Thomas Gray wrote, “… where ignorance is bliss, ’tis a folly to be wise.” This comes to mind with respect to a recent California Board of Equalization (BOE) hearing. In it, a taxpayer’s claims that it was never notified of a tax amnesty program and that it never received a copy of a Notice of Determination are not sufficient to relieve the taxpayer of the penalties due. However, determination that a misunderstanding took place softens the blow.
California ran a sales and use tax amnesty program from February 1, 2005, through March 31, 2005. According to a special notice issued by the BOE, the “program allowed taxpayers to pay the tax and interest they owed for certain reporting periods without paying penalties that usually apply.” The tax amnesty “applied to tax reporting periods that began before January 1, 2003.
The Right Hand Gives. The Left Hand Takes Away.
While businesses and individuals who participated in the tax amnesty program were spared certain penalties, other taxpayers faced new and improved penalties. The tax amnesty program:
- Created new penalties for taxpayers who owed tax but did not participate in the program or who failed to fulfill certain requirements of the program.
- Created an extended statute of limitations that allows the BOE to “bill for tax, penalties and interest up to ten years after the tax was first due… .”
Both of the above apply to the case being outlined in a recent BOE Hearing Summary. In it, a restaurant owner (Taxpayer) seeks adjustments to taxable sales, argues that a Notice of Determination was not issued in a timely manner, and requests relief from the finality penalty and amnesty penalties.
As noted in (1) above, in order to receive the benefits of the amnesty period, taxpayers must have participated in it. The Taxpayer under scrutiny in this case did not, and is therefore “subject to the penalties provided under the program, which include an amnesty doubled finality penalty and an amnesty interest penalty.” The Taxpayer’s claim that “it was never notified of the tax amnesty program” (Hearing, pp 3,4) was found to be implausible.
With respect to the Taxpayer’s claims that a Notice of Determination was not issued in a timely manner, the BOE refers to (2) above, reminding that “the sales and use tax amnesty program adopted by the Legislature provides for a ten-year statute of limitations… .”
Finally, since the Taxpayer failed to file or pay in a timely manner, it faces a 10 percent finality penalty, per Revenue and Taxation Code 6565.
Fortunately for the Taxpayer, the BOE concluded that “the taxpayer’s understatement was primarily caused by misunderstanding of the law.” As a result, the negligence penalty and the amnesty’s double negligence penalty were removed. (BOE, p5)