STATE OF CALIFORNIA

FRANCHISE TAX BOARD

PUBLIC MEETING

THURSDAY, DECEMBER 7, 2017

GERALD GOLDBERG AUDITORIUM

9646 BUTTERFIELD WAY

SACRAMENTO, CALIFORNIA

REPORTED BY: KATHRYN S. SWANK CSR NO. 13061

INDEX

ITEM NO. PAGE

1. Approval of Minutes 5

2. Legislative Update 5

3. Regulation Matters 18

4. Administrative Matters 22

A. Contracts over $1 million

1. EDR2

2. Security Guard Services

3. IBM Passport Advantage Software

Subscription and Support renewal

B. Facilities Request 26

1. San Francisco Field Offices

Consolidation - Civic Center

2. Additional State Owned Space

Assignment - California Town Center

5. Resolution Regarding Ex Parte Communication 29

on Petitions Filed Pursuant to R&TC

Section 25137

6. Taxpayer's Bill of Rights 51

7. Executive Officer's Time 76

8. Board Member's Time 80

Closed Session 91

Reporter's Certificate 92

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APPEARANCES

BOARD MEMBERS:

BETTY YEE, CHAIRPERSON

YVETTE STOWERS

DIANE HARKEY

ERAINA ORTEGA

STAFF:

SELVI STANISLAUS, EXECUTIVE OFFICER

DAWN CASEY, BOARD LIAISON

MICHAEL BANUELOS

DIANE DEATHERAGE

RED GOBUTY

SUSAN MAPLES

BRIAN WERKING

COUNSEL:

JOZEL L. BRUNETT

BRUCE LANGSTON

ALSO PRESENT:

MARK APREA, California Alliance of

Taxpayer Advocates

THERESE TWOMEY, Cal Tax

LYNN FREER, Spidell Publishing

VICKI MULAK, California Society of Enrolled Agents

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SACRAMENTO, CALIFORNIA

THURSDAY, DECEMBER 7, 2017, 1:32 P.M.

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CHAIRPERSON YEE: Thank you. Good afternoon. This is the scheduled time for the meeting of the Franchise Tax Board.

Would the board liaison please call the roll to determine a quorum is present?

BOARD LIAISON CASEY: Member Harkey.

MEMBER HARKEY: Here.

BOARD LIAISON CASEY: Member Ortega.

MEMBER ORTEGA: Here.

BOARD LIAISON CASEY: Chair Controller Yee.

CHAIRPERSON YEE: Here.

At least two members or their designated representatives being personally present, there is a quorum and the Franchise Tax Board is now in session.

Please stand and join me in the Pledge of Allegiance.

(Pledge of Allegiance was recited in unison.)

CHAIRPERSON YEE: The public has the right to comment on each agenda item, and if there are any members of the public wishing to speak on an item, please come forward when that item is called and you will have three minutes to address the board.

The first item, Members, is the approval of the minutes. We have the minutes of the September 7th, 2017, board meeting.

Any comments or concerns about that?

MEMBER ORTEGA: Move approval of the minutes.

(No audible "second.")

CHAIRPERSON YEE: Okay. We have a motion by Member Ortega to approve the minutes.

A second by Member Harkey.

Without objection, the minutes of September 7, 2017, are approved.

Item number 2 is legislative matters, and we have Diane Deatherage to present the 2018 legislative proposals. These are action items that can be considered separately or together in a single motion. I will ask Diane to present, and there may be speakers on one or more items.

We do have a speaker. Why don't we have you do the presentation? We'll call the speakers up after you present all of the proposals.

MS. DEATHERAGE: So I'm here to talk about the six legislative proposals that are included in your binder materials.

The first proposal is to eliminate two fees that are applicable to tax-exempt organizations. So one of them is the filing fee for a submission of a tax-exempt application, Form 3500; and the other is the annual information return, Form 199, filing fee.

The reasons behind this fee is that we found it was not cost effective for FTB to collect the $25 tax-exempt application fee because our systems are unable to administer them in an automated fashion, making them a more time consuming manual process; and the other reason is that we would like to eliminate the fee associated with the annual information return because the rules are unlike any other fees that we assess, which can be confusing to taxpayers; and in addition, the fee more than doubles if it's not paid timely. So it more than doubles from $10 to $25.

So that's the first LP.

