Judge: Yolanda Orozco, Case: 19STCV21940, Date: 2023-04-19 Tentative Ruling
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**Tentative rulings on Motions for Summary Judgment will only be available for review in the courtroom on the day of the hearing.
Case Number: 19STCV21940 Hearing Date: April 19, 2023 Dept: 31
PROCEEDINGS:¿ MOTION FOR SUMMARY JUDGMENT
¿
MOVING PARTY:¿ Plaintiff¿Cynthia Betzler¿
RESP.¿ PARTY:¿ Defendant California Franchise Tax Board
¿
MOTION FOR SUMMARY JUDGMENT
TENTATIVE RULING
Plaintiff’s Motion for Summary Judgment is DENIED.
BACKGROUND
On June 16, 2019, Plaintiff Cynthia Betzler filed the instant action against Defendant California Franchise Tax Board (“FTB”). On December 19, 2019, Plaintiff filed the operative Second Amended Complaint (“SAC”). The SAC asserts the sole cause of action for:
1) Tax Credit with Tax Refund.
On August 02, 2021, the Court granted Defendant’s motion for summary adjudication of Plaintiff’s claims for a tax refund for the tax years 2004, 2005, 2006, and 2008. (Min. Or. 08/03/21.)
On September 30, 2022, Plaintiff Cynthia Betzler filed a motion for summary judgment.
Defendant FTB filed opposing papers on April 05, 2023.
Plaintiff filed a reply on April 13, 2023.
LEGAL STANDARD
The purpose of a motion for summary judgment or summary adjudication “is to provide courts with a mechanism to cut through the parties’ pleadings in order to determine whether, despite their allegations, trial is in fact necessary to resolve their dispute.”¿ (Aguilar v. Atl. Richfield Co. (2001) 25 Cal. 4th 826, 843.) “Code of Civil Procedure section 437c, subdivision (c), requires the trial judge to grant summary judgment if all the evidence submitted, and ‘all inferences reasonably deducible from the evidence’ and uncontradicted by other inferences or evidence, show that there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” (Adler v. Manor Healthcare Corp. (1992) 7 Cal.App.4th 1110, 1119.)¿¿¿¿¿
¿
“On a motion for summary judgment, the initial burden is always on the moving party to make a prima facie showing that there are no triable issues of material fact.” (Scalf v. D. B. Log Homes, Inc. (2005) 128 Cal.App.4th 1510, 1519.) The moving party is entitled to summary judgment if they can show that there is no triable issue of material fact or if they have a complete defense thereto. (Aguilar, supra, 25 Cal. 4th at 843.)¿ Summary adjudication may be granted as to one or more causes of action within an action, or one or more claims for damages. (Cal. Code of Civ. Proc. §437c(f).)¿¿¿¿¿¿
¿
Defeating summary judgment requires only a single disputed material fact. (See CCP § 437c(c) [a motion for summary judgment “shall be granted if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.”] [emphasis added].) Thus, any disputed material fact means the court must deny the motion – the court has no discretion to grant summary judgment. (Zavala v. Arce (1997) 58 Cal.App.4th 915, 925, fn. 8; Saldana v. Globe-Weis Systems Co. (1991) 233 Cal.App.3d 1505, 1511-1512.)¿¿¿
REQUEST FOR JUDICIAL NOTICE
The Court may take judicial notice of regulations and legislative enactments issued by or under the authority of the United States or any public entity in the United States; records of any court of record of the United States; and facts and propositions that are not reasonably subject to dispute and are capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy.” (Evid. Code § 452,¿subds. (b) (d), and (h).) However, the court may only judicially notice the existence of the record, not that its contents are the truth. (Sosinsky v. Grant (1992) 6 Cal.App.4th 1548, 1565.)
On reply, Plaintiff requests judicial notice of the following:
Exhibit A: Franchise Tax Board Claim for Refund showing on Page 2 (bottom of page) "Reasonable Cause'" standard, located online at https://www.ftb.ca.gov/help/disagree-or-resolve-an-issue/claim-for-refund. html.
Exhibit B: Franchise Tax Board Form I 564 (NEW 03-2004).
Exhibit C: Black's Law Dictionary (West 6th ed. 1990), p. 450
Exhibit D: Franchise Tax Board Form 1564 (REV 0 1-2020), located online at https://www.ftb.ca. gov /forms/misc/ 1564. pdf.
Plaintiff’s request for Judicial Notice is GRANTED in its entirety.
EVIDENTIARY OBJECTIONS
On April 17, 2023, Plaintiff filed an opposing paper titled: “PLAINTIFF'S OPPOSITION TO DEFENDANT FRANCHISE TAX BOARD'S EVIDENCE OBJECTIONS SUBMITTED WITH DEFENDANT'S REPLY TO PLAINTIFF'S OPPOSITION TO MOTION FOR SUMMARY JUDGMENT.” No hearing reservation number was provided.
