon the basis that the penalty was not properly computed. (Id. at section 19777.5, subd. (e).) Therefore, this Board’s jurisdiction to review the post-amnesty penalty is limited to situations where the penalty is assessed and paid, the taxpayer files a timely appeal from a denial of a refund claim, and the taxpayer attempts to show a computational error in the penalty calculation. Those circumstances are not present here. The $ 1,796.28 post-amnesty penalty is an estimated amount, which remains unpaid and appellants have not alleged a computational error. Thus, this Board does not have jurisdiction to review the post-amnesty penalty in the context of this appeal.

Financial Hardship

Appellants indicate in their appeal letter that they are experiencing tough financial times, and may have difficulty paying the proposed assessment amount. With its opening brief, respondent provided forms and instructions for its Offer in Compromise and Installment Agreement programs. When this decision is final, appellant may consider submitting an Offer in Compromise to respondent or may use FTB Form 3567 to request monthly installment payments.

CONCLUSION

For the foregoing reasons, the FTB’s action is sustained.

FOOTNOTES:
n1
The FTB explained that the tax year on appeal is more than 10 years after the filing date of the appeal because the FTB did not know about the federal audit until the IRS notified it in June of 2011, and the FTB’s audit based on the federal adjustments was not completed until November of 2012. As of November 26, 2012, the date that the FTB issued the Notice of Action, the accrued interest was $ 12,254.80.
n2
This accuracy-related penalty represents 40 percent of the FTB’s proposed assessment of additional tax.
n3
Under R&TC section 19164, subdivision (a)(1)(B), if a proposed deficiency assessment was issued after the last date of the amnesty period, for any taxable year beginning prior to January 1, 2003, the penalty is computed at 40 percent instead of 20 percent. Under R&TC section 19731, the two-month tax amnesty period began on February 1, 2005 and ended on March 31, 2005.
n4
The FTB explained that under Treasury Regulation section 1.6664-4(c)(1), the most important factor is the extent of the taxpayer’s effort to assess the proper tax liability.
n5
The Board of Equalization decisions are generally available for viewing on our website at www.boe.ca.gov.
n6
In the protest letter, appellants stated that they protested the proposed assessment referenced in the NPA. In the first paragraph of the appeal letter, appellants also indicate that they are appealing “the amount of tax, penalty and interest for tax year 2000.” However, later in the appeal letter, appellants concede the amount of tax due and indicate that they are willing to make a payment of $ 9,512 to the FTB.
n7
In the Appeal of Michael and Sonia Kishner, supra, this Board adopted the definition of “ministerial act” from Treasury Regulation section 301.6404-2(b)(2), where it is defined as:

A procedural or mechanical act that does not involve
the exercise of judgment or discretion, and that
occurs during the processing of a taxpayer’s case
after all prerequisites to the act, such as conferences
and review by supervisors, have taken place. A decision
concerning the proper application of federal tax
law (or other federal or state law) is not a ministerial
act.

“Managerial act” is also defined in Treasury Regulation section 301.6404-2(b)(1) as:

[A]n administrative act that occurs during the
processing of a taxpayer’s case involving the temporary
or permanent loss of records or the exercise of judgment
or discretion relating to management of personnel.
A decision concerning the proper application of federal
tax law (or other federal or state law) is not a
managerial act. Further, a general administrative
decision, such as the IRS’s decision on how to organize
the processing of tax returns or its delay in implementing
an improved computer system, is not a managerial
act for which interest can be abated. . . .
n8
R&TC section 19112 provides the FTB the discretion to abate interest for taxpayers in extreme financial hardship, but only when the financial hardship was caused by significant disability or other catastrophic circumstance. The FTB found that appellants did not provide any evidence showing that they suffered extreme financial hardship caused by a significant disability or other catastrophic circumstance, and this Board does not have jurisdiction to review the FTB’s decision on this matter.
n9
Appellants’ total tax required to be reported on their return was calculated by the FTB to be $ 47,420. Ten percent of this amount is $ 4,742, less than $ 5,000, and therefore any underpayment greater than $ 5,000 equates to a substantial underpayment.

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