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New Appeal Procedures – California Franchise Tax Board

Steven WalkerNovember 14, 2017

Starting January 1, 2018, appeals of Franchise Tax Board (FTB) decisions will be heard by the Office of Tax Appeals. Created by Assembly Bill 102, known as the Taxpayer Transparency and Fairness Act of 2017, OTA will replace the appellate process currently handled by the State Board of Equalization.

Signed into law on June 27th, 2017 by Governor Jerry Brown, AB 102 reduced the functions of the Board of Equalization (BOE) to the core responsibilities granted to it under the California Constitution: administer taxes and fees collected under the Property Tax, Alcoholic Beverage Tax and Insurance Tax.  Further, AB 102 created two new agencies: the Office of Tax Appeals (OTA) and the California Department of Tax and Fee Administration (“CDTFA”).

The CDTFA administers sales and use business and excise taxes, a function formerly performed by the State Board of Equalization.  The OTA will hear and decide tax appeals from final actions of the FTB and the CDTFA.  Proceedings at OTA will take place before a panel of Administrative Law Judges beginning on January 1, 2018.  The BOE will continue to hear cases until December 31, 2017.  Cases not “final” before the BOE on December 31, 2017 will be transferred to the OTA per AB 131.

Hearings and proceedings at OTA will follow the Administrative Procedures Act and the ABA Model Tax Tribunal Act, and will be public unless the taxpayer requests a closed hearing.  OTA appellate panels are required to issue written opinion within 100 days of a final decision, a departure from BOE standards.  While taxpayers filing the appeal to the OTA may appeal an adverse decision of the OTA to Superior Court in a de novo proceeding, the FTB and CDTFA are not authorized to appeal an adverse decision of the OTA to Superior Court.

The effect of these changes on California taxpayers remain to be seen and many questions still remain about how these agencies will operate.  Most significantly, it is unclear how closely the OTA will follow decisions of the BOE, and whether prior decision of the BOE will be controlling.  This uncertainty may provide taxpayers with an opportunity to settle cases with the FTB on more favorable terms and reduce litigations costs.   Stay tuned . . ..

Taxpayers who are considering appealing their case would be wise to seek the advice of competent tax counsel, who can evaluate the case, explain the options, and develop a defense strategy.