The Court notes that Defendant FTB has not submitted a reply or surreply for this instant Motion, only opposing papers to Plaintiff’s Motion for Summary Judgment. Defendant FTB’s proof of service also does not list evidentiary objections as being served on Plaintiff in opposition to this Motion. Accordingly, the Court does not have a filing showing that Defendant FTB submitted evidentiary objections to Plaintiff’s Motion or Evidence.
Since Plaintiff’s opposing papers respond to evidentiary objections not made by the FTB on this Motion, the Court will disregard Plaintiff’s opposing paper to FTB’s evidentiary objections as it is not relevant to the disposition of this motion. (Code Civ. Proc. § 437c(q).)
DISCUSSION
Plaintiff moves for summary judgment because no triable issue of material fact exists as to Defendant Franchise Tax Board's (“FTB”) wrongful collection of penalties, interest, and fees in the amount of $1,049,100.76 for the 2007 tax year, and that no defense exists to the action.
Relevant Facts
Plaintiff and Erick Betzler (collectively the “Betzlers”) were husband and wife. (UMF 2.)
The parties do not dispute that Mr. Betzler was “financially disabled” from April 15, 2005, to July 31, 2012. (UMF 7.) Consequently, on April 02, 2012, the Betzlers filed joint federal and state income tax returns for tax years 2004 through 2008. (UMF 4.) Mr. Betzler pass away on July 24, 2012. (UMF 3.)
The FTB charged and collected $1,049,100.76 in penalties, interest, and fees for the tax year 2007 from the Betzlers. (UMF 22.) The penalties, interest, and fees collected as shown on the 2007 tax year summary are as follows:
1) Estimate Penalty: $ 7,536.20
2) Accuracy Penalty: $ 247,200.00 3.
3) Total Interest Charged: $ 794,012.56
4) Filing Enforcement Fee: $ 119.00
5) Collection Fee: $ 217.00 6. County Lien Fee: $ 16.00
Total Penalties, Interest, and Fees Charged: $1,049,100.76. (UMF 23.)
Plaintiff brought this action against the FTB on the basis that the FTB wrongfully collected penalties, interest, and fees from Plaintiff in the amount of $1,049,100.76 for tax year 2007.
The parties agree to the basic facts of this case but disagree as to whether the FTB properly charged penalties, interest, and fees for the 2007 tax year despite Plaintiff being financially disabled.
1. Revenue and Tax Code Section 19316
Plaintiff asserts that because she was financially disabled, the statute of limitations is tolled during the period of disability under both California and Federal Law. This is not disputed by the parties.
Under section 19316, subdivision (a), the statute of limitation to file a tax return is tolled based on a finding that the taxpayer is financially disabled.
Section 19316, states in the relevant part:
“In the case of an individual taxpayer under the Personal Income Tax Law (Part 10 (commencing with Section 17001)), the running of any period specified in Section 19306, 19308, 19311, 19312, or 19313 shall be suspended during any period during which that individual taxpayer is ‘financially disabled’ as defined in subdivision (b).”
(Rev. & Tax. Code, § 19316.) The FTB concedes that the Betzlers were financially disabled from April 15, 2005, to July 31, 2012. (UMF 6, 7, AMF 25.)
What is disputed is whether the tolling of the statute of limitations during a period of disability means that penalties and interest are not charged as the late tax filing is accepted as timely. The FTB maintains that section 19316 does not abate interest, penalties, or fees for financially disabled taxpayers but merely provides an extension of certain limitation periods.
2. $1.4 Million Payment on Tax Year 2006 is Credited to Tax Year 2007
The parties do not dispute that the Internal Revenue Service (“IRS”) issued a financial disability determination and credited $1.4 million of taxes from the tax year 2006 to the tax year 2007. (UMF 8.) Similarly, because the Betzlers were financially disabled, the Betzlers received full credit for the $1.2 million payment made to the FTB on April 15, 2007. (SAC ¶ 1.) Because the payment was made on April 15, 2007, the FTB applied it to the Betzlers’ 2006 tax liability which was only $143,099.00; resulting in an overpayment. Under section 19306 of the California Tax and Revenue Code, the Betzlers had until April 15, 2011, to obtain credit for the overpayment. Nevertheless, due to the Betzlers’ financial disability, the FTB did provide them with a credit for the overpayment on their 2007 tax liability. (AMF 29, Yorston Decl. ¶ 5, DCOE Ex. 2 [2007 Account Summary].) However, the FTB also charged the Betzlers penalties, interest, and fees.
The FTB maintains it properly imposed penalties, interest, and fees for the 2007 tax year.
