Neufeld v. State Bd. of Equalization

• Decision Date: 16 December 2004
• Docket Number: No. A106216.,A106216.
• Court: California Court of Appeals Court of Appeals
• Parties: Joseph Leonard NEUFELD, Plaintiff and Appellant, v. STATE BOARD OF EQUALIZATION, Defendant and Respondent.

22 Cal.Rptr.3d 423

124 Cal.App.4th 1471

Joseph Leonard NEUFELD, Plaintiff and Appellant, v. STATE BOARD OF EQUALIZATION, Defendant and Respondent.

No. A106216.

Court of Appeal, First District, Division 4.

December 16, 2004.

Rehearing Denied January 14, 2005.

Review Denied February 23, 2005.

Certiorari Denied October 3, 2005. See 126 S.Ct. 95.

Joseph Leonard Neufeld, in pro. per., for Appellant.

Bill Lockyer, Attorney General of the State of California, Randall P. Borcherding, Supervising Deputy Attorney General, Julian O. Standen, Deputy Attorney General, for Respondent.

KAY, P.J.

Revenue and Taxation Code section 19714 (hereafter section 19714) provides in pertinent part: "Whenever it appears to the State Board of Equalization or any court of record of this state that proceedings before it under this part have been instituted or maintained by the taxpayer primarily for delay or that the taxpayer's position in the proceedings is frivolous or groundless, or that the taxpayer unreasonably failed to pursue available administrative remedies, a penalty in an amount not in excess of five thousand dollars ($5,000) shall be imposed...." We hold that it is not a violation of constitutional rights of free speech for the State Board of Equalization to impose a penalty pursuant to this statute.

BACKGROUND

Having determined that Joseph Leonard Neufeld received more than $111,000 in income, interest, and dividends he did not report, the California Franchise Tax Board (FTB) issued a proposed assessment of $12,558 in tax and penalties. Neufeld filed an administrative appeal against the FTB assessment with the State Board of Equalization (Board). He took the position that "the record lacks substantial evidence that I received taxable income" because the FTB was "relying on third-party hearsay for its information about my alleged tax liability without giving me an opportunity to refute its unsubstantiated position." The Board upheld the assessment and imposed a "frivolous appeal penalty" of $1,000 pursuant to section 19714. The pertinent portions of the Board's decision are as follows:

"Appellant, a California resident, has not filed a 1999 California personal income tax return.... After appellant failed to file a return in response to a notice and demand, respondent [FTB] issued a Notice of Proposed Assessment (NPA) to appellant for 1999 for tax on the $111,697 of reported income, interest, a notice and demand penalty, a late filing penalty, and a filing enforcement fee. Appellant protested the NPA,[¹] stating that it was incorrect because respondent had failed to show that he received taxable income. Appellant demanded `a full and complete administrative hearing' on his protest, but apparently did not wish to have the administrative protest hearing offered by respondent, and none was held. After considering the protest, respondent issued a Notice of Action (NOA) affirming the NPA. The NOA included a warning that the Board could impose a frivolous appeal penalty of up to $5,000 when taxpayers proceed with frivolous cases. This appeal followed.

"Appellant contends that the proposed assessment should be dismissed, as respondent's evidence does not demonstrate that he received the taxable income included in the proposed assessment.... [¶] ... [¶] ... Respondent contends that its action should be sustained, as appellant has failed to meet his burden to prove error in its determinations, and the proposed assessment.

"Respondent's initial burden is to show why its assessment is reasonable and rational. (Todd v. McColgan (1949) 89 Cal. App.2d 509, 201 P.2d 414; Appeal of Michael E. Myers 2001-SBE-001, May 31, 2001.)[²] Federal courts have held that the taxing agency need only introduce some evidence linking the taxpayer with the unreported income. [Citation.] Thereafter, respondent's determination of an assessment is presumed correct, and appellant has the burden of proving it to be wrong. (Todd v. McColgan, supra; Appeal of Michael E. Myers, supra.) Unsupported assertions are not sufficient to satisfy appellant's burden of proof. [Citation.] In the absence of ... credible, competent, and relevant evidence showing error in respondent's determinations, they must be upheld. [Citation.] And, appellant's failure to produce evidence that is within his control gives rise to a presumption that such evidence is unfavorable to his case. [Citation.]

