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Tax Protestor Cases Exhibit
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Adopted November 2, 2000

CALIFORNIA STATE BOARD OF EQUALIZATION

PERSONAL INCOME TAX APPEAL

DECISION

Proposed Assessment AppellantYear Tax Penalties

Eric A. Rowley 1997 $332 $100 (delinquent) Case No. 33384 83 (demand) ¹

Representing the Parties:

For Appellant: Eric A. Rowley For Franchise Tax Board: Andrew O'Boyle, Staff Service

Manager

Counsel For Board of Equalization: Donald L. Fillman, Tax Counsel

QUESTIONS:  (1) Whether appellant's California income is subject to California's tax laws.

(2) Whether respondent properly estimated appellant's net income and tax liability.

(3) Whether appellant has maintained a frivolous or groundless position before this Board.

FINDINGS AND DETERMINATION

[1] Facts and Contentions. Appellant did not file a California personal income tax return for 1997. Respondent sent a notice and demand letter on December 9, 1998, requesting that a return be filed or an explanation be provided as to why a return was not required. It referenced two sources of wages: The Vons Companies and Lloyd's Limousine Service. Appellant responded with a letter contending that respondent's demand "does not comport with requirements established by law." The letter suggested that respondent issue a notice of proposed assessment if respondent determined that there is a tax liability. (Resp. Br., Exhibit B, p. 2.) On February 3, 1999, respondent issued a Notice of Proposed Assessment (NPA) that estimated appellant's taxable income from available information (EDD). It calculated a total tax for appellant of $400, less a personal exemption of $68, for a tax liability of $332. It also calculated a late filing penalty of $100 (the minimum penalty amount), ² a demand penalty of $83 (25 percent of the additional tax), and included a filing enforcement cost recovery fee of $71, plus interest. (See footnote 1.)

[2] Appellant filed a protest that included a request for an oral hearing. The protest contended that the notice and demand letter was not valid and that appellant had not received any payments from, nor had he been employed by, various listed political entities (such as the United States, a state, or a foreign government). As requested, an oral hearing was scheduled. A transcript of the hearing was provided appellant as Exhibit 8 to his brief. After considering appellant's protest, respondent issued a Notice of Action (NOA), dated August 24, 1999, which affirmed the NPA. Appellant filed this appeal.

[3] Appellant's brief, received on December 29, 1999, contains the following contentions: (A) the notice and demand letter was not sent from the "proper division" of respondent (p. 3); (B) this created "reasonable cause" for appellant's failure to file a return (p. 8); (C) respondent's determination was arbitrary and without foundation (p. 11) because (D) it did not establish that appellant had received payments from, or been employed by, appellant's narrow list of entities and sources (p. 13); (E) appellant was not a "resident" of California because he was not a government employee (p. 16); (F) appellant was not within a "taxable class" of individuals (p. 19); (G) appellant would have risked a penalty for perjury if he acknowledged that he had a tax debt (p. 19); and (H) appellant did not receive due process from respondent at the oral protest hearing (p. 21).

[4] Respondent contends that appellant's contentions are groundless, without merit, and frivolous, and that the cases cited by appellant are either irrelevant or misapplied to the issues. We agree.

[5] Applicable Law. Revenue and Taxation Code (R&TC) section 19087 provides that if a taxpayer fails to file a return, or files a false or fraudulent return with intent to evade the tax, respondent may make an estimate of the net income from any available information. When a taxpayer fails to file a proper return and refuses to provide information requested, he or she is not in a good position to criticize respondent's proposed assessment. (Appeals of Fred R. Dauberger, et al., Cal. St. Bd. of Equal., Mar. 31, 1982.)

[6] With respect to appellants' due process contentions, this Board is precluded from determining the constitutional validity of California statutes, and we have an established policy of declining to consider constitutional issues. (Cal. Const., art. III, section 3.5; Appeal of Aimor Corp., Cal. St. Bd. of Equal., Oct. 26, 1983; Appeal of Walter R. Bailey, 92-SBE-001, Feb. 20, 1992.) In the latter case, we held that "due process is satisfied with respect to tax matters so long as an opportunity is given to question the validity of a tax at some stage of the proceedings." (Therefore, the present appeal provides appellant due process.)