The next LP is LP B, which would remove the sunset provision of a statute that currently allows information sharing between FTB and cities and counties. The current statute is set to expire on December 31st, 2018. This program has been in place for 15 years and brings the State of California over $2 million per year and results in tens of millions of dollars from many cities.

It's unlikely that we'll ever need to discontinue this information exchange, so we're asking for the repeal of the sunset date.

The third LP would amend the Water's Edge Election Statute to maintain an otherwise valid election when a unitary foreign affiliate becomes a taxpayer solely due to a change in another statute. This would correct an unintended consequence that is result of a definitional change in our "doing business" statute.

The next LP is LP D. This proposal would conform, with modifications, California law to federal law that allows expedited carryback refunds to reduce the impact of business losses. This proposal would amend state law to allow modified conformity, which would establish an application for tentative refund process, that's similar to the federal process for obtaining a tentative refund based on a net operating loss carryback.

And it would also specify the trigger date for the statute of limitations and interest accrual applicable to a net operating loss carryback, similar to the federal provisions.

The fifth LP, LP E, would create an administrative dissolution process for domestic corporations and domestic limited liability companies. This would solve problems that are created when business entities fail to complete the dissolution process with the Secretary of State.

California doesn't have the authority to administratively dissolve these business entities, and taxpayers sometimes mistakenly believe that they have fulfilled all their obligations to legally dissolve, and are surprised when the minimum tax continues to accrue each year.

Assembly Bill 557, enacted in 2015, created a similar process for nonprofit entities.

Then the last legislative proposal that we have was developed in response to the new federal partnership audit rules. Generally, the new rules require adjustments of income, gain, loss, deductions,

and credit items at the partnership level, with the partnership being liable for any resulting underpayment of tax.

The department, partnerships, and their partners are unable to take advantage of the efficiencies resulting from a single partnership level adjustment because current state law precludes the application of the federal determination imputed to and assessed upon a partnership under the new federal audit rules.

Our proposed solution is to amend existing law to specify that a partner's federal election regarding audit rules is binding for state purposes; also to prescribe the method for determining the California tax based on a federal partnership level adjustment; as well as to clarify the partnership's and partners' requirements for reporting federal adjustments to the state.

CHAIRPERSON YEE: Okay. Thank you, Diane.

Members, what I would like to do is see whether there are any comments on each of these proposals, but we have one speaker on this item, and I believe it may be on the last legislative proposal.

So let me ask Therese Twomey to come forward. And while she's coming forward -- are you speaking on Item F, the second one?

Okay. Thank you.

Are there any comments or questions with respect to legislative proposals A through E?

MEMBER HARKEY: No.

I actually had a bill in 2014 for Measure D, or for legislative proposal D here. So I'm glad to see this come through. It didn't make it through, but it's a good idea.

Thank you.

CHAIRPERSON YEE: Thank you.

All right. Maybe what we can do -- let me see if I can entertain a motion, then, for Items A through E?

Is there a motion?

MEMBER HARKEY: Yes. So moved.

CHAIRPERSON YEE: Okay. We have a motion to approval legislative proposals A through E.

Is there a second?

MEMBER ORTEGA: Chair, I'd like to abstain from the legislative matters.

CHAIRPERSON YEE: Okay. That sounds fine.

I will second the motion, with Member Ortega abstaining.

Without objection, Proposals A through E are approved.

MS. DEATHERAGE: Thank you.

CHAIRPERSON YEE: Thank you.

Okay. Ms. Twomey, welcome.

MS. TWOMEY: Good afternoon, Members. Therese Twomey, representing the California Taxpayers Association.

First of all, we would like to thank the board as well as the staff for working on a very robust legislative package. The package contains several CalTax priorities, and some of these proposals of note, we believe, would promote economic activity, particularly the one that Ms. Harkey mentioned, relating to the tentative refund or NOL carryovers, as well as the clarity for the Water's Edge Election.

I'm here in particular to speak to LP F, and that has to do with the partnership conformity. We're here to ask the board to adopt placeholder language, instead of moving forward with the legislative draft before you.

And the reasons are multiple: The first reason is, the federal government passed, in 2015, the partnership level audit adjustment, which allows the partnerships to make adjustments at that level, as well as to assess any liabilities and refunds at the partnership level.

We understand that there are difficulties in states, particularly one state, that has conformed.

Since 2015, there have been identified problems with state implementation with the federal provision, and there are national organizations across the country who have been working on model legislation.

The one state that has conformed to this federal provision is Arizona, and we're seeing many, many, implementation problems as a result of that.

