In the Matter of the Appeals of: BRIANCRONER.COM, LLC; GREEKBOD.COM, LLC; UOFNOBS.COM, LLC; ADGLU.COM, LLC; VAPPER.COM, LLC;
Case Information:
Docket/Court: 536357 ; 536362 ; 536359 ; 536363 ; 536364 , California State Board of Equalization
Date Issued: 06/21/2011
Tax Type(s): Personal Income Tax, Corporate Income Tax, Limited Liability Partnerships
NOT TO BE CITED AS PRECEDENT
For Appellants: Brian Croner
For Franchise Tax Board: Nancy E. Parker, Tax Counsel III
Counsel for the Board of Equalization: William J. Stafford, Tax Counsel
OPINION
SUMMARY DECISION
LIMITED LIABILITY COMPANY APPEALS
CONSOLIDATED APPEAL
This consolidated appeal is made pursuant to section 19324, of the Revenue and Taxation Code (R&TC) from the actions of the Franchise Tax Board (FTB or respondent) in denying each appellant's respective claim for refund. The specific amounts at issue for each appellant are set forth in the respective exhibit(s), which are attached at the end of this Summary Decision. The issues presented in this consolidated appeal are (i) whether we can grant relief from the annual minimum limited liability company (LLC) tax for a particular appellant, and (ii) whether an appellant has shown that it is entitled to relief (or suspension) of interest on its annual minimum LLC tax. 1
FINDINGS AND DISCUSSION
Background
Each appellant is a California LLC. 2 Each appellant filed its articles of organization with the California Secretary of States office. For each applicable tax year, each appellant had not filed a certificate of cancellation of its LLC status with the California Secretary of States office by the end of the respective tax year. 3
Each appellant is managed by its sole managing member Mr. Brian Croner. During the tax years at issue, Mr. Croner was medically diagnosed as suffering from schizoaffective disorder (attributes of both schizophrenia and bipolar disorder), a serious medical condition.
For each respective tax year, each appellant filed an LLC return, self-assessing an $800 annual minimum LLC tax. Some of the returns were filed timely; but some of the returns were filed late. The FTB accepted each return as filed.
Mr. Croner's parents fully paid the applicable taxes, penalties, and/or interest assessed (or self-assessed) against each appellant. Now, as the sole managing member of the LLCs, Mr. Cromer is seeking refunds of the respective payments his parents made on behalf of the LLCs.
Contentions
Concession on Appeal
As noted above, the FTB has agreed on appeal to refund all penalty amounts assessed against each appellant, including interest on those penalty amounts. Thus, the only amounts in dispute on appeal are (i) the annual minimum LLC tax, which was self-assessed against each appellant for a particular tax year, and (ii) interest assessed on each annual minimum LLC tax liability.
Appellants
Mr. Croner states that (i) his schizoaffective disorder caused him to create the LLCs, and (ii) no business was ever transacted by the LLCs, which existed “in name only.” Based on the foregoing, Mr. Croner argues that appellants should not be held liable for the annual minimum LLC taxes (including interest on those taxes), as the formation of the LLCs was due to his schizoaffective disorder.
In support of his arguments, Mr. Croner included a medical statement from his doctor, Yun Chong, MD, who states that Mr. Croner was diagnosed with schizoaffective disorder and is currently being treated for that condition. The medical statement is dated May 1, 2009.
In addition to the medical statement from Mr. Croner's doctor, Mr. Croner provided a statement from his father, Patrick Croner, who indicates, among other things, that (i) he and his wife paid the applicable amounts at issue in this appeal because their son (Mr. Croner) had no job, no money, and no prospects for either, and (ii) the LLCs were merely “names on pieces of paper” that made their son “feel important.” Along with the letter from Mr. Croner's father, appellants provided copies of checks, showing that Patrick Croner and his wife made the applicable payments to the FTB.
The FTB
The FTB makes two arguments: First, in relation to the imposition of the annual minimum LLC tax, the FTB notes that R&TC section 17941, subdivision (b) , imposes an annual $800 tax on an LLC when its articles of organization have been accepted by the Secretary of State, regardless of whether the LLC was doing business in California. In addition, the FTB states that an LLC is required to pay the annual minimum LLC tax for each taxable year, or part thereof, until an LLC certificate of cancellation is filed with the California Secretary of States office. Here, the FTB argues that the applicable annual minimum LLC taxes should not be refunded because (i) during the applicable tax years, each LLC was organized under California law; (ii) during the applicable tax years, each LLC had not filed an LLC certificate of cancellation with the California Secretary of State's office by the end of the applicable tax year; (iii) there is no “reasonable cause” exception in the R&TC to the annual minimum LLC tax.