3. Plaintiff Fails to Establish She Is Entitled to a Refund and Abatement of the Penalties, Interest, and Fees Charged by FTB for the 2007 Tax Year
“In a suit for tax refund, the taxpayer has the burden of proof; he must affirmatively establish the right to a refund of the taxes by a preponderance of the evidence.” (Consolidated Accessories Corp. v. Franchise Tax Bd. (1984) 161 Cal.App.3d 1036, 1039 [citations omitted]; see also Aladdin Oil Corp. v. Perluss (1964) 230 Cal.App.2d 603, 610.) “‘The taxpayer must not only prove that the tax assessment is incorrect, but also he must produce evidence to establish the proper amount of the tax.’” (Dicon Fiberoptics, Inc. v. Franchise Tax Bd. (2012) 53 Cal.4th 1227, 1236.)
The FTB does not dispute that the determination that a taxpayer is financially disabled is the same under both state and federal law. Like the IRS, the FTB concedes that Plaintiff was financially disabled when she filed the 2007 tax return. (UMF 6, 7, AMF 25.)
The FTB also does not dispute the following:
· Internal Revenue Code, 26 U.S.C. section 6511(h)(1)—like its state counterpart, section 19316—suspends that statute of limitations during the period a taxpayer is financially disabled.
· The determination for a taxpayer’s financial disability is the same under both state and federal law.
· The Betzlers were finically disabled when they filed the 2007 tax return. (UMF 6, 7, AMF 25.)
What the FTB does dispute is that section 19316 mandates that penalties, interest, and fees be abated due to a finding that a taxpayer was financially disabled.
Plaintiff argues that the Court must look to 26 U.S.C. section 6511(h)(1) for the proper construction of section 19316. First, Plaintiff fails to show that under 26 U.S.C. section 6511(h)(1), the IRS is required to abate all interest, penalties, and fees when a taxpayer is finically disabled. (PCOE Ex. A, C.)
“IRC Section 6511(h) provides that the general period of limitations on claims for credit or refund are suspended during the period that an individual is ‘financially disabled.’”
(PCOE Ex. C [Internal Revenue Service Manual § 25.6.1.10.2.9. 1(5)].) Plaintiff also fails to present evidence that the intent of the California Legislature in enacting section 19316 was to abate penalties, interest, and fees when a taxpayer was finically disabled in conformity with 26 U.S.C. section 6511(h)(1). (Raymond Decl. ¶ 2, Ex. 1, 2.)
Plaintiff asks the Court to consider the Internal Revenue Manual (“IRM”) 25.6.1.10.2.9.1(5) in interpreting the construction of 26 U.S.C. section 6511(h)(1). (PCOE Ex. C.) The Court fails to find any language in IRM 25.6.1.10.2.9.1(5)—and Plaintiff fails to point to such language—that permits the interpretation that 26 U.S.C. section 6511(h)(1) permits the abatement of penalties, interest, and fees based on the finding that a taxpayer is financially disabled. IRM 25.6.1.10.2.9.1(5) only permits the interpretation that the statute of limitations is waived during that time a taxpayer is finically disabled.
Furthermore, Plaintiff fails to show that FTB’s interpretation that section 19316 is not in conformity with 26 U.S.C. section 6511(h)(1) because neither section appears to mandate the abatement of penalties, interest, and fees. Therefore, Plaintiff fails to show that the FTB’s application of section 19316 is not in conformity with 26 U.S.C. section 6511(h)(1). Plaintiff also fails to cite case law to support the interpretation that a determination of financial disability abates interest, penalties, and fees under either section 19316 or 26 U.S.C. section 6511(h)(1). Therefore, Plaintiff fails to show that the FTB violated section 19316 and wrongfully collected $1,049,100.76 in penalties, interest, and fees from Plaintiff.
The Court finds that the Plaintiff has not met her burden of showing by a preponderance of the evidence that she is entitled to a refund of the penalties, interest, and fees the FTB charged Plaintiff. (Consolidated Accessories Corp., supra,161 Cal.App.3d at 1039; Dicon Fiberoptics, Inc., supra, 53 Cal.4th at 1236.) Therefore, the FTB is not required to justify the penalties, interest, and fees it charged Plaintiff for the 2007 tax return. Thus, the Court will not consider if the penalties, interest, and fees for the 2007 tax year were properly imposed.
Plaintiff’s motion is DENIED.
CONCLUSION
Plaintiff’s Motion for Summary Judgment is DENIED.
Plaintiff to give notice.
PROCEEDINGS:¿ MOTION
FOR SUMMARY JUDGMENT
¿
MOVING
PARTY:¿ Defendant California
Franchise Tax Board
RESP.¿
PARTY:¿ Plaintiff¿Cynthia Betzler¿
¿
MOTION FOR SUMMARY JUDGMENT
TENTATIVE
RULING
Defendant
California Franchise Tax Board’s Motion for
Summary Judgment is GRANTED.
BACKGROUND
On June 16, 2019, Plaintiff Cynthia Betzler filed the
instant action against Defendant California Franchise Tax Board (“FTB”). On
December 19, 2019, Plaintiff filed the operative Second Amended Complaint
(“SAC”). The SAC asserts the sole cause of action for:
1)
Tax Credit with Tax
Refund.
