Summary:
*Governor Brown, FTB Board of Directors (Betty Yee, State Controller; Keely Bosler, Director of Department of Finance, and Malia Cohen, BOE Chairperson, and the FTB Taxpayer Advocate Susan Maples are all aware of these unlawful collection practices and have not put an end to them.
*Governor Brown and State Controller Betty Yee have recently re-structured the Appeals process to make it more expensive and/or difficult to recover these unfairly applied penalties, fees and interest.
*It looks to me like the State Government is sanctioning these unlawful collection practices and rigging the system to ensure that taxpayers can’t get this unlawfully collected money back.
I. Restructuring the Appeal Process:
Up until January 2018, if a Taxpayer believed they were unfairly charged penalties, fees and interest by the Franchise Tax Board, they could file an appeal with the Board of Equalization.
The BOE is divided into regions, and each region is run by an elected official. The taxpayer who was filing the dispute appeared before the elected BOE representatives to explain why the fees were unjustly charged. No attorney was needed, though you could utilize one. It was a relatively quick process. Being elected officials who were eager to please their constituents, the BOE tended to side with the taxpayers.
in 2016, the BOE was caught in a huge corruption scandal. As a result of the scandal, the BOE was quickly restructured. The restructure was ordered by Governor Brown. State Controller Betty Yee – who is also on the FTB’s Board of Directors — took leadership of the changes. Most of the BOE’s job duties and authority were taken away, including presiding over FTB appeals.
A new department was created to handle appeals, called the Office of Tax Appeals. It is an administrative court system (which means faux court masquerading as a real statutory law court), with three judges presiding over the matter. An attorney is necessary, and the process takes at least a full year.
Opponents of this re-org argued that it wasn’t fair to the Taxpayer to have to pay litigation costs to get their unfair penalties refunded. As I found out when I was attorney shopping for my own appeal, it costs a minimum of $5,000 to hire an attorney for a simple case. In most cases, the attorney costs would be more than the refund in question, so it wouldn’t be financially viable to pursue. Even if someone is looking to recover more than an attorney would charge, they may not have the money to pay an attorney up front.
Not a lot of credence was given to this argument because there is a program called the Tax Appeals Assistance Program that provides free student attorneys to people who have filed an appeal against the FTB, as long as their claim is under $30,000. Most people filing an appeal would qualify for the free TAAP program.
Prior to the re-org, the TAAP program was administered by the BOE. In January 2019, the TAAP program was moved to be under the FTB. This means that the way the system now works is: Taxpayer files an appeal against the FTB for being charged unfair penalties, fees and interest. FTB will give the Taxpayer a free attorney to fight against them in court. Uh huh. This is a case where the fox is guarding the henhouse.
As discussed below, I am aware of two other Taxpayer Rights Programs that the FTB administers. Based on the FTB’s track record with the two they already have, it is likely that the FTB will hide/sabotage the TAAP program, ensuring that people cannot access the free attorney that they need in order to execute the OTA appeal.
II. A Taxpayer Right That Has Already Been Suppressed
One of these rights is the Annual Taxpayer Bill of Rights Meeting. Every December, at the FTB Board Meeting, the general public is welcome to attend and submit suggestions for changes to the FTB’s policies, procedures, and to CA tax laws. If you cannot attend the meeting in person, you can submit a request via email prior to the meeting by sending an email to FTBAdvocate@ftb.ca.gov with your suggestion. The Board Members are supposed to be given a copy of all these emailed requests. The FTB’s Taxpayer Advocate is supposed to respond to every request by February 1.
Up until June of this year, The Franchise Tax Board went to great lengths to hide these meetings from the general public.
FTB representatives were trained to tell Taxpayers that if they are unhappy with the FTB’s policies or procedures, the Taxpayer needs to contact their State Level Legislators to complain. The FTB representatives deliberately deceived Taxpayers into believing that that there is nothing the FTB can do about changing policies.
When the FTB sends out correspondence, they will frequently include Form 4058, called CA Taxpayer’s Bill of Rights. Form 4058 conveniently omits information about the Annual Taxpayer Bill of Rights Meeting. The Taxpayer has to carefully read form 4058 to find out that form 4058C exists, also called CA Taxpayers Bill of Rights (which confuses people and leads them to think it is the same document as 4058), which has more information about Taxpayer Rights. The Taxpayer then has to go out of their way to find 4058C and read it to find out that these Annual Taxpayer Bill of Rights Meetings exist.
