California – Practice and Procedure: California Tax Appeals Office Races to the Finish Line on Finalizing Procedure Rules

Bloomberg BNA
SALT Talk Blog
by Veronica Shade
November 29, 2017

Pursuant to A.B. 102, the Taxpayer Transparency and Fairness Act of 2017, California taxpayers and practitioners will have new guidelines to follow during the tax appeals process as the new Office of Tax Appeals (OTA) finalizes emergency regulations before assuming its tax appeal duties on Jan. 1, 2018. The OTA must adopt new regulations that will govern its appeals process and procedures, which the State Board of Equalization (SBOE) previously administered.

The SBOE was reorganized in July, after Gov. Jerry Brown (D) signed into law A.B. 102 on June 27, and created two new agencies: the California Department of Tax and Fee Administration (CDTFA) and the OTA.

Prior to the reorganization, the SBOE was charged with administering and hearing tax appeals for various taxes, including personal income and franchise taxes. Under the new law, the SBOE would continue to perform its constitutional duties to administer programs related to property taxes, insurance taxes, and excise taxes on alcohol. The CDTFA began administering most of the taxes and fees previously collected by the SBOE on July 1, 2017, including sales and use taxes and several other excise taxes and fees.

However, in lieu of the SBOE hearing tax appeals, the OTA will be assuming that responsibility. The OTA will be comprised of 18 administrative law judges in three-judge panels located in Fresno, Los Angeles, and Sacramento. Each judge is required to be an active member of the California Bar for at least five years and must subscribe to the California Code of Judicial Ethics.

The OTA published draft emergency regulations Oct. 23, 2017, and held an informal stakeholders meeting Nov. 6, 2017, to solicit questions and comments. The draft regulations retain much of the same language and deadlines from the current SBOE regulations. However, there are significant changes that amend certain deadlines and other procedures.

For example, the OTA draft regulations decrease a taxpayer’s time to perfect a franchise tax appeal from 90 days to 60 days from the OTA notice date. Additionally, the OTA may reduce a taxpayer’s right to request an oral hearing from 30 days after the conclusion of briefing to the due date of the taxpayer’s reply brief. Failure to comply with these new deadlines may result in dismissal of the taxpayer’s appeal.

The OTA must follow the Administrative Procedure Act discovery rules and may admit any relevant evidence, “regardless of the existence of any common law or statutory rule which might make improper the admission of the evidence over objection in civil actions.”

Taxpayers should be aware of how SBOE precedential decisions adopted prior to Jan. 1, 2018, may be cited as persuasive authority and are not binding on the OTA. As first reported by Laura Mahoney in the Daily Tax Report: State (subscription required), the OTA may be able to withdraw the precedential status of SBOE opinions if the OTA is “deciding cases that actively challenge those earlier decisions.” Further, according to the draft regulations, anyone may request the OTA to designate or remove the precedential status of a published opinion.

Before A.B. 102 was enacted, there was concern among accountants that they may be barred from representing taxpayers before the OTA because of the practice rules describe in the bill. The draft regulations state that anyone at least 18 years old can represent a taxpayer, including accountants, bookkeepers, and attorneys; however, a translator whose sole role is to interpret for the taxpayer may not be a representative. Kristen Kane, Chief Counsel and Acting Director of the OTA, further clarified at the stakeholders meeting that the hearings would be as “informal … as possible,” considering most representatives would be pro se taxpayers and non-attorneys, as Roy E. Crawford of McDermott, Will & Emery reports.

All taxpayer appeals set for a SBOE hearing on or before Dec. 31, 2017, would be heard and decided by elected SBOE board members; however, all cases pending before the SBOE would be transferred to the OTA on Jan. 1, 2018. Thus, all California taxpayers and practitioners should stay apprised of the final OTA regulations before the end of this year.

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Bloomberg BNA/SALT Talk Blog
CA – AB 102