FTB spends 5 years, fails to collect $392

FTB spends 5 years, fails to collect $392

 

Franchise Tax BoardCalifornia’s Franchise Tax Board spent thousands of dollars over five years in the futile pursuit of a Redondo Beach septuagenarian for $392. For more than half of that time, FTB staff lost the taxpayer’s records and didn’t inform him of it.

Willard Christine appealed the FTB’s tax ruling to the state Board of Equalization. The BOE granted it, 3-2, on June 24. Two board members criticized FTB’s handling of the case.

“It just drives me crazy that for $392 worth of tax there was this ongoing discussion with this taxpayer, a loss of his records for 33 months,” said George Runner. “If anything I think this is a time for us to send a message saying, ‘At times, FTB, you just need to do a better job.’”

Diminishing returns

The FTB sent two attorneys to the seven-hour hearing, prompting Runner to wonder about a point of diminishing returns in pursuit of small tax disputes.

“I can’t imagine there isn’t some path to try to provide a resolution to this,” he said. “I mean, we spent that much money in attorneys – more, we probably spent three times that amount of money – in attorney fees sitting here today.”

BOE Chairman Jerome Horton was also critical of FTB’s treatment of Christine.

“I just feel compelled to say something about this,” he said. “A loss of records for 33 months is a significant error on the part of the department. As human as the error may be, I happen to believe that there are a whole lot of faults that may have occurred in that process.

“But it is indicative of a larger concern, I think. And could be reflective of the cause for the inaction on the part of the taxpayer or inability to act on the part of the taxpayer subsequent to those 33 months, because of the frustration of not being able to have the information.”

FTB apology

FTB Public Affairs Officer Denise Azimi blamed the missing records on “human error.”

“I apologize to Mr. Christine for the long delay on his case,” she said. “We strive to provide timely attention and resolution to all taxpayers’ disputes or concerns. We certainly did not meet his or our own expectations in this instance.

“We provided the only remedy FTB could allow under the law; we abated the interest for the time period that the case was missing. In regards to our processes, we are striving to be more diligent so this does not occur in the future.”

History of the dispute

There actually was no dispute for two years after Christine filed his 2006 tax return, according to the BOE appeal filing. He and his wife reported and paid a tax liability of $1,965 on California taxable income of $68,018.

But at some point the IRS informed the FTB that the couple had improperly claimed some deductions on their Social Security income, the taxable portion of which was higher than they had reported.

That created a $14,738 increase in their taxable income, and a resulting additional tax owed of $1,168 plus interest, the FTB informed Christine on July 8, 2009.

He filed a protest, arguing that the language on the tax form “was incomplete, flawed and misleading,” according to the appeal.

And Christine received vindication. In a March 2010 phone conversation, the FTB informed him it had received “additional information from the IRS substantiating the amount of itemized deductions claimed on [his] California return.”

That left a tax owed of $392 plus interest. But shortly thereafter – from April 1, 2010 through Jan. 9, 2013 – the FTB lost Christine’s records. In that time nothing happened in the dispute, with neither side contacting the other.

Having found the records, the FTB sent letters to Christine on Jan. 14, Feb. 14 and March 14, 2013 discussing the issues in the case and setting a date for his protest hearing.

Christine responded via email on March 25, 2013, “expressing his concern and dismay regarding the missing file and delay in the protest proceedings,” according to his appeal.

The FTB apologized and agreed to delete the interest that had accrued on his tax liability during those 33 months. Then on June 27, 2013 it denied his protest, affirming that he owed $392 plus interest. As of Nov. 4, 2013 the interest totaled $74.42, creating a total liability of $466.42.

‘Undue delay’

In his appeal, Christine did not dispute the remaining tax liability. But he argued that the FTB had forfeited its right to collect it due to its negligence in allowing a 33-month “undue delay” in the case.

“It has been botched every step of the way,” Christine told the BOE board. “Losing a set of records for almost three years. What’s a taxpayer to think when he receives no information whatsoever, not even a postcard, from the tax board over that period of time? At some point wasn’t I at least owed a courtesy letter from the tax board apprising me of this extraordinary development?

“More than once I looked at the sheaf of records pertaining to this tax return and wondered whether the whole kit and caboodle should be relegated to the round file. Then when my case belatedly resurfaced when a video hearing was scheduled in April of last year, I was asked to furnish Leslie Cardoza my talking points in advance of the hearing. I did so in a detailed letter that was sent to her office in Rancho Cordova.