We're here to ask the board to adopt placeholder language to allow us to work with FTB staff on model state legislation. Unfortunately, we were hoping to have language in that model finalized before the FTB had a legislative proposal sponsorship deadline. But the anticipated deadline, at this point, is going to be next month.

So a slight delay in allowing us to work with the FTB, to tailor some of those provisions to California, so that there is uniformity in terms of implementation, as well as increased voluntary compliance would go a long way to mitigating any additional FTB increased costs for enforcement.

So therefore, we ask the board, at this time, to please review some of the letters. We've submitted a packet that includes letters from the Council on State Taxation; there also are letters from other organizations as part of this effort that's headed by the Multistate Tax Commission in order to put uniformity around the state.

So we believe that a one or one and a half-month delay at this point would greatly improve our ability to comply with the provisions under the federal law, as well as promote an enforcement and administration of these provisions.

CHAIRPERSON YEE: Thank you, Ms. Twomey.

Ms. Harkey, do you have a comment?

MEMBER HARKEY: Yeah.

I think it would be wise, perhaps, to follow the MTC legislation.

Is the staff following that as it progresses?

MS. DEATHERAGE: We have received drafts of that language. It has not come to us with final language yet, so we haven't really followed that exactly. We didn't have the final language yet. As Therese was mentioning, it should be ready sometime next month.

MEMBER HARKEY: Okay. So I was just wondering – how it's progressing, so there's been some back and forth.

And Therese, I'm sorry. But have you been following it as it's making its way through the --

MS. TWOMEY: Yes.

MEMBER HARKEY: -- other entities?

MS. TWOMEY: Yes.

MEMBER HARKEY: Okay.

MS. TWOMEY: And just at this point, to clarify, there have been negotiations, back and forth, on the major points since 2015, when the feds enacted this provision. And the January deadline is mostly to fine tune the provision; it's not to go back and rehash the major parts or requirements. Therefore, we're confident that by the end of next month, we'll have a package to bring to you and to FTB staff to work towards a California solution.

MEMBER HARKEY: I guess my next question, then, would be, for staff, is there a problem with replacing placeholder language?

CHAIRPERSON YEE: I guess, Ms. Harkey, let me just express, first -- and I appreciate the implementation issues that have been raised, and I think we need to take a close look at those.

Given that the model language is not finalized yet, I think it's important to, at least for this board to, memorialize a proposal that does reflect the federal changes under the new federal audit rules, rather than having placeholder language, because that is the rule now. I mean, that goes for the rules in place now.

I am going to direct staff to continue working on this because we obviously don't want to run into similar implementation issues here in California. But I also think that we have a responsibility to reflect what at least the current federal law provides at this point in time.

So I think what I would like to suggest is that we look at having the language in place, statutorily, that would allow Franchise Tax Board to assess the federal adjustments at the partnership level, where the partnership is elected to pay the IRS at the partnership level.

And continue to work on getting this language fine-tuned, as we're informed by the work that continues at the MTC, and other information that we may receive.

MS. TWOMEY: Madam Chair, if I may, may I ask consideration of intent language that would serve the purpose of what the board is trying to do. It just facilitates the process and, as you know, CalTax, in the

past, has supported conformity language. And in 2015 we sponsored conforming legislation. It's just, unfortunately, the timing of the final product has not been completed.

CHAIRPERSON YEE: Yes.

MS. DEATHERAGE: And so, if there is intent language to say the Franchise Tax Board intends to promote conformity with the federal provisions and allow us to craft the language.

CHAIRPERSON YEE: I think given the timing of the legislative calendar, and hopefully when the model language may be finalized, we're going to have the ability to amend the bill. I mean, we're going to do something in this coming legislative year.

So I would prefer that we start with what the federal rules now guide us to do in California. And really have the staff stay on top of this to be sure that whatever changes do come forward, whether it be through the MTC process or other ways, that inform better implementation of the new federal rule, that we would reflect that in the bill.

So I think with that, I would like to make that a motion.

I mean, it just kind of puts a marker down in terms of what the current state of affairs are, and then we would move from there.

MS. DEATHERAGE: Thank you.

CHAIRPERSON YEE: Otherwise, I think the conversation gets a little convoluted on having a starting point reference that really reflects the current role.

All right. So -- yes, Member Ortega?

MEMBER ORTEGA: Yes. I will second that, to keep the process moving forward.

