Public Meeting Agenda
TAXPAYERS' BILL OF RIGHTS HEARING
FRANCHISE TAX BOARD
December 15, 1998
The Franchise Tax Board met in open session at 1:30 p.m. at the State Board of Equalization, 450 N Street, Hearing Room 121, Sacramento, California. Present were Ms. Marcy Jo Mandel representing Hon. Kathleen Connell, Hon. Dean Andal and Mr. Robin J. Dezember representing Hon. Craig L. Brown.
|Franchise Tax Board|
|Gerald Goldberg, Brian Toman, Anne Smith, Cathy Cleek, Johnnie Lou Rosas, Larry Counts and Megan Hall.|
|Others Participating||Marvin Klotz representing LA Chapter of California Society of Enrolled Agents, Gina Rodriguez representing Spidell Publishing, Ruth Rowlett representing California Society of Enrolled Agents, Richard Harris, and Greg Turner representing California Taxpayers' Association.|
Taxpayers' Bill of Rights Hearing
Ms. Mandel noted a quorum was present and called the meeting to order. She introduced Franchise Tax Board staff members who were present and able to respond to questions.
Marvin Klotz representing LA Chapter of California Society of Enrolled Agents
Mr. Klotz suggested the Board sponsor legislation that would repeal Section 19133 of the Revenue and Taxation Code. He also suggested that FTB adopt the IRS's SFR program by preparing substitute tax returns for non-filers. He felt that it is unfair to penalize only those non-filers who may owe some tax and that Section 19133 unfairly penalizes nonfilers by assessing different amounts for the same violation of Revenue and Taxation Code. His opinion was that neither revenue considerations nor the benefit of future compliance justify a fatally flawed and intrinsically unfair penalty.
Mr. Klotz proposed that the Franchise Tax Board issue a "soft" letter that notes the failure to file, informs the taxpayer of filing requirements, but makes no demands. He believes the present FTB program results in an unacceptable number of erroneous contacts requiring innocent taxpayers to respond to the FTB, even if they have no filing requirement. He also believes many professional license holders do not surrender inactive licenses because renewing the license is difficult or troublesome. Without even knowing if these license holders had any income, they are issued a notice of proposed assessment with imputed income for those who do not respond. Taxpayers then must defend themselves against invalid collection demands.
Cathy Cleek, Director, Filing Enforcement Bureau, explained how the notice and demand penalty works, indicating that the department essentially needs a return in order to determine the proper amount of income and deductions. She stated she had detailed information on the number of taxpayers that actually owe and pay tax, which she would share with Mr. Klotz, and also noted that a substantial project (INC) is underway which will, among other things, reduce the number of erroneous contacts with nonfilers.
Mr. Goldberg stated that FTB would prepare and submit an issue paper with regard to the Revenue and Taxation Code Section 19133.
Gina Rodriguez representing Spidell Publishing
LARZ Credit. Ms. Rodriquez indicated the credits had expired December 1, 1998, and taxpayers are confused as to whether they can claim any credit benefits. She asked the Board for some policy direction on this issue and Mr. Goldberg stated that he would look into the situation immediately.
Unemployment Insurance Code section 938.3. Ms. Rodriguez asked the Board to sponsor legislation conforming state law to federal law with respect to the ride sharing. She explained confusion arises because the income exclusions for wages differ for income and employment tax for California and there is possibly a third difference for federal purposes.
Sale of Lottery Winnings. Ms. Rodriquez noted California lottery winnings are taxable at the federal level but not at a state level. She raised the question of the taxability of lottery winnings when winners sell or assign their winnings for California income tax purposes.
Brian Toman, Chief Counsel, suggested a draft Legal Ruling be presented to the Board for approval. This Legal Ruling would state FTB's position that once the lottery winnings have been sold, since the money is no longer coming from the Lottery Commission, the sales proceeds are taxable.
Revenue and Taxation Code. Ms. Rodriguez expressed her concern that the Revenue and Taxation Code has become incomprehensible. She asked that some resources be put together to change the Code, perhaps a work group could be formed. After discussion and consideration between the Board members and staff, Mr. Goldberg agreed to examine what could be done.