On
August 02, 2021, the Court granted Defendant’s motion for summary adjudication
of Plaintiff’s claims for a tax refund for the tax years 2004, 2005, 2006, and
2008. (Min. Or. 08/03/21.)
On
February 07, 2023, Defendant FTB moves for
summary judgment on the basis that Plaintiff cannot establish she is entitled
to any refund for income tax liability FTB imposed for the tax year 2007.
Plaintiff filed opposing papers on April 05, 2023.
FTB filed a reply on April 14, 2023.
LEGAL STANDARD
The purpose
of a motion for summary judgment or summary adjudication “is to provide courts
with a mechanism to cut through the parties’ pleadings in order to determine
whether, despite their allegations, trial is in fact necessary to resolve their
dispute.”¿ (Aguilar v. Atl. Richfield Co. (2001) 25 Cal. 4th 826, 843.)
“Code of Civil Procedure section 437c, subdivision (c), requires the trial
judge to grant summary judgment if all the evidence submitted, and ‘all
inferences reasonably deducible from the evidence’ and uncontradicted by other
inferences or evidence, show that there is no triable issue as to any material
fact and that the moving party is entitled to judgment as a matter of law.” (Adler
v. Manor Healthcare Corp. (1992) 7 Cal.App.4th 1110, 1119.)¿¿¿¿¿
¿
“On a motion
for summary judgment, the initial burden is always on the moving party to make a prima facie showing that there are no triable
issues of material fact.” (Scalf v. D. B. Log Homes, Inc. (2005)
128 Cal.App.4th 1510, 1519.) The moving party is entitled to summary judgment
if they can show that there is no triable issue of material fact or if they
have a complete defense thereto. (Aguilar, supra, 25 Cal. 4th at
843.)¿ Summary adjudication may be granted as to one or more causes of action
within an action, or one or more claims for damages. (Cal. Code of Civ. Proc.
§437c(f).)¿¿¿¿¿¿
¿
Defeating summary judgment requires only a single disputed material
fact. (See CCP § 437c(c) [a motion for summary judgment “shall be granted if
all the papers submitted show that there is no triable issue as to any material
fact and that the moving party is entitled to a judgment as a matter of law.”]
[emphasis added].) Thus, any disputed material fact means the court must deny
the motion – the court has no discretion to grant summary judgment. (Zavala
v. Arce (1997) 58 Cal.App.4th 915, 925, fn. 8; Saldana v.
Globe-Weis Systems Co. (1991) 233 Cal.App.3d 1505, 1511-1512.)¿¿¿
REQUEST FOR JUDICIAL NOTICE
The Court may take
judicial notice of regulations and legislative enactments issued by or under
the authority of the United States or any public entity in the United States; records
of any court of record of the United States; and facts and propositions that are not reasonably subject to dispute
and are capable of immediate and accurate determination by resort to sources of
reasonably indisputable accuracy.” (Evid. Code § 452,¿subds. (b) (d), and (h).)
However, the court may only judicially notice the existence of the record, not
that its contents are the truth. (Sosinsky v. Grant (1992) 6 Cal.App.4th
1548, 1565.)
Plaintiff
requests judicial notice of the following:
Exhibit
A: Franchise
Tax Board Claim for Refund showing on Page 2 (bottom of page) "Reasonable
Cause" standard, located online at
https://www.ftb.ca.gov/help/disagree-or-resolve-an-issue/claim-for-refund. html.
Exhibit B: Complaint entitled Cynthia Betzler vs.
United States of America, U.S. District Court Case No. 2: l 7-cv-03722, filed
5/17/2017.
Exhibit C: Franchise Tax Board Form 1564 (FTB
1564 (NEW 03-2004).
Exhibit D: Black's Law Dictionary (West 61 h
ed. 1990), p. 450.
Exhibit E: Franchise Tax Board Form 1564 (REV
O 1-2020), located online at https://www.ftb.ca.gov/forms/misc/ 1564.pdf.
Exhibit F: I.R.S. Revenue Procedure 99-21
[26 C.F.R. § 601.105].
Exhibit G: Section 8A - IRS Master File
Codes. [Code # 700].
Exhibit H: 26 C.F.R. § 301.6651-1
Exhibit I: Internal Revenue Service Manual
Section 25.6.1.1 0.29. 1 [Financial Disability].
Plaintiff’s request
for judicial notice of Exhibits A and E is GRANTED pursuant to Wood v. Superior Ct. of San Diego
County (2020) 46
Cal.App.5th 562, 580, fn. 2 (court may take judicial notice of the fact that statements
made to the public on a government website but not their truth). The Court also GRANTS Plaintiff’s
request for judicial notice of Exhibits B, C, D, F, G, H, and I.