CHAIRPERSON YEE: Oh, okay.

MEMBER ORTEGA: Typically I would abstain from legislation as it comes back before the administration, but this obviously fits into that category of coming back for review for the conformity at a later date.

So I will second.

CHAIRPERSON YEE: Thank you, Member Ortega.

All right. So I have made the motion to approve the proposal, with the second by Member Ortega.

Member Harkey?

MEMBER HARKEY: I am tempted to abstain. But I can understand your logic with wanting something to move forward that shows that we're implementing the federal.

I am just a little concerned that amending is going to be a problem in the legislature.

Will this proposal be coming back here to this board, or will it just remain in the legislature?

CHAIRPERSON YEE: Well, I think it will be in the legislative process after it leaves here today, but with all parties still working on the provisions.

MS. DEATHERAGE: Working together, yes.

MEMBER HARKEY: Okay. I am going to abstain just for now, because I'm not sure what the final product is going to be.

CHAIRPERSON YEE: Okay. That's fair.

MEMBER HARKEY: Thank you.

CHAIRPERSON YEE: All right. Thank you.

So we have a motion and a second.

Please call the roll.

BOARD LIAISON CASEY: Member Harkey?

MEMBER HARKEY: Abstain.

BOARD LIAISON CASEY: Member Ortega?

MEMBER ORTEGA: Aye.

BOARD LIAISON CASEY: Chair Member Yee?

CHAIRPERSON YEE: Aye.

Okay. Thank you.

Okay. Our next matter is Item number 3. These are regulation matters. And Item 3A is an action item, which is the annual Rulemaking Calendar. And this is an action item that will be presented by Red Gobuty.

MR. GOBUTY: My name is Red Gobuty with the Legal Division’s Technical Resources Bureau. And the 2018 Rulemaking Calendar in your materials shows the regulation projects FTB staff plans to work on during the 2018 calendar year.

As required by Government Code 11017.6, on a yearly basis, FTB delivers a board-approved Rulemaking Calendar to the Office of Administrative Law, providing required information on the regulatory items FTB plans to transmit to the Office of Administrative Law for review and approval during the course of the calendar year.

As in years past, this board's approval of the calendar, and any new items identified on it for which staff has not previously received board approval to begin the informal regulatory process, serves as an explicit approval by the board to allow staff to begin the informal regulatory process and hold interested parties meetings for all calendared items.

I would now ask for the board's approval of the 2018 Rulemaking Calendar.

CHAIRPERSON YEE: Okay. Thank you, Red.

MEMBER HARKEY: So moved.

CHAIRPERSON YEE: Thank you, Member Harkey.

We have a motion by Member Harkey.

MEMBER ORTEGA: Second.

CHAIRPERSON YEE: Seconded by Member Ortega.

Without objection, it will be the order, the 2018 Rulemaking Calendar is approved.

Thank you.

MR. GOBUTY: Thank you.

CHAIRPERSON YEE: Okay. And now we have Item 3B, which is another action. We have Brian Werking to request permission to proceed with the formal regulation process on proposed regulation 18567.

MR. WERKING: Thank you.

Good afternoon, Madam Chair, Members of the Board.

My name is Brian Werking. I'm an attorney with the Franchise Tax Board.

Staff are seeking the board's permission to proceed with the formal regulatory process to amend California Code of Regulations, Title 18, section 18567.

Revenue and Taxation Code section 18567 is the law authorizing the Franchise Tax Board to grant a reasonable extension of time for filing a return. The law was amended in 2017 to authorize the Franchise Tax Board to allow a partnership an extension of up to seven months to file its return.

The regulation at section 18567 was adopted in 2001 to provide individuals, fiduciaries, and partnerships a six-month extension to file their original returns.

Because the regulation currently provides for a six-month extension period for a partnership, staff believes the Franchise Tax Board should update the regulation’s language to provide the statutorily authorized seven-month extension for returns by a partnership.

The specific amendments and additions that staff are seeking your board's permission to make are set forth in the materials.

The rulemaking action is necessary to amend an existing regulation to make it consistent with the taxpayer-friendly statutory changes. The rulemaking action is noncontroversial, which is why we are seeking to immediately proceed with the formal regulatory process. Accordingly, we request the board's permission to proceed with the formal regulatory process to amend regulation section 18567.

Thank you, and I would be happy to answer any questions you may have.

CHAIRPERSON YEE: Thank you, Brian.