Roth/IRA Provisions. Senator Chesbro has introduced a bill, SB 93, which includes provisions from AB 1469, without the controversial Waters Edge Provisions. Ms. Rodriguez asked the Board for support to help ensure enactment.
Internet Access to FTB Board Meetings. Ms. Rodriguez suggested the Board offer Internet access for taxpayers to hear the Franchise Tax Board meetings online.
Ruth Rowlett representing California Society of Enrolled Agents
Ms. Rowlett also touched on the issue of Revenue and Taxation Code Section 19133. She stated this issue usually affects lower income taxpayers, many of whom, cannot read or speak English very well. The 25 percent penalty impacts these taxpayers to a point where they are unable to pay the total amount. Ms. Rowlett suggested the initial filing enforcement letter state where assistance is available to help individuals prepare their returns.
Ms. Rowlett also suggested that California conform to Internal Revenue Code Section 6651(a). This code section imposes a penalty for failure to file a tax return on the balance due after taking the withholding credits into account.
Member Andal asked that Franchise Tax Board do some revenue estimating on this, which Mr. Goldberg said that he would incorporate into the issue paper.
Making Information Available to Taxpayers. Mr. Harris suggested the Franchise Tax Board incorporate the full text of all of the department's regulations to its Internet website. He then suggested a suitable search engine which could accommodate all of the information within the website. He hoped that a telephone listing of all the FTB legal and protest staff will be added to FTB's website.
Mr. Goldberg informed Mr. Harris that FTB had contacted OAL, who is legally responsible for these regulations. OAL expressed that they were hopeful of having the regulations on the FTB website by the end of December. FTB will then provide a link to the OAL website. Mr. Goldberg also indicated that adding the telephone numbers of legal staff should not be a problem.
Implementation of the Statement of Principles of Tax Administration. Mr. Harris hoped that a notation can be made in future editions of FTB form 7808 (Statement of Incompatible Activities and Rules of Conduct), so employees are required to sign a statement that they have read the Statement of Principles. This suggestion was accepted by both Mr. Andal and Mr. Goldberg.
Proposal to Eliminate Retaliation for Criticizing State Tax Departments. Mr. Harris proposed that Franchise Tax Board sponsor a statute which would state, "The Board and all board personnel shall refrain from any retaliatory action against a taxpayer or taxpayer representative who has criticized the tax administration or the conduct of any board personnel." Alternatively, Mr. Harris sought Board support for that proposal should it be sponsored by others.
Protest Issue. Mr. Harris brought a matter to the Board's attention regarding a taxpayer who had written a letter to the Franchise Tax Board protesting an assessment, noting that the protest request was not treated appropriately by FTB staff. Mr. Harris acknowledged that with the assistance of the Taxpayer Advocate staff, the matter was appropriately resolved.
Greg Turner representing California Taxpayers' Association
Mr. Turner expressed his agreement with Gina Rodrigues' request for simplification of the Revenue and Taxation Code and concurred with her suggestions.
Inquiry to the Procedures for Releasing Statements with Taxpayer Returns. Mr. Turner explained the San Jose Mercury News ran a story regarding some letters that FTB sent to local businesses regarding their potential obligation for local business license taxes in their jurisdictions. Mr. Turner inquired about the nature of the criteria used to decide who was the recipient of the information.
Mr. Goldberg explained that San Jose was having an amnesty program, and on behalf of the city of San Jose, Franchise Tax Board sent out a mailing to taxpayers who are within a certain area, noting the amnesty program and offering that they may want to participate. The Board has made it a practice for quite some time to cooperate with other taxing jurisdictions. Mr. Goldberg said he would provide the Board, as well as Cal Tax, a memo as to the basis upon which FTB agreed to participate and the criteria we use before we participate.
Marvin Klotz representing LA Chapter of California Society of Enrolled Agents.
Conversion from IRAs to Roth IRAs. Mr. Klotz added his concerns in connection with basis computations when converting from traditional IRAs to Roth IRAs.
Mr. Goldberg agreed to look into this issue and to also send Mr. Klotz and the Board a memo stating the Franchise Tax Board's position on this issue.
The meeting was adjourned at approximately 3:05 p.m.