Spaid v. California Franchise Tax Board, D048338 (Cal. App. 5/29/2007)
| Decision Date | 29 May 2007 |
| Docket Number | D048338 |
| Court | California Court of Appeals Court of Appeals |
| Parties | NOEL W. SPAID, Plaintiff and Appellant, v. CALIFORNIA FRANCHISE TAX BOARD et al., Defendants and Respondents. |
Appeal from a judgment of the Superior Court of San Diego County, No. GIC830217, Ronald S. Prager, Judge. Affirmed.
Noel W. Spaid, a licensed attorney, challenges the trial court's granting of a summary judgment in favor of the California Franchise Tax Board (Board). After Spaid failed to file tax returns with the Board for two years, the Board sent her repeated notices advising her to file or explain why she did not have to file and warning her that if she did not do so, the Board would estimate her tax liability. Spaid failed to file the returns and failed to provide the Board with information indicating she was not required to file. Accordingly, the Board estimated her tax liability and, when she did not pay, seized the funds from her bank account. During pretrial discovery and at the summary judgment proceedings, Spaid continued to refuse to provide information about her income, instead relying on an argument that the Board's estimations of her tax liability were invalid assessments without factual foundation.
We hold the Board's estimations of Spaid's income based on her active attorney license and the average earnings of attorneys rested on a reasonable factual foundation and were therefore valid tax assessments. Under well-established tax principles, a tax payer has the burden to show a reasonably based tax assessment is incorrect. Because Spaid refused to provide the information necessary to determine her actual tax liability, on this record she cannot carry her burden to prove the Board's assessments were incorrect. Accordingly, the trial court properly granted summary judgment.
Spaid did not file California income tax returns for 2000 and 2001. In January 2004 the Board seized $19,149.64 from Spaid's bank account for the two tax years. Spaid filed a complaint seeking a refund of the seized money and damages. She alleged that the Board (1) had improperly imposed "naked" tax assessments that were without a supporting factual basis, and (2) had violated her due process rights by refusing her requests for a hearing before seizure of the funds. She also alleged that the Board and a Board employee had violated her federal civil rights under title 42 United States Code section 1983 (USC section 1983). The Board successfully moved for summary judgment.
The Board submitted evidence depicting its assessment and collection procedures and showing that before the final assessment and seizure of Spaid's funds Spaid was given repeated notices and opportunities to file her returns or to show she had no obligation to file.
The Board's seizure was based on its "Integrated Non-filer Compliance Program," which matches information from various reporting sources, including professional licensing boards, against filed tax returns to identify persons who have not filed returns. When the Board determines an active license holder has not filed a tax return, the Board estimates the person's earnings based on an "industry average"; i.e., the average income reported by persons in the same occupation for that tax year.
The Board received information from the State Bar of California that Spaid had a current license for tax years 2000 and 2001. By May 2002 Spaid had not filed a tax return for 2000. Accordingly, on May 20, 2002, the Board sent Spaid a demand for tax return letter, which required Spaid to respond by June 19, 2002, either by filing a 2000 return or explaining why a 2000 return was not required. The demand letter advised Spaid that if she had a filing requirement, she should file her return by the specified June 2002 date to avoid a tax assessment by the Board and additional charges.
Spaid did not respond as requested to the May 2002 demand for tax return. Accordingly, on August 28, 2002, the Board issued a notice of proposed assessment (NPA) for 2000. In the proposed assessment, the Board used its industry averaging methodology to estimate Spaid's income. The Board calculated Spaid's tax liability to be $8,868.07 ($5,332 for taxes and $3,536.07 for penalties and interest), based on an estimated income of $79,830, minus a standard deduction and exemption credit for a single individual with no dependents. The notice advised Spaid that the proposed assessment was due October 28, 2002, unless the Board received Spaid's tax return or information indicating she had no filing requirement. The notice also informed Spaid that if she disagreed with the assessment, she should mail a protest within 60 days of the date of the mailed notice, i.e., by October 28, 2002.