We do have one speaker on this item.

Ms. Twomey, could you come forward.

MS. TWOMEY: Thank you, Madam Chair.

And today, I'm coming here to, once again, thank Selvi and her staff for working on this legislation. It was legislation that CalTax sponsored last year in order to facilitate some of the new rules pertaining to partnership filing.

And her staff has been wonderful. Worked with your office as well and Ms. Stowers, and just wanted to say, we look forward to working with you and your staff on the regulations.

CHAIRPERSON YEE: Thank you very much.

Okay. Questions, Members? Comments?

Hearing none, is there a motion?

MEMBER HARKEY: So moved.

MEMBER ORTEGA: Second.

CHAIRPERSON YEE: Motion by Member Harkey. Seconded by Member Ortega.

Without objection that motion carries.

Thank you very much.

MR. WERKING: Thank you.

CHAIRPERSON YEE: Item 4. Move to Administrative Matters. We have Item 4A, which relates to contracts over a million dollars, with Michael Banuelos presenting on these action items.

These items can be approved in one motion or voted on separately. We'll see what the will of the members are after the presentation.

MR. BANUELOS: Okay. Very well.

First of all, I want to say good afternoon and happy holidays to all the board members. I hope you are all doing well.

My name is Michael Banuelos, and I am the director of the Franchise Tax Board's Procurement Bureau. And today I have the pleasure of presenting the administrative matters for your approval.

The administrative matters consist of three procurement activities, which will result in contracts of over $1 million; and I am also going to be presenting two facility items that we need your approval. So I have a pretty long Christmas list for you all here today.

And I will go over the procurement activities and if you guys -- I'm sorry. If you ladies would like to stop at each one or ask questions, or I can go all the way through and then you can ask your questions at the end. Do you have a preference?

CHAIRPERSON YEE: Why don't you go all the way through?

MR. BANUELOS: Okay. Okay.

So the first item is related to our EDR2 project. I think most of you may know, we recently finished up a small project called EDR in December 2016. And we have now begun our EDR2 journey here.

So we're actually in the planning processes for EDR2. My colleague, Ken Musgrove, had come earlier this year -- I believe in March -- to give an update. Things are changing a little bit along the way. We're actually working with the Department of Technology, at this point in time, to go through the new project approval life cycle. So you may have heard of that. It's a little bit of a different reformatting of how we do IT projects, but there's still planning, an RFP, a BCP at the end. So some of those things that we've been dealing with for many years are still in place here.

So what I am asking the board for today is approval to begin working on the RFP process. And we would estimate, that along with all the other project activities that are going on, we probably wouldn't be looking at releasing an RFP probably at least for a year from now.

CHAIRPERSON YEE: Okay.

MR. BANUELOS: So that's what I am asking for approval there.

My second request has to do with our security guard services. We're asking for approval to extend our existing contract with Inter-Con Security Systems for unarmed security guard services. Our existing contract with Inter-Con expires on January 31st, 2018, and we are requesting approval to extend the contract to January 31st, 2019, commensurate with the term that would be available with the California Highway Patrol's Master Services Unit. And the annual cost for these services is right around $3.2 million.

So that is the second item.

And the third procurement item is related to some IBM software. We actually call it our IBM Passport Advantage Software Subscription and Support contract. These are software products that are critical for our tax and software developers within FTB. Without these products, we would not be able to perform many of our revenue-generating functions and various collection-related or administrative tasks without this renewal.

The contract needs to be renewed in June of 2018. And while we're working on the pricing -- it's a little bit more complex than in years past because, normally, I would be coming to you, asking you for a maintenance renewal somewhere in the amount of a million, 1.2 million.

We're taking over the EDR infrastructure beginning in July of 2018. So we've got a whole bunch more technology that we need to support. So we're going to start rolling in some of these EDR maintenance contracts, so that's why some of the prices are going up.

So this year's contract, we're still working on it, but we think it will be in the ballpark -- it can be upwards of probably $4 million this year.

And those are the three procurement efforts.

I would be happy to answer any questions that you may have.

CHAIRPERSON YEE: Okay. Thank you, Michael.

Any questions, Members?

MEMBER HARKEY: No. I will make a motion to move.

CHAIRPERSON YEE: Okay.

MEMBER HARKEY: Move approval.

CHAIRPERSON YEE: Okay. Motion by Member Harkey to approve all three requests.

MEMBER ORTEGA: Second.

