The Office of Tax Appeals posted 42 opinions to its website this month, including four decisions relating to business taxes and 38 relating to income or franchise taxes.
In The Appeal of C. Hyatt, there appeared to be no dispute that the Franchise Tax Board seized more than $100,000 from the appellant’s bank accounts based on what turned out to be false claims that he owed taxes for the 2011, 2012, and 2013 tax years. The taxpayer can’t get the money back, however, because he waited too long to file a claim for refund, the OTA ruled.
The appellant did not file California personal income tax returns for tax years in question because he had no income and thus no filing requirement. The FTB believed he had significant income, however, based solely on the fact that a bank issued him a Form 1098 mortgage interest statement for each of the years. The FTB issued a demand for tax return for each year but did not receive a response. The agency subsequently issued notices of proposed assessment – using its longstanding procedure of estimating that anyone who pays mortgage interest has income of six times the interest payments – and again received no response.
The FTB imposed a variety of penalties and initiated collection activity. The agency collected a net amount of $57,758 for 2011, $60,342 for 2012, and $2,733 for 2013, with the latter collections occurring between 2015 and 2017.
In March 2021, the taxpayer finally responded, filing refund claims for the seized money. The FTB denied the claims on the basis that they are barred by the statute of limitations.
The appellant argued that the statute of limitations does not apply because he is seeking restitution, not a refund; that he did not have income, and therefore there was no “last day prescribed for filing the return” because no returns were due; that the funds were “overcollections,” not “overpayments,” within the meaning of FTB’s Technical Advice Memorandum (TAM) 2007-01 and thus the statute of limitations does not apply; that even if the collected funds are overpayments, the overpayments occurred in December 2020, when his liabilities were “written off [by the FTB] and a credit was created” for each tax year; and that the statute of limitations was tolled by California Code of Civil Procedure section 338(d), commonly referred to as the “delayed discovery rule,” because FTB’s collections were mistakes and he did not have notice of the mistakes until December 2020.
The appellant also argued that he did not receive the notices mailed by the FTB to his last known address.
The OTA rejected the arguments and concluded: “It was appellant’s failure to respond to FTB’s Demands and NPAs that resulted in the overpayments, not FTB’s mistakes.”