I found out about the Annual Taxpayer Bill of Rights Meeting from a professional Tax Lobbyist. I submitted several requests via email to the December 2017 meeting. Only a handful of people submitted requests, and I was the only one who was not a professional in the tax field. One of the Policy Change Requests that I asked for was that FTB employees disclose that such a meeting exists when taxpayers complain about unfair policies. In her Formal Resolution, the Taxpayer’s Advocate answered “…Meeting with a representative cross-section of industry and tax professionals allows us to hear the concerns of taxpayers, the majority of which now engage tax professionals. Additionally, we contact our Trade Media partners and others prior to the annual meeting to also gauge their concerns and those of the individuals and businesses they represent.”
I was dubious that assigning people’s State’s Right to a proxy without notifying the people that this right exists, or that this right has been assigned to someone that they did not choose, was legal. What concerned me more was that the message clearly sent was “We only care about the concerns of people who have enough money to hire tax professionals. Anyone who isn’t a high-income earner does not deserve to have their voice heard!” To me, this answer defies the purpose for which the meeting was originally intended.
Remember, the FTB Board of Directors (at the time Betty Yee, Michael Cohen and Diane Harkey) all approved that message. And remember that the FTB reports directly to the Governor (at that time it was Brown).
At the 2018 Annual Taxpayer Bill of Rights Meeting, I again requested that the FTB do a better job of disclosing this right to the public. In their formal resolution, the FTB defended their position by saying “Representing approximately 65% of tax returns filed, tax professionals often have a clear understanding of FTB policies and procedures from working with us on multiple accounts and issues.”
In June 2019, the FTB updated their website to include a very small blurb about the Annual Taxpayer Bill of Rights Meeting. I believe this was a direct result of the pressure that I put on them.
However, I don’t believe this small gesture was good enough. First of all, the blurb is deceptively worded to make it sound like you have to appear in person to submit a request, and most people aren’t going to fly to Sacramento to make a request. Secondly, the FTB has admitted that 35% of people aren’t being represented at all. Third, tax professionals have special back line phone numbers they can call, so they have no idea what the average taxpayer experiences. And finally, the FTB also acts as a debt collection agency for various other California Government Agencies. If the FTB is only soliciting feedback from tax professionals and tax trade publications, then a huge swath of the FTB’s “customer base” is omitted from any kind of representation, as well. I hear complaints all the time about unfair debt collection practices imposed by the FTB, and denying the collectee’s this opportunity to address these unfair practices is a clear violation of our State Right.
III. A Taxpayer Right’s Program That Has Already Been Sabotaged
The position of Taxpayer Advocate was created to ensure protection of Taxpayers Rights against the FTB. If a Taxpayer has an issue that cannot be resolved via normal FTB channels, the Taxpayer can request the Advocate’s intervention in the matter. The Advocate has the power to change unfair policies if she chooses. She works with the FTB’s Board of Directors on the answers, or Resolutions, to the Policy Change Requests made at the Annual Taxpayers Bill of Rights Meeting.
At the December 2017 Annual Taxpayers Bill of Rights Meeting, one of the other policy change requests that I made was to end the policy of withholding “credit elects,” which would bring the FTB’s policies in line with California law.
In her Formal Resolution to my requests, the Taxpayer Advocate simply did not address my issue. She addressed a completely different issue altogether, pretending that I had asked for something different to be changed. In playing this game, she not only violated my State’s Rights, she also violated Federal Law. Withholding funds from the taxpayer’s account, then demanding payments of monies, along with penalties, fees, and interest that would not have been due had the money been applied in compliance with the law is Racketeering. Racketeering is a federal crime.
The Taxpayer Advocate not only failed to stop the Racket, she committed the federal crime of Collusion to Cover up Racketeering to protect the Racket. The Taxpayer Advocate proved that she would rather go to prison than fulfill her job duty of protecting the taxpayer. To be fair, Susan Maples, the Taxpayer Advocate, later denied authoring the Formal Resolution. But she did sign it, therefore taking responsibility of its contents.
Remember, the FTB Board of Directors (Betty Yee, Michael Cohen and at the time Diane Harkey) all approved this message. And remember that the FTB reports directly to the Governor (at that time Brown). Also note that after I notified the governor and FTB Board about the improper handling of the Formal Resolution, the Taxpayer Advocate was not asked to resign.