CHAIRPERSON YEE: Second by Member Ortega.

Without objection, such will be the order.

Thank you.

MR. BANUELOS: Okay. Thank you very much.

I also have two facilities requests that I am presenting for your approval today. The first has to do with the consolidation of our San Francisco field staff into the Civic Center Building in San Francisco.

So, for context, we had come to the board, I believe, in March of 2017 and asked for approval to start working with DGS to submit a CRUISE request to look at moving our staff from Main Street facility there in San Francisco.

Subsequent to that -- the board approved it. Subsequent to that, we started talking with DGS. We also have staff in the Spear Street facility that we are also considering moving, and we think there might be an opportunity there to work with DGS to consolidate all of our staff in San Francisco in the Civic Center, in the Civic Center building there.

So I am asking for your approval today to go back to DGS and submit a new request, which would encompass looking for facilities for both people in the Civic Center building.

CHAIRPERSON YEE: Okay.

MR. BANUELOS: So that's the first one.

And the second one pertains to additional state-owned space here in the California Town Center. This one stings a little bit, so you ladies may have noticed that when you walked in, there's no more Golden 1 here, so the Golden 1 has vacated our premises, which was a very nice perk for us to have, but they are gone.

So FTB is requesting approval to submit a CRUISE request to DGS to add that space to our current central campus lease. We have multiple uses for this space including work site security, visitor and vendor check-in, exams, hiring, background, and badge check-in processes.

So those are the two facility requests that I am bringing for your approval today, and I would be glad to answer any questions that you may have.

CHAIRPERSON YEE: Great. Thank you.

I did have one question.

The reason Golden 1 vacated?

MR. BANUELOS: I'm sorry?

CHAIRPERSON YEE: The reason Golden 1 vacated?

MR. BANUELOS: You know, I have asked and I wasn't able to ascertain a reason.

The only thing I can surmise, after working in this building for so long, is, it used to be a full-service branch for us, and then over the last few years, they started scaling back some things in there, like doing cash transactions. So if you wanted to do loans or things, you could still do that through there, which made it quite convenient.

I've never gotten a direct answer. I would just make the assumption that it was a business decision, based on the amount of traffic that they were getting. But I can't say that with a hundred percent certainty.

MEMBER HARKEY: Branch consolidation.

CHAIRPERSON YEE: Right.

Member Harkey, any questions?

MEMBER HARKEY: No. I will move approval for the items.

CHAIRPERSON YEE: Okay. Motion by Member Harkey for approval.

MEMBER ORTEGA: Second.

CHAIRPERSON YEE: Second by Member Ortega.

Without objection, these two items are approved.

Thank you.

MR. BANUELOS: Thank you all for your support.

CHAIRPERSON YEE: Thank you, Michael.

Okay. So the next item is Item number 5. It's a resolution for our consideration. This is an action item.

This resolution adds two paragraphs to our previous resolution, adopted September 19th of 2000, concerning petitions under Revenue and Taxation Code section 25137.

Today's resolution provides, while a petition is pending, there shall be no ex parte communication between board members and petitioners or FTB staff.

And there are speakers on this item. And let me -- any further introduction on the matter? Bruce?

MR. LANGSTON: No. The original resolution, 2000-10, was adopted in the year 2000, and this one would simply be an amendment to that one, adding two paragraphs to it.

CHAIRPERSON YEE: Okay. Great.

I think there are two speakers on this item. We have Therese Twomey and Marc Aprea, if you will prepare to come up.

The full text of the draft resolution was attached to the agenda and is available on the FTB website and hereby incorporated into the record.

I just want to say that after reviewing the language, I would to add some formatting changes to clarify that the prohibition is for the board members, and it would not affect the ability of FTB staff to communicate directly with the petitioner; and also to add the following language to the second paragraph:

Without notice and opportunity for all parties to participate in the communication.

So the full text of the amendment -- and I will just have you refer to Resolution 2000-10 -- would read, (as read), "Beginning on January 1st, 2018, while a petition is pending, there shall be no communication, direct or indirect, regarding any substantive issue related to the petition to or from any board member or his or her staff/representatives, to or from one petitioner or an employee/representative of the petitioner, or to Franchise Tax Board staff without notice and opportunity for all parties to participate in the communication.

For the purposes of this section, a petition is pending from the date of the filing of the petition with the Franchise Tax Board pursuant to Revenue and Taxation Code section 25137.