EVIDENTIARY OBJECTIONS
A.
Defendant FTB’s Evidentiary Objections
to the Declaration of Ronald Channels filed in Opposition to this Instant
Motion.
Objections
Nos. 1 – 5 are SUSTAINED.
DISCUSSION
Relevant
Facts
Plaintiff and Erick Betzler (collectively the “Betzlers”) were husband
and wife. Plaintiff asserts that Mr. Betzler did not file taxes for the years
2004 to 2008 because he had a serious medical condition and deteriorating
mental state. (AMF 1.) Mr. Betzler made a $1.95 million payment on April 15,
2007, to the Internal
Revenue Service (IRS) and a $1.2 million payment to the California Franchise Tax Board (“FTB”) as deposits since he did not know when he would be able to file
tax returns (AMF 4.)
Mr. Betzler passed away in 2012, three months after he filed late
tax returns for the years 2004 to 2012, with the late filing date being April
02, 2012. (AMF 6.) Plaintiff was a homemaker and did not know that her husband
had not paid taxes until Mr. Betzler passed away in July 2012. (AMF 6.)
Plaintiff brought this action
against the FTB because she seeks a tax refund of the penalties and interest charged for
the tax year 2007, totaling $1,049,100.76, on the basis that the Betzlers were
financially disabled. Defendant FTB moves for summary judgment on the basis that Plaintiff cannot establish she is entitled
to any refund for income tax liability the FTB imposed for the year 2007.
1. Issues
not Raised in a Refund Claim are Waived
Revenue and
Tax Code § 19382 sets forth:
“[A]fter payment of
the tax and denial by the Franchise Tax Board of a claim for refund, any
taxpayer claiming that the tax computed and assessed is void in whole or in
part may bring an action, upon the grounds set forth in that claim for refund,
against the Franchise Tax Board for the recovery of the whole or any part of
the amount paid.”
Consequently,
courts have found that issues not raised in a refund claim may not be raised in
a subsequent lawsuit. (Atari, Inc. v. State Bd. of Equalization (1985)
170 Cal.App.3d 665, 672; Jimmy Swaggart Ministries v. Bd. of Equalization
(1988) 204 Cal.App.3d 1269, 1290.) “Failure
to file a written claim results in a failure to exhaust administrative remedies
and is a bar to a later suit for refund. [Citations.]” (Wertin v. Franchise
Tax Bd.¿(1998) 68 Cal.App.4th 961, 976.)
The FTB asserts the Betzlers’ initial claim
for a tax refund raised only two grounds for relief:
1)
The
Betzlers’ asked FTB to toll “the statute of limitations on claims for refund
for previous years by reason of financial disability.” (Claim for Refund at p.
BETZLER001886.)
2)
The
Betzlers’ asked “that FTB remove penalties and interest for their 2007 income
tax,” pursuant to section 19104 subdivision (a)(3). (Claim for Refund at p.
BETZLER00188, 86.)
Plaintiff asserts the motion should be
denied because triable issues of fact exist concerning the amount the IRS
transferred in connection with Eric Betzler’s 2006 extension payment of
$1,950,060.00 and whether the IRS charged interest on the amount transferred. Plaintiff
states that the IRS account transcript for the year 2007 shows that the IRS
credited the Betzlers’ overpayment to the 2007 tax year and no interest was
charged as reflected by Code 700 of the IRS Master Files Codes. (AMF 27) The
IRS included codes in the IRS account transcript that reflect the nature of
each transaction. A description of each of those codes can be found on IRS’s
website. (See Section 8A, IRS Master File Codes,
https://www.irs.gov/pub/irs-pia/6209sec8amasterfilecodes.pdf; Yorston Decl., ¶
7, Ex. 2; Plaintiff’s RJN Ex. G.)
Plaintiff maintains that the FTB, in
conformity with the IRS, should have credited all or nearly all penalties and
interest wrongfully charged for the tax year 2007. (AMF 28, 29.)
“The claim
for refund delineates and restricts the issues to be considered in a taxpayer’s
refund action. The trial court and [the Court of Appeal] are without
jurisdiction to consider grounds not set forth in the claim.” (Atari, supra,
Cal.App.3d at 672.) “This is because the
specific constitutional source of legislative power to control tax refund suits
mandates strict adherence to the administrative procedures set forth by the Legislature
before a court action can be filed.” (Barclays Bank Internat. Ltd. v.
Franchise Tax Bd. (1992) 10 Cal.App.4th 1742, 1749.) The FTB
shows that the it also credited the overpayment payment made in 2006 and
applied the credit to the 2007 tax year. (UMF 6, Yorston Decl., ¶ 5; DCOE Ex. 3
[2007 Personal Income Tax Account Summary]; Channel Decl. ¶ 25.) Plaintiff
argues that the FTB erred in charging penalties, interest, and fees for the
2007 tax year.