On February 3, 2003, the Board sent Spaid an income tax due notice for 2000, stating that she owed $9,101.92, and advising her that if the balance was not paid within 30 days the Board could take collection action. On March 11, 2003, the Board sent Spaid a final notice, stating she owed $9,155.29, and instructing her to pay by March 26, 2003. The final notice advised Spaid that the Board could begin collection actions without further notice, including taking wages, seizing deposit accounts, and seizing and selling real and personal property.
Similar procedures were followed for the year 2001. On January 21, 2003, the Board sent Spaid a demand for tax return for 2001 due February 26, 2003. On March 24, 2003, the Board sent Spaid an NPA of $9,042.84 for 2001 ($5,672 for taxes and $3,370.84 for penalties and interest), based on an estimated income of $84,612 and calculated under the same methodology as used for 2000. The NPA instructed Spaid to file a return or a protest by May 23, 2003. A notice of state income tax due for 2001 was sent on June 23, 2003, stating that the assessment was final and due.
On April 28, 2003, the Board sent Spaid's bank an order to withhold $9,327.96 for the 2000 tax year. Spaid sent a letter dated May 2, 2003, to the Board protesting the 2000 assessment and requesting a hearing.1 According to Spaid, she called the Board and advised it that she had requested a hearing to challenge this assessment. On May 5, 2003, the Board withdrew the April withholding order. Spaid sent a letter dated June 26, 2003 to the Board protesting the 2001 assessment. On August 26, 2003, the Board sent Spaid's bank an order to withhold $18,754.20 for tax years 2000 and 2001. Spaid again called the Board about her request for a hearing, and on September 12, 2003, the Board withdrew this withholding order. Finally, on January 28, 2004, the Board sent Spaid's bank an order to withhold $19,149.64 for tax years 2000 and 2001. Spaid again contacted the Board, but this time did not succeed in having the withholding order withdrawn. In February 2004 the Board acquired the requested funds.
Thereafter, the Board sent Spaid a letter stating that the time for a hearing on the 2000 and 2001 assessments had expired.2
Arguing in support of summary judgment, the Board contended it had established a rational factual foundation for the tax assessment based on the fact that Spaid was a licensed attorney. Accordingly, the Board asserted it had met its burden to trigger the presumption of correctness applied to a reasonably based tax assessment and that it was Spaid's burden to show the assessments were incorrect by showing the proper amount of the tax. The Board argued that Spaid had not set forth the correct amount of her income or taxes for 2000 or 2001 and, absent such a showing, she could not carry her burden to show the Board's tax assessments were incorrect.
In opposition, Spaid did not deny that she was a licensed attorney during 2000 and 2001, nor did she provide any information regarding her income or tax liability for those two years. Instead, she relied on her assertion that the Board's tax assessments were naked assessments and contended she had no burden to provide any evidence regarding the actual amount of her tax liability or her exemption from a tax filing requirement for those years. To support her argument that the Board had failed to show a factual basis for its assessments, she asserted that the mere fact that a person had a professional license did not show he or she used that license or generated income from that license, and that the Board's industry averaging methodology was arbitrary because it did not take into consideration any facts concerning the individual taxpayer. Spaid submitted a declaration stating that the Board had information in its files showing that during the 12 years prior to 2000 her annual tax liability ranged from about $90 to $150, and that her 1999 tax return on file with the Board indicated a house sale which showed she had income to support herself apart from earned income.
Regarding the due process issue arising from the Board's failure to afford Spaid a hearing before seizing the funds, the Board contended that Spaid had failed to submit a request for a hearing within the 60-day period after the mailing of the proposed assessments as required by statute. To support this assertion, the Board provided the two protest letters from Spaid to the Board wherein she requested hearings, asserted that the assessments were invalid naked assessments, and stated that she did not believe she owed any taxes for 2000 or 2001. The letters were dated after the expiration of the 60-day periods. Spaid's letter protesting the 2000 tax assessment was dated May 2, 2003, which was after the October 28, 2002 expiration date for filing a protest for the 2000 NPA. Her letter protesting the 2001 tax assessment was dated June 26, 2003, which was after the May 23, 2003 expiration date for protesting the 2001 NPA.
In opposition,...
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