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Tax Protestor Cases Exhibit
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Adopted November 28, 2000

CALIFORNIA STATE BOARD OF EQUALIZATION

PERSONAL INCOME TAX APPEAL

DECISION

Proposed
Appellant Year Assessment
Tax Penalty ¹
Carson A. Parlan 1997 $1,084 $542
Case No. 31959

Representing the Parties:

For Appellant: Carson A. Parlan
For Franchise Tax Board: Mark McEvilly, Tax Counsel

Counsel For Board of Equalization: Charles D. Daly, Tax Counsel

QUESTIONS: (1) Whether appellant has shown that he was not a resident of California during 1997.

(2) Whether appellant has shown that he "reasonable cause" for failing to file a tax return for 1997.

 (3) Whether appellant has shown that he "reasonable cause" for failing to reply to respondent's notice and demand letter.

FINDINGS AND DETERMINATION

[1] Appellant did not file a tax return for 1997. After receiving information that appellant had income from two sources in the total amount of $31,828 during 1997, respondent mailed a notice and demand letter to appellant on February 5, 1999. Respondent's notice and demand letter requested appellant either to file a tax return for 1997, explain on Section B on the back of the notice and demand letter why he was not required to file, or provide a copy of the tax return if one had been filed, on or before March 7, 1999.

[2] In a letter to respondent, dated February 12, 1999, appellant acknowledged receiving respondent's notice and demand letter. In that letter, appellant denied, without explanation but with citation to certain sections of the Revenue and Taxation Code and California Commercial Code, that he was a resident of California or that he had received income from sources within California during 1997. On March 16, 1999, Mr. R. Lubiens of respondent's Filing Compliance Unit mailed an unsigned letter to appellant that informed him that respondent would not respond to correspondence from a taxpayer that objected to California tax on frivolous grounds. Mr. Lubiens further stated in his letter that, upon review of his file, respondent had determined that he was required to file a California tax return; the letter then demanded appellant to file a return.

[3] In a letter to Mr. Lubiens dated April 7, 1999, appellant again cited a section of the California Commercial Code and "rejected without dishonor" respondent's demand that appellant file a tax return. Appellant's letter also demanded that, in the future, respondent's representatives personally sign their correspondence with him, provide their employee identification numbers, provide copies of their oath of office and the bond in their official capacity, and identify them "in their personal capacity" and their address for service of process.

[4] On April 9, 1997, respondent issued a Notice of Proposed Assessment (NPA) to appellant. Respondent's NPA was comprised of a proposed assessment of additional tax that was based on estimated gross income in the amount of $31,828, a late filing penalty and a penalty for failure to respond upon notice and demand, a filing enforcement fee, and accrued interest. Respondent's NPA also stated that appellant had not replied to respondent's notice and demand letter of February 5, 1999.

[5] Appellant protested respondent's NPA on June 2, 1999. In his protest, appellant reiterated his position that because he was not a resident of California and had no income from sources within California, he was not required to file a 1997 California tax return. Appellant also stated that he had replied to respondent's notice and demand letter of February 5, 1999, with his own letter of February 12, 1999. Finally, appellant repeated the demands that he had made in his letter of April 7, 1999. After respondent denied appellant's protest by a Notice of Action (NOA) dated July 6, 1999, this timely appeal followed. ²

[6] Revenue and Taxation Code section 17041 imposes tax on the entire taxable income of every resident of California. Revenue and Taxation Code section 17014, subdivision (a)(1), states that a "resident" of California includes every person who is in this state for other than a temporary or transitory purpose. Revenue and Taxation Code section 18501, subdivision (a)(3), provides that every individual upon whom tax is imposed and whose gross income is in excess of $10,000, if unmarried, or whose gross income is in excess of $20,000, if married, shall file a tax return with respondent.

[7] Revenue and Taxation Code section 19131 provides, in pertinent part, that a penalty shall be imposed if a taxpayer fails to file a tax return on or before the original or extended due date of the tax return, unless it is shown that the failure is due to reasonable cause and not due to willful neglect. Revenue and Taxation Code section 19133 provides, in pertinent part, that respondent may impose a penalty if a taxpayer fails or refuses to furnish any information requested in writing by respondent or fails or refuses to file a tax return upon notice and demand by respondent, unless the failure is due to reasonable cause and not willful neglect. The burden is on the taxpayer to show "reasonable cause." (Appeal of Stephen C. Bieneman, Cal. St. Bd. of Equal., July 26, 1982.) In order to establish "reasonable cause," a taxpayer must show that his failure to file in a timely manner or his failure to file upon notice and demand occurred despite the exercise of ordinary business care and prudence. (Appeal of Stephen C. Bieneman, supra.)