[7] R&TC section 18501 requires every individual subject to the Personal Income Tax (see R&TC section 17041) to make and file a return with respondent, "stating specifically the items of the individual's gross income from all sources and the deductions and credits allowable.." R&TC section 17005 defines "individual" to mean a natural person. Section 17014 defines "resident" as "every individual who is in this state for other than a temporary or transitory purpose." R&TC sections 17071, 17072, and 17073 define "gross income," "adjusted gross income," and "taxable income" by reference to Internal Revenue Code (IRC) sections 61, 62, and 63, respectively, except as otherwise provided. Section 61 provides that, unless otherwise provided, "gross income means all income from whatever source derived," including compensation for services. (Emphasis added.)

[8] We note that contentions similar to those made by appellant have been made for many years. In a case where a taxpayer, with respect to federal taxes, pursued similar arguments as those made by appellant herein (United States v. Romero (9th Cir. 1981) 640 F.2d 1014), the court, at page 1016, stated as follows:

"Courts are established at public expense to try issues, not to
play games.

"Romero's proclaimed belief that he was not a "person" and that the wages he earned as a carpenter were not "income" is fatuous as well as obviously incorrect. . . . Compensation for labor or services, paid in the form of wages or salary, has been
universally held by the courts of this republic to be income, subject to the income tax laws. . . .


"[Romero] is attempting willfully and intentionally to shift his burden to his fellow workers by the use of semantics. He seems to have been inspired by various . groups across the land who postulate weird and illogical theories of tax avoidance, all to the detriment of the common weal and of themselves."

[9] Appellant's contentions do not attempt to dispute the correctness of the amounts contained in the NOA. Rather, appellant's contentions are the same type as those heard and uniformly rejected by this Board on numerous occasions, and which both California and United States courts have rejected for many years (see: Appeal of Alfons Castillo, 92-SBE-020, July 20, 1992; Appeal of Walter R. Bailey, 92-SBE-001, Feb. 20, 1992; Appeals of Fred R. Dauberger, et al., supra), a fact pointed out to appellant in the NOA issued on August 24, 1999, as well as in our letter of October 6, 1999, accepting this appeal.

[10] Respondent's determination is presumed correct and appellant bears the burden of proving that it is erroneous. (Todd v. McColgan (1949) 89 Cal.App.2d 509.) When a taxpayer fails to present credible, competent, relevant, and uncontradicted evidence as to the issues in dispute, respondent's determination cannot be successfully rebutted. (Appeal of James C. and Monablanche A. Walshe, Cal. St. Bd. of Equal., Oct. 20, 1975.) Appellant has failed to meet this burden.

[11] R&TC section 19131 provides that if a taxpayer fails to file a return on or before the due date, a penalty shall be added (unless it is shown that the failure is due to reasonable cause and not due to willful neglect). The penalty is 5 percent of the tax for each month or fraction thereof between the due date of the return and the date on which it is filed (not to exceed 25 percent of the tax). If a return is not filed within 60 days of the date prescribed, a minimum penalty is imposed. The minimum penalty is the lesser of $100 or 100 percent of the tax required to be shown on the return. To establish reasonable cause, a taxpayer must demonstrate that he or she exercised ordinary business care and prudence. (Appeal of Stephen C. Bieneman, Cal. St. Bd. of Equal., July 26, 1982.) Furthermore, on appeal, there is a presumption of correctness of the penalties assessed by respondent. (Appeal of Robert Scott, Cal. St. Bd. of Equal., Apr. 5, 1983.) In order to overcome the presumption of correctness of a penalty, the taxpayer must provide credible and competent evidence to support the claim of reasonable cause; otherwise, the penalty will not be abated. (Appeal of Winston R. Schwyhart, Cal. St. Bd. of Equal., Apr. 22, 1975.) We conclude that respondent properly calculated the penalty. We further conclude that appellant has not shown reasonable cause for failing to file a timely return.

[12] Revenue and Taxation Code section 19714 provides for a penalty of up to $5,000 for maintaining a frivolous or groundless position before this Board. As indicated above, appellant was notified of this in the NOA as well as in a letter from the Board. Yet appellant filed and has maintained the present appeal. We conclude that appellant has maintained a frivolous and groundless position before this Board.

[13] The action of respondent is sustained, subject to the adjustments stated in the first footnote. In addition, a frivolous or groundless appeal penalty is imposed in the amount of $750.

FOOTNOTES

¹ Respondent stated that it determined that the demand penalty should be withdrawn, as well as a filing enforcement cost recovery fee of $71.

² See discussion of R&TC, section 19131 below.

END OF FOOTNOTES

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