Second, in relation to the imposition of interest on the annual minimum LLC tax, the FTB argues that appellants have not alleged (or shown) the FTB caused the accrual of interest because of a delay in the performance of a ministerial or managerial act as required by R&TC section 19104 . In addition, the FTB states that because the respective annual minimum LLC taxes were self-assessed by appellants when they filed their returns, appellants have not shown they are entitled to have interest suspended under R&TC section 19116 (i.e., where interest is suspended when the FTB does not issue a proposed assessment within a specific period of time).
Discussion
Annual Minimum LLC Tax
R&TC section 17941, subdivision (b) , provides that every LLC is required to pay an annual tax to California for the privilege of doing business in this state if one of the three requirements is met: (1) the LLC is doing business in this state as defined in R&TC section 23101 ; (2) the LLC's articles of organization have been accepted by the California Secretary of States office; or (3) a certificate of registration has been issued by the California Secretary of States office.
An LLC is required to pay the annual minimum tax for each taxable year, or part thereof, until a certificate of cancellation of the LLC is filed with the California Secretary of State. ( Rev. & Tax Code, § 17941, subd. (b)(1) .) The R&TC does not provide a “reasonable cause” exception to the annual minimum LLC tax imposed under R&TC section 17941 .
Here, the applicable annual minimum LLC taxes should not be refunded because (i) during each applicable tax year, each LLC was organized under California law, and (ii) during each applicable tax year, each LLC had not filed a LLC certificate of cancellation with the California Secretary of State's office by the end of the applicable tax year, and (iii) R&TC does not provide a reasonable cause exception to the imposition of the annual minimum LLC tax. We note this Board is a board of limited jurisdiction. (See Appeals of Fred R. Dauberger et. al., 82-SBE-082, Mar. 31, 1982 .) “[T]he only power that this Board has is to determine the correct amount of an appellant's California personal income tax liability for the appeal years.” (Id.) Based on the foregoing, we find that the annual minimum LLC taxes should not be refunded.
Abatement of Interest
Interest is required to be assessed from the date when payment of tax is due, through the date that it is paid. ( Rev. & Tax. Code, 19101 .) Imposition of interest is mandatory; it is not a penalty, but is compensation for appellant's use of money after it should have been paid to the state. (Appeal of Amy M. Yamachi, 77-SBE-095, June 28, 1977 .) There is no reasonable cause exception to the imposition of interest. (Appeal of Audrey C. Jaegle, 76-SBE-070, June 22, 1976 .)
To obtain relief from interest, appellant must qualify under one of three statutes : R&TC sections 19104 , 19112 or 21012 is not applicable, because there has been no reliance on any written advice requested of the FTB. R&TC section 19112 requires a showing of extreme financial hardship caused by significant disability or other catastrophic circumstance. However, there is no provision in R&TC section 19112 or other law that gives this Board jurisdiction to determine whether R&TC section 19112 applies in this instance. The Legislature, however, did provide this Board jurisdiction over appeals of denied interest abatement requests under R&TC section 19104 , as discussed below.
Under R&TC section 19104 , for tax years beginning on or after January 1, 1998, 4 this Board may only abate or refund interest on appeal.
[T]o the extent that interest is attributable in whole or in part to any unreasonable error or delay by an officer or employee of the Franchise Tax Board (acting in his or her official capacity) in performing a ministerial or managerial act.
( Rev. & Tax. Code, 19104, subd. (a)(1) [emphasis added].)
Further, the error or delay can be taken into account only if no significant aspect is attributable to the taxpayer, and the error or delay occurred after the FTB contacted the taxpayer in writing about the underlying deficiency. ( Rev. & Tax. Code, 19104, subd. (b)(1) .) In the Appeal of Michael and Sonia Kishner (99-SBE-007), decided on September 29, 1999 , this Board adopted the language from Treasury Regulation section 301.6404-2 (b)(2), defining a “ministerial act” as:
A procedural or mechanical act that does not involve the exercise of judgment or discretion, and that occurs during the processing of a taxpayer's case after all prerequisites to the act, such as conferences and review by supervisors, have taken place. A decision concerning the proper application of federal tax law (or other federal or state law) is not a ministerial act.
This Board has not yet adopted a definition for the term “managerial act.” However, when a California statute is substantially identical to a federal statute (such as, with the interest abatement statute in this case), we may consider federal law interpreting the federal statute as highly persuasive. (Douglas v. State of California (1942) 48 Cal.App.2d 835 .) In this regard, Treasury Regulations section 301.6404-2 (b)(1) defines a managerial act as:
[A]n administrative act that occurs during the processing of a taxpayer's case involving the temporary or permanent loss of records or the exercise of judgment or discretion relating to management of personnel. A decision concerning the proper application of federal tax law (or other federal or state law) is not a managerial act.
Here, appellants do not allege that the FTB caused the accrual of interest because of a delay in the performance of a ministerial or managerial act as required by R&TC section 19104 , and we find no basis for abating the accrued interest.