However,
Plaintiff fails to show that the issues with the amount the IRS transferred
regarding Eric Betzler’s 2006 extension payment, the credit applied from the
overpayment, and the penalties, interest, and fees charged were raised in her initial
refund claim to the FTB.
Accordingly,
the issue regarding the amount transferred from the tax year 2006 and applied to
tax 2007 and any request to waive the penalties, interest, and fees unrelated
to section 19104 subdivision (a)(3), are waived and the Court is without
jurisdiction to consider it.
2. IRS
Did Not Abate All Penalties and Interest Based on a Finding of Financial
Disability
For purposes of this motion, FTB
accepts that Plaintiff and Mr. Betzler were financially disabled from April 15,
2005, to July 31, 2012. (UMF 1.) The FTB
asserts that the IRS did not abate all penalties, interest, or fees for the Betzlers.
(Ex 5 [Claim for Refund]; see also UMFs 11-12.) The FTB maintains that the IRS charged
the Betzlers at least $495,477.84 in penalties and interest. (Yorston Decl. ¶
10; Ex. 4.)
In the
Betzlers’ 2007 IRS transcript, IRS Master File Code 166 reflects a delinquency
penalty, while Code 167 reflects an abatement of that penalty [Ex. 4 [IRS
account transcript for 2007 tax year at pp. 2, 3.)].) Code 240 reflects a
miscellaneous civil penalty, in this case, an accuracy-related penalty.
(Section 8A at p. 8A-10; 2007 IRS Account Transcript at p. 3.) Abatement of
such a penalty would be reflected by Code 241. (Section 8A at p. 8A-10.) But no
such entry appears in the Betzlers’ 2007 Account Transcript so that penalty was
not abated. (Ex 4 [2007 IRS Account Transcript at p. 3].) The IRS also charged
an Interest Assessment on Additional Tax or Deficiency, as shown by Code 336,
with no Code 337 showing abatement of that interest. (Section 8A at pp. 8A-14,
15 [description of codes 336 and 337], DCOE Ex. 4 at p. 3.)
Plaintiff
fails to explain why the IRS did not abate all interest, penalties, and fees
despite a finding that the Betzlers were financially disabled. Moreover,
Plaintiff fails to explain why the FTB should abate all interest and penalties
with the IRS did not.
3. Plaintiff
Fails to Show that the Interest and Penalties Imposed by the FTB Should be Abated
“In a suit for tax refund, the
taxpayer has the burden of proof; he must affirmatively establish the right to
a refund of the taxes by a preponderance of the evidence.” (Consolidated
Accessories Corp. v. Franchise Tax Bd. (1984) 161 Cal.App.3d 1036, 1039
[citations omitted]; see also Aladdin Oil Corp. v. Perluss (1964) 230
Cal.App.2d 603, 610.) “‘The taxpayer must not only prove that the tax
assessment is incorrect, but also he must produce evidence to establish the
proper amount of the tax.’” (Dicon Fiberoptics, Inc. v. Franchise Tax Bd. (2012)
53 Cal.4th 1227, 1236.)
Here,
Plaintiff fails to show that interest, penalties, and fees charged by the FTB
should have been abated. The Betzlers’ late-filed 2007 tax return stated an
adjusted gross income of $2,597,084 and an income tax liability of $250,914,
which they paid. (UMF 3, Ex. 2 [2007 Tax Return].) The tax return failed to
report $12 million in capital gains from the sale of a business. (UMF 4;
Yorston Decl., ¶ 9, DCOE Ex. 1, 4, 6.) Thus, the Betzlers’ actual total tax
liability for 2007 was $1,486,914. (UMF 5; DCOE Ex. 3, 4.)
Given the
underreporting, the FTB, like the IRS, imposed an accuracy penalty. (UMF 7; DCOE
Ex. 3 [2007 Account Summary]; Yrston Decl. ¶ 9.a & b.) For this reason,
Code 240 on the 2007 IRS account transcript shows an accuracy-related penalty
was charged but not abated as would be reflected by Code 241. (UMF 7, DCOE Ex.
4 [IRS account transcript for 2007 tax year].) Furthermore, as shown by Code
336, the IRS charged for an Interest Assessment on Additional Tax or
Deficiency, and there is no Code 337, showing the abatement of that interest.
(UMF 8, DCOE Ex. 4 at p. 3.) Given that the outstanding amount was not fully
paid until November 08, 2019, the FTB also charged interest on the outstanding
tax liability and penalties for 2007. (UMF 8; DCOE Ex. 3; Yorston Decl. ¶9.c.) The
FTB also imposed certain fees it incurred to collect the Betzlers’ substantial
liabilities. (UMF 9; DCOE Ex. 3, Yorston Decl. ¶ 9.d-e.)