“But when I appeared at the hearing in downtown Los Angeles, she said over television that she hadn’t received the letter. To call this case ‘The Gang That Couldn’t Shoot Straight’ would not be an exaggeration.”

Repeat of 2004 tax dispute ‘nightmare’

Christine said his current dispute is similar to one he had with FTB over his 2004 tax return.

“I was victimized by bureaucratic mumbo jumbo, clerical ineptitude, wheel-spinning of the first order,” he said. “That case, I think, was a microcosm of why the state’s fiscal morass has persisted over these many years.”

Christine won that dispute when the BOE board granted his appeal in 2010.

“After my statement before this board in 2010, [Board Member Michelle Steel] characterized my experience as a ‘nightmare,’” Christine said. “She went on to say that as she read the sorry details of my case she was actually laughing and feeling sorry for me at the same time because of my plight.

“Mr. Jerome Horton complimented me for being a well informed taxpayer while making the point that if I was confused by the rules and regulations ‘millions of other Californians would also be at risk.’ There were urgings from your board that day that, if you will pardon the expression, the tax board should clean up its act and be more user friendly to taxpayers.”

In reference to his current dispute, Christine told the BOE, “I feel that it’s a sad state of affairs that we are here today debating the merits of a return from eight years ago that has gone from a four-figure past-due amount to only a few hundred dollars. Your time and effort are more valuable than this.”

FTB: taxpayer was ‘made whole’

FTB lawyer Karen Smith responded by noting that Christine does not dispute that he has a tax liability, and that the FTB is not charging interest for the 33 months that “the file was misplaced.” She dismissed Christine’s argument that that delay had forfeited FTB’s right to collect his tax.

FTB “has taken all of the actions allowed by law to make the appellant whole,” she said. “There is simply no provision under the law to abate any further interest or the tax as requested by the appellant.”

Christine responded by asking the board to consider if the situation were reversed.

“Suppose a taxpayer lost his records for three years and never wrote a letter,” he said. “Would the government be as forgiving as the taxpayer is being required to be in this case? It’s a rhetorical question, we all know the answer.

“Also in the brief filed by the government it says that I wasn’t harmed. Well, I had high blood pressure when this started, and I still have high blood pressure, and I’m taking medication for it. I consider that harm. Maybe not financial harm, but certainly physical harm.

“And there’s been some mental harm: the stress, the aggravation, the frustration, the angst. No remorse or apology, not one iota. I think the taxpayer is owed better in this case.”

Azimi could not say how much FTB staff time was spent during the tax dispute. “We do not have this information readily available,” she said.

FTB doesn’t cut its losses

But despite spending thousands of dollars trying to collect $392, the FTB does not recognize a point of diminishing returns. CalWatchdog.com asked Azimi whether FTB has a policy on when to cut its losses.

“The answer is no,” she said. “Our job is to administer the state’s income tax laws in a fair and impartial manner to ensure that all taxpayers meet their obligations to file and pay the proper amount owed. All taxpayers, regardless of the amount owed, are entitled to exercise their due process rights in disputing their tax assessments before we finalize those tax liabilities.

“Due process means that taxpayers are given an opportunity to be heard and to present any claims or defenses they may have. These actions include the right to protest, have an oral hearing and, if needed, appeal their tax assessments. When any taxpayer decides to exercise these rights, we will participate, regardless of the amount of disputed taxes at issue.”

The two BOE members who voted to deny Christine’s appeal, Betty Yee and Deputy State Controller Marcy Jo Mandel (representing Controller John Chiang), did not comment on the case. Yee is running to replace Chiang as state controller.

9 comments

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  1. californianative
    californianative 17 July, 2014, 03:18

    When I owned a small business in California in the late 80’s early 90’s the FTB sent an agent to my business for a sales tax audit. They sent someone from Sacramento, put him up in a hotel for 4 nights and he spent all week in my office. He tied up one employee ( our gross sales were about $ 850,000/yr) all week feeding him records ( we did not have a computer, all records on typed ledgers). He went back home with somewhere around $ 800 in his pocket. We tightened up our process in collecting sales tax and they came back the very next year. Same scenario, tied up my gal for another week. This time they cut me a check for about $400 for overpayment! Those bozo’s. The FTB guy could care less, he was getting paid by the hour and all expenses paid. They left me alone after that. Sold the business in ’94 and got out of Dodge.