[8] Revenue and Taxation Code Section 19714 provides in pertinent part, that when proceedings before this Board have been instituted or maintained by a taxpayer primarily for delay or that a taxpayer's position in the proceedings is frivolous or groundless, a penalty not in excess of $5,000 shall be imposed.

[9] Appellant's first contention is that he was not a resident of California during 1997. Appellant argues that, even though he lived in Palm Springs, California, during 1997, he was not a resident of California during 1997 because he did not live in the District of Columbia or the "possessions of the United States" during that year. Appellant cites Revenue and Taxation Code section 17018 in support of his argument. We disagree with appellant's contention. Although section 17018 does provide that a "state" includes the District of Columbia and the possessions of the United States, that section clearly does not negate the provisions of Revenue and Taxation Code section 17014. Further, the term "includes," as used in section 17018, does not limit the definition of "state" to the places listed in that section, as (obviously) "includes" is inclusive, not exclusive. Because we conclude that the record shows that appellant was in California for other than a temporary or transitory purpose during 1997, we further conclude under section 17014 that appellant was a California resident during that year. As appellant was a California resident during 1997 and had sufficient gross income during that year, we also conclude that appellant was required to file a California tax return for that year.

[10] Appellant's second contention is seemingly that he had "reasonable cause" for failing to file a tax return for 1997 because he misinterpreted the law governing the filing of a California tax return. However, mere ignorance of the law does not provide "reasonable cause" for a taxpayer's failure to file a tax return. (Appeal of J. B. Ferguson, Cal. St. Bd. of Equal., Sept. 15, 1958.) Therefore, we must reject appellant's second contention.

[11] Appellant's third contention is that respondent's notice and demand penalty was improperly imposed. In support of his contention, he argues that he did, in fact, reply to respondent's notice and demand letter of February 5, 1999, with his own letter of February 12, 1999, in which he essentially denied that he was required to file a tax return for 1997. We must also reject appellant's third contention. Even though appellant did reply in some manner to respondent's notice and demand letter of February 5, 1999, respondent did not consider his reply to be adequate, and requested in its subsequent letter of March 16, 1999, that appellant file a tax return for 1997. Revenue and Taxation Code section 19133, by its terms, permits respondent to impose a penalty if a taxpayer fails or refuses to provide information requested in writing by respondent or fails or refuses to file a tax return upon notice and demand by respondent, unless the failure is due to "reasonable cause." Although it is conceivable that a taxpayer might successfully argue that he has adequately replied to respondent's request for information why the taxpayer had not filed a tax return by stating in very general terms that he was not required to file a return, it is clear that the mere uninformed and unsupported belief of a taxpayer that he was not required to file a tax return is not sufficient to constitute "reasonable cause" for failure to file upon notice and demand by respondent (Appeal of W. L. Bryant, Cal. St. Bd. of Equal., Aug. 17, 1983). Because the basic justification offered by appellant for failing to file a tax return upon notice and demand by respondent is that he was not required to file such a return, we conclude under Bryant that appellant has not shown "reasonable cause" for his failure to comply with respondent's demand in its letter of March 16, 1999, that he file such a return.

[12] We note that appellant has relied upon irrelevant provisions of the California Commercial Code, negligently or intentionally misread provisions of the Revenue and Taxation Code, and made vague constitutional arguments the validity of which this Board is in any event precluded from determining (Cal. Const., Art. III, section 3.5), in an attempt to defeat respondent's assessment of tax. Further, in the NOA issued on July 19, 1999, respondent informed appellant that proceeding with frivolous arguments on appeal could result in changes pursuant to section 19714. (App. Br., Exhibit, p. 2.) Therefore, we conclude that a frivolous appeal penalty in the amount of $750 should be imposed.

[13] Accordingly, repondent's action in denying appellant's protest against respondent's proposed assessment of personal income tax is hereby sustained. In addition we hereby impose a frivolous appeal penalty under Revenue and Taxation Code section 19714 in the amount of $750.

FOOTNOTES

¹ The penalties imposed by respondent consist of a failure to file penalty in the amount of $271 and a failure to file upon notice and demand penalty in the amount of $271.

² On July 6, 1997, respondent issued a Notice of State Income Tax Due against appellant. Appellant replied on July 12, 1999, with what he characterized a "Notice of Default" in which he again objected to respondent's assessment with arguments allegedly supported by the California Commercial Code and repeated the demands contained in his letter of April 7, 1999. There is no information in the record that explains why respondent issued a Notice of State Income Tax Due before respondent issued a NOA. However, that fact has no significance for the resolution of the instant matter.

END OF FOOTNOTES

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