Plaintiff
fails to specify under what Revenue and Tax Code provision the FTB was required
to abate the interest, penalties, and fees the FTB imposed.
a. Plaintiff
Fails to Point to A Provision in the California Revenue and Tax Code Mandating
the FTB to Abate All Penalties, Interest, and Fees
The FTB
states that section 19316 of the California Revenue and Tax Code does not abate
interest, penalties, or fees for financially disabled taxpayers but merely
provides an extension of certain limitation periods.
Section
19316, states in the relevant part:
“In the case of an individual taxpayer under the Personal Income Tax Law
(Part 10 (commencing with Section 17001)), the running of any period specified
in Section 19306, 19308, 19311, 19312, or 19313 shall be suspended during any
period during which that individual taxpayer is ‘financially disabled’ as
defined in subdivision (b).”
(Rev. & Tax. Code, § 19316)
Plaintiff fails to point to a provision
in section 19316 that entitles Plaintiff to abatement of interest, penalties,
and fees charged by the FTB due to a finding that she was financially disabled
from April 15, 2005, to July 31, 2012.
Section 19306 states:
“(a) No credit or refund shall be allowed or made after
a period ending four years from the date the return was filed (if filed within
the time prescribed by Section 18567 or 18604, whichever is applicable), four
years from the last day prescribed for filing the return (determined without regard
to any extension of time for filing the return), or after one year from the
date of the overpayment, whichever period expires later, unless before the
expiration of that period a claim therefor is filed by the taxpayer, or unless
before the expiration of that period the Franchise Tax Board allows a credit,
makes a refund, or mails a notice of proposed overpayment on a preprinted form
prescribed by the Franchise Tax Board.”
(Rev. & Tax. Code, § 19306.)
The Betzlers received full credit for
the $1.2 million deposit made to the FTB, but because the payment was made on
April 15, 2007, the FTB applied it to the Betzlers’ 2006 tax liability. Plaintiff
does not argue that this was erroneous. The tax due for 2006 was only
$143,099.00, resulting in overpayment. Pursuant to section 19306, the Betzlers
could not obtain a credit for overpayment after April 15, 2011. Since the
Betzlers did not seek a refund on time, they could not obtain a credit for
overpayment. However, due to Betzlers’ financial disability, the FTB did
provide them with a credit for their overpayment and allowed the Betzlers to
apply the credit to their 2007 tax liability. (UMF 6, Yorston Decl., ¶ 5’ DCOE Ex.
3.) Thus, like the IRS, the FTB credited the overpayment to the 2007 tax year.
Plaintiff fails to show a provision of
the Tax and Revenue Code exits that required the FTB to abate penalties,
interest, and fees for the overpayment credited to the 2007 tax year. Similarly,
Plaintiff fails to specify under what provision the Internal Revenue Code does
the determination that a taxpayer is financially disabled mandates the FTB to abate
all interest, penalties, and fees for a late-filed tax return. (Channels Decl.
¶ 25.)
Plaintiff citation to Perkins v. C.I.R. (T.C. 2008) 95 T.C.M. (CCH) 1396,
only supports the proposition that under 26 U.S.C. section 6511(h)(1), the
federal counterpart of section 19316, an individual’s determination of
financial disability tolls the period of limitation outlined in 26 U.S.C.
section 6511(b)(2)(A). Similarly, in Erickson v. C.I.R. (Bankr. D. Minn.
1994) 172 B.R. 900, a Minnesota Bankruptcy Court found that due to the
taxpayer’s disability, the tax return was untimely filed due to circumstances
beyond the taxpayer’s control such that the failure to timely file the tax
return should be excused and tax penalties under 26 U.S.C. 6651 subdivision
(a)(1)-(2) should not be applied since the failure was not due to willful
neglect. (Id. at 910.) Similarly, United States v. Isaac, 1991
U.S. Dist. LEXIS 8092 (E.D. Ky. June 3, 4 1991) concerns
a taxpayer being excused from paying the penalties under 26 U.S.C § 6651(a)(1)
due to the taxpayer’s illness and finding that failure to timely file was not
due to willful neglect. (Id. at *7.)
Here, Plaintiff fails to point to a
parallel provision of 26 U.S.C. 6651 that exists in the California Revenue and
Tax Code that mandates penalties and interest be abated based on a finding that
the taxpayer did not willfully neglect to file a tax because the taxpayer was
financially disabled.
4. Section
19104 is Inapplicable to Plaintiff’s Claims
The second
ground of relief Plaintiff articulated in her refund claim was section 19104
subdivision (a)(3). (Ex. 5 [Betzler’s 2007 Claim for Refund/Taxpayer Advocate
Assistance Request at pp. BETZLER001886-87].)
Section 19104 subdivision states:
“(a) The Franchise Tax Board may abate
all or any part of any of the following:
(1) Any interest on a deficiency or
related to a proposed deficiency to the extent that interest is attributable in
whole or in part to any unreasonable error or delay by an officer or employee
of the Franchise Tax Board (acting in his or her official capacity) in
performing a ministerial or managerial act.