    Reply this comment
  2. Ontheotherhand
    Ontheotherhand 17 July, 2014, 09:50

    That may have happened, but FTB does not collect or audit sales tax. That would be BOE.

    Reply this comment
  3. Rex the Wonder Dog!
    Rex the Wonder Dog! 17 July, 2014, 16:00

    Yikes!

    Reply this comment
  4. californianative
    californianative 17 July, 2014, 18:32

    Ontheotherhand,
    No doubt, it definitely happened. Your probably right, it was the Board of Equilization. It’s been over 20 years and to be honest with you I can’t remember keeping track of the names of all of these agencies but I have a strong memory of that guy sitting in the back office tapping away at his adding machine and asking for records going back 3 years or so. He disrupted the whole place for a week. We were sure glad when he left and I thought as a taxpayer what a wasted effort that week was for the State ( with respect to my little agricultural support business). I get that they have to set examples to try and keep the ” people” honest. He drove 3 1/2 hrs south from Sacramento in his state car, stayed at a hotel and ate at restaurants that week all on the taxpayers dime. Making maybe $ 20/hr plus benefits back then. Again, a net BUST for the state. Then they came back again the next year, hoping to catch me screwing them because I figured they wouldn’t be back for a long time. Bigger BUST for the state. That’s like the guy who loses $ 20 a transaction in business and you ask him, ” How you gonna make that up?”. And he says ” On volume”, with a straight face. I really couldn’t make this stuff up if I tried.

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  5. californianative
    californianative 17 July, 2014, 18:37

    FTB,BOE,IRS. All the same to me, money out of my pocket to the government.

    Reply this comment
  6. Hondo
    Hondo 18 July, 2014, 17:39

    I notice none of our liberal friends commenting on this horror story. I remember back when Reagan was president and the dems howled over those $500 hammers the pentagon was buying. The Reagan people were pikers compared to the Kali dems.
    Hondo……

    Reply this comment
  7. DavidfromLosGatos
    DavidfromLosGatos 23 July, 2014, 13:33

    If you want to be appalled by actions of the California Franchise Tax Board, read up on the Gil Hyatt litigation. Not sure of the current status, but as of a few years ago, he had obtained a Nevada state court judgment against CA FTB for something around $1B. Underlying facts had to do with his moving to Nevada because he became wealthy on patent royalties, and did not want to pay CA income taxes on same. But CA FTB takes the Hotel California lyrics to heart (“you can check out anytime you want, but you can never leave”).

    Reply this comment
  8. David Feldman
    David Feldman 28 July, 2014, 10:17

    I am a liberal and have voted democrat most of my life. That does not mean liberals don’t want to see efficient AND FAIR government. If you want to know just how INCOMPETENT and UNCARING the FTB is go to http://www.FTBisBroken.com. We reported two tax evading venture capital firms that have operated in CA for over a decade taking out MILLIONS in TAX FREE money they stole from honest CA taxpayers through fraudulent use of the Courts. The FTB did NOTHING even though we provided hundreds of pages of evidence including the VCs sworn testimony. Worst of all is John Chiang, Chairman of the FTB. He has not even shown up for a meeting of the Board in years (see http://www.Chiang4Treasurer.com).
    The result of the FTB inaction is a CA company destroyed, 45 jobs lost and almost $9-million flowing out of State without a penny of taxes being paid while the criminals still are in CA.
    It is time to reorganize the state’s taxing authorities. Why do we need two inept organizations costing almost a billion dollars each.
    Oh, by the way Republican George Runner did not even respond to a request for help!

    Reply this comment
  9. Dazed and Confused
    Dazed and Confused 2 March, 2017, 15:09

    I have just closed my freelance writing S-corp after two years of threats and harassment by the FTB including dunning me for a year I didn’t live in the state! (My wife moved to LA mid september 2013) and I followed following year after selling our house. Our NY accountant (since fired) put the cali address on my 2013 corporate income tax form and the hounds of hell began sniffing around. I hired an LA tax accountant and we filed amended returns and… they seized my corporate bank account – while we were in discussions with them. I called the FTB twice – first time I got a woman I could barely understand, second time I got a guy who asked why I was giving him “attitude”. I have never seen such unabashed greed – had NO idea Cali was like this. When I said I couldn’t believe they seized my bank account, the guy said “we seize houses, sir.” I am afraid of this state. How did it get like this? NY was expensive, but I never had issues like this.

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