Interest Suspension
R&TC section 19116 requires the FTB to suspend the accrual of interest when the FTB does not “provide a notice to the taxpayer specifically stating the taxpayer's liability and the basis of the liability” within a “notification period.” ( Rev. & Tax. Code, 19116, subd. (a) .) The notification period is the 18-month period following the later of (A) the date on which the taxpayer files a timely return, or (B) the original un-extended due date of the return. (Id., subd. (b)(1).) Interest suspension begins the day after the notification period ends, and interest accrual resumes 15 days after the FTB mails the notice of liability. (Id., subd. (b)(2).) Here, the annual minimum LLC taxes were self-assessed by appellants when they filed their respective returns. Based on the foregoing, we find that appellants are not entitled to suspension of interest.
CONCLUSION
The FTB's denials of appellants' claims for refund are modified, as conceded by the FTB on appeal, to delete all penalties, including interest on such penalties, as to each appellant for each respective tax year. Otherwise, the FTB's denials of appellants' claims for refund are sustained.
Attachments: Exhibits 1-5.
Exhibit 1 — Briancromer.com, LLC, Case No. 536357
Tax Years 2006-2008
Assessments: On appeal, the FTB has agreed to refund all penalty amounts assessed against appellant, including interest on those penalty amounts. Thus, the only amounts still in dispute for appellant are (i) a minimum LLC tax of $800 per year, assessed against appellant for each tax year from 2006-2008, and (ii) interest on the minimum LLC tax of $800 per year, for tax years 2006-2008.
Exhibit 2 — Greekbod.com, LLC, Case No. 536362
Tax Years 2007-2008
Assessments: On appeal, the FTB has agreed to refund all penalty amounts assessed against appellant, including interest on those penalty amounts. Thus, the only amounts still in dispute for appellant are (i) a minimum LLC tax of $800 per year, assessed against appellant for each tax year from 2007-2008, and (ii) interest on the minimum LLC tax of $800 per year, for tax years 2007-2008.
Note: In the FTB's opening brief, the FTB states that “although appellant claims a refund of $2,035.35 for Greekbod.com, LLC, [the FTB's] records reflect a total payment on the 2007 and 2008 tax years of $1,946.86 after appellant received a refund of $88.71 for the 2007 tax year.”
Exhibit 3 — UOFNOBS.com, LLC, Case No. 536359
Tax Years 2007-2008
Assessments: On appeal, the FTB agreed to refund all penalty amounts assessed against appellant, including interest on those penalty amounts. Thus, the only amounts still in dispute for appellant are (i) a minimum LLC tax of $800 per year, assessed against appellant for each tax year from 2007-2008, and (ii) interest on the minimum LLC tax of $800 per year, for tax years 2007-2008.
Note: In the FTB's opening brief, the FTB states that “although appellant claims a refund of $2,035.57 for Uofnobs.com, LLC, [the FTB's] records reflect a total payment of $1,947.92 for the 2007 and 2008 tax years after appellant received a refund of $88.71 for the 2007 tax year.”
Exhibit 4 — ADGLU.com, LLC, Case No. 536363
Tax Years 2007-2008
Assessments: On appeal, the FTB agreed to refund all penalty amounts assessed against appellant, including interest on those penalty amounts. Thus, the only amounts still in dispute for appellant are (i) a minimum LLC tax of $800 per year, assessed against appellant for each tax year from 2007-2008, and (ii) interest on the minimum LLC tax of $800 per year, for tax years 2007-2008.
Note: In the FTB's opening brief, the FTB states that “although appellant claims a refund of $2,035.97 for Adglu.com, LLC, [the FTB's] records reflect a total payment of $1957.52 (sic) for the 2007 and 2008 tax years after appellant received a refund of $10.58 for the 2008 tax year.”
Exhibit 5 — Vapper.com, LLC, Case No. 536364
Tax Years 2007-2008
Assessments: On appeal, the FTB agreed to refund all penalty amounts assessed against appellant, including interest on those penalty amounts. Thus, the only amounts still in dispute for appellant are (i) a minimum LLC tax of $800 per year, assessed against appellant for each tax year from 2007-2008, and (ii) interest on the minimum LLC tax of $800 per year, for tax years 2007-2008.
Note: In the FTB's opening brief, the FTB states that although appellant claims a refund of $1,957.97 for Vapper.com, LLC, [the FTB's] records reflect a total payment of $1,947.26 for the 2007 and 2008 tax years after appellant received a refund of $88.71 for the 2007 tax year.
1
During the appeal process, the FTB agreed to refund all penalties (including interest on such penalties). Thus, the penalties that were originally assessed by the FTB are no longer an issue in this appeal.
2
According to the California Secretary of State's website, the corporate status of each LLC is currently cancelled.
3
The applicable tax years for Briancromer.com, LLC are 2006-2008. For all other appellants, the applicable tax years are 2007-2008.
4
For years prior to January 1, 1998, managerial acts were not included as a reason for abatement of interest.
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