"Respondent's use of income information reported by employers and other credible sources is reasonable and rational, thus respondent has met its initial burden, the proposed assessment is presumed correct, and the burden of proof shifts to appellant. (Appeal of Michael R. Myers, supra.) Appellant has not produced any substantial evidence tending to show error in the proposed assessment, or in any of respondent's underlying factual determinations, in particular respondent's determination of his 1999 income. Rather, appellant has repeatedly raised arguments that have been consistently rejected by both respondent, and this Board....[³] This does not meet appellant's burden of proof.... [¶] ... As to appellant's demand for `a full and complete administrative hearing,' we observe 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 proceeding — which this appeal provides...." (Fns. omitted.)

After sustaining the assessment, enforcement fee, and penalties specified by the FTB, the Board discussed why Neufeld would be assessed a penalty pursuant to section 19714:

"The NOA gave notice to appellant that a frivolous appeal penalty could be imposed if he proceeded with a frivolous case, yet he subsequently pursued this meritless appeal, making substantially the same arguments ... which we have consistently rejected. [Citations.] Furthermore, appellant has yet to produce any substantial evidence to support his assertion that the proposed assessment is incorrect. And, appellant could possibly have resolved some or all of his concerns at protest, had he properly availed himself of respondent's protest process (including a protest hearing). Accordingly, we impose a $1,000 frivolous appeal penalty." (Fns. omitted.)

Neufeld then filed an action in superior court challenging the constitutionality of section 19714. In addition to praying the court declare that section 19714 abridged the First Amendment, Neufeld asked the court to invalidate the penalty imposed by the Board, and to enjoin the Board from further imposing "any penalty based solely upon the content, opinion or viewpoint expressed in personal income tax matters before [the Board]."

Both Neufeld and the Board moved for judgment on the pleadings. The trial court granted the Board's motion and denied Neufeld's. After judgment was entered, Neufeld moved to vacate it or, alternatively, for a new trial. The motion was denied, whereupon Neufeld perfected this timely appeal.⁴

REVIEW

As he did in the trial court, Mr. Neufeld has chosen to represent himself on this appeal. He is willing to concede for purposes of this appeal that his appeal to the Board was frivolous. He makes this concession so as not to "cloud ... a pure question of law" — is section 19714 unconstitutional because it impermissibly penalizes a taxpayer for asserting his or her right to free speech, as guaranteed by the United States and California Constitutions? Relying primarily upon the decision of the United States Supreme Court in United States v. Playboy Entertainment Group, Inc. (2000) 529 U.S. 803, 120 S.Ct. 1878, 146 L.Ed.2d 865, Neufeld argues section 19714 is a content-based restriction that is subject to strict scrutiny and cannot be upheld if there are less drastic alternatives which will advance the statutory objective.

There are no reported decisions construing section 19714. There is, however, a body of federal authority that may be consulted.

What is now section 19714 was added to the Revenue and Taxation Code as former section 19414 in 1980. (Stats.1980, ch. 426, § 18, p. 888.) The Legislative Counsel's Digest for the bill described the purpose of the provision: "Existing federal law authorizes the United States Tax Court to award damages ... to the United States whenever it appears that proceedings before the court have been instituted by the taxpayer merely for delay. [¶] This bill would provide the same authority to the State Board of Equalization with respect to state personal income tax proceedings." (Legis. Counsel's Dig., Assem. Bill No. 2990 (1979-1980 Reg. Sess.) 4 Stats. 1980, Summary Dig., p. 116.) The substance of the provision was renumbered and added as section 19714 in 1993. (Stats.1993, ch. 31, § 26, p. 289.) The federal antecedent of section 19714 currently provides in pertinent part: "Whenever it appears to the Tax Court that [¶] (A) proceedings before it have been instituted or maintained by the taxpayer primarily for delay, [¶] (B) the taxpayer's position in such position is frivolous or groundless, or [¶] (C) the taxpayer unreasonably failed to pursue available administrative remedies, [¶] the Tax Court, in its decision, may require the taxpayer to pay to the United States a penalty not in excess of $25,000." (26 U.S.C. § 6673(a)(1).) In light of this genealogy, decisions construing the federal statute have considerable relevance to our task of determining whether section 19714 exceeds constitutional limits. (E.g., No Oil, Inc. v. City of Los Angeles (1974) 13 Cal.3d 68, 86, fn. 21, 118 Cal.Rptr. 34, 529 P.2d 66; Erlich v. Municipal Court (1961) 55 Cal.2d 553, 558, 11 Cal.Rptr. 758, 360 P.2d 334; Holmes v. McColgan (1941) 17 Cal.2d 426, 430, 110 P.2d 428.)

A number of federal cases, reasoning that a taxpayer has no constitutional right to bring frivolous lawsuits or groundless administrative proceedings, have held that the federal statute does not violate taxpayers' First Amendment right to petition for redress of grievances. (Coleman v....