(2) Any interest on a payment of any
tax described in Section 19033 to the extent that any delay in that payment is
attributable to an officer or employee of the Franchise Tax Board (acting in
his or her official capacity) being dilatory in performing a ministerial or
managerial act.
(3) Any interest accruing from a
deficiency based on a final federal determination of tax, for the same period
that interest was abated on the related federal deficiency amount under Section
6404(e) of the Internal Revenue Code, and the error or delay occurred on or
before the issuance of the final federal determination. This subparagraph shall
apply to any ministerial act for which the interest accrued after September 25,
1987, or for any managerial act applicable to a taxable year beginning on or
after January 1, 1998, for which the Franchise Tax Board may propose an assessment
or allow a claim for refund.”
(Rev. & Tax. Code, § 19104.)
Similarly, 26 U.S.C. section 6404, subdivision
(e) states in part:
“(1) In the case of any assessment of
interest on (A) any deficiency attributable in whole or in part to any
unreasonable error or delay by an officer or employee of the Internal Revenue
Service (acting in his official capacity) in performing a ministerial or
managerial act . . . the Secretary may abate the assessment of all or any part
of such interest for any period.”
First, both section 19104(a)(3) and 26
U.S.C. 6404(e), use the word “may” which is construed as discretionary rather
than mandatory. “It is a well-settled principle
of statutory construction that the word ‘may’ is ordinarily construed as
permissive, whereas “shall” is ordinarily construed as mandatory[.]” (Common Cause v. Board of Supervisors (1989) 49
Cal.3d 432, 443.) Thus, Plaintiff cannot show that the FTB was required to
exercise its discretion and abate the interest, penalties, and fees charged.
Secondly, section 19104, only provides
for the abatement of interest and not penalties, as Plaintiff requests.
Third, the IRS did charge Plaintiff interest
for late payments under Code 336 in the amount of $434,993.33. (DCOE Ex. 4 at
p. 3.) It also charged an accuracy-related penalty under Code 240. (DCOE Ex. 4
at p. 3.) Accordingly, Plaintiff fails to produce evidence that the IRS abated
these penalties and interest.
Lastly, Plaintiff fails to show that
section 19104, subdivision (a)(3) applies because there is no evidence of any
abatement penalties, interest, or fees by the IRS under 26 U.S.C. § 6404(e) due
to an unreasonable error or delay by the IRS. (UMF 12; DCOE Ex. 4.)
Accordingly, Defendants have met their
burden of showing that the plaintiff is not entitled to an abatement of
penalties, interest, and fees due to being financially disabled.
Plaintiff fails presented evidence the
FTB was mandated to abate penalties, interest, and fees it imposed in
connection with the 2007 tax return because Plaintiff was financially disabled.
Plaintiff points to the Franchise Tax Board Claim for Refund website, which articulates a
“Reasonable Cause” standard that states:
“We may cancel certain penalties if reasonable cause exists. Reasonable
cause means that the act occurred despite the exercise of ordinary business
care and prudence.
Provide us a written statement with supporting documents listing the
facts to support your claim.
Use one of the following forms to file a reasonable cause claim for a refund:
·
Reasonable
Cause - Individual and Fiduciary Claim for Refund (FTB 2917)
·
Reasonable
Cause - Business Entity Claim for Refund (FTB 2924).”
(Plaintiff’s RJN Ex. A.)
Plaintiff fails to show that the FTB
was mandated to apply the “Reasonable Cause” standard to Plaintiff’s claim or
that Plaintiff filed the requisite forms, FTB 2917 or FTB 2924. Moreover, Plaintiff’s failure to raise this issue in its refund claim
waives the argument. (See Atari, supra, Cal.App.3d at 675
[“Failure to request findings on specific issues
results in a waiver as to those issues.”].) Plaintiff also fails to show that
under 26 C.F.R. § 301.6651-1 subdivision (c)(1) Plaintiff was excused
from paying penalties and interest and that the California Revenue and Tax Code
has a similar provision that mandates that interest, penalties, and fees be
abated. Furthermore, Plaintiff fails to show that she raised this issue in her
initial refund claim such that she did not waive the issue.
Accordingly, Plaintiff cannot show
that FTB’s decision to impose interest, penalties, and fees was arbitrary, capricious,
lacking evidentiary support, or contrary to procedures provided by law because Plaintiff
fails to point to a provision in the California Revenue and Tax Code mandating
abatement of interest, penalties, and fees based on a finding that the
Plaintiff was financially disabled.
Since no triable issue of fact
exists and Plaintiff has failed to establish by a preponderance of the evidence
that she is entitled to a tax refund and abatement of all interest, penalties, and
fees imposed by the FTB, Defendant’s Motion is GRANTED.
CONCLUSION
Defendant California
Franchise Tax Board’s Motion for Summary Judgment is
GRANTED.
Defendant to
give notice.