So this is really to clarify some concerns that have been raised about whether certain communications are precluded under the language that was presented, and I'm asking for this clarification.

So Ms. Twomey, please begin your comments.

MS. TWOMEY: Thank you, Madam Chair.

Therese Twomey representing the California Taxpayers Association. First of all, thank you very much for the point of clarification and the addition of the language.

CalTax appreciates a transparent and open government, and while the language is much improved in the regulation, in the proposal before you, we request that the transparency be adopted in a more formalized process -- via a regulatory process or other stakeholder process -- to allow taxpayers who are out of state or others, who may not be aware the resolution, to ensure that they know what the requirements are related to communications on 25137, and, therefore, they would not inadvertently be out of compliance.

So we ask that the board direct FTB staff to work with stakeholders on the specifics of the language and that this be more formalized in some type of regulatory process.

CHAIRPERSON YEE: Okay. Thank you.

Let me have Mr. Aprea come forward and then I think we'll have a discussion about this.

Good afternoon.

MR. APREA: Good afternoon, Madam Chair, Members of the Board.

Marc Aprea. I'm here on behalf of the California Alliance of Taxpayer Advocates. They are tax consultants whose practice is before county assessors, the Board of Equalization, and the Franchise Tax Board.

Thank you for the opportunity to appear before you today. We submitted a letter to all three board members yesterday, and I have had the pleasure of having a conversation with State Controller Yee and her chief deputy, Ms. Stowers, on the matter.

We appreciate the change that has been offered by the Chair, but I think that the process remains an issue, and we would support the recommendations of Ms. Twomey.

But I would like to get a little bit into detail.

While I believe that we can agree to disagree on the substance of the proposed resolution, I would urge the board to reconsider the process. Process, as you all know, is important. And as we discussed with many of you over the course of the past few years, oftentimes, changes in taxpayer rights have been put forward in ways that have been -- perhaps abridged the process.

Last year, you all will recall that there was an effort before the State Assembly to allow the Franchise Tax Board appeal rights to a superior court. I've had conversations with, I believe, two members of the board, and we all agree that that was an inappropriate way to go about that policy change.

Earlier this year -- and I'm not here to relitigate the provisions of AB 102 -- but I think that many of us would agree that the process of enacting that, which included a removal of ex parte communication rights with members of the BOE, that that, too, suffered from a process issue. That is, the matter did not go through the normal policy process. Rather, it went through the budget process in a very, very quick fashion, depriving taxpayers and their representatives an opportunity to fully vet the matter and to have the matter fully debated.

And I would submit to you that while I know that the proponents of this resolution are honorable in their intent, I would ask that you reconsider this process.

Putting this forward in a resolution with quick changes to the language that have been just put before this body, I think, deprives taxpayers of their right to understand what the changes are to their rights as they appear before this body, albeit on a single and narrow issue.

What we do know is that the provisions of 102 have created confusion, where some members of the board have apparently been advised that there is an ex parte ban, not just on matters before them that are of an adjudicatory nature, but that they are precluded from having a conversation on votes that may come before the BOE, as it relates to matters of policy.

So while, again, we may disagree, I would ask that this go through the regular APA process, that taxpayers have a right to come forward and express to you how these changes may affect them in ways that may not be contemplated, and that they have an opportunity to express their views on this, both in writing and before a hearing of this board, in a way that would allow for openness and transparency.

And while, again, I'm not impugning the intent of the board or its proponents, I would ask that the process be changed so that it be more deliberative and that people have a greater opportunity to express their objections or proposed changes.

Thank you.

CHAIRPERSON YEE: Thank you, Mr. Aprea.

Comments, Members?

Member Harkey.

MEMBER HARKEY: I understand how the legislative process worked last year, and it was kind of necessary to get it done, to get it accomplished through the budget process because it was such a vast change and it probably would have been debated forever. And I do think that it was intended to happen. So I kind of understand why that happened.

I'm a little less clear on why this is so necessary now. I'm not really sure what has occurred that is going to be different than what has been. I don't know if the -- will the FTB, are they afraid they are not going to be able to make supportable arguments? I have always found them to be very efficient and to be very well equipped. Very intelligent, well-educated on the law and make good cases.

And I'm not sure that there's many instances of ex parte. You know, I think we've had two cases -- one dropped this week -- and then there was one other on my year here, my four board hearings. So it's not a common occurrence.

And I guess I am just trying to figure out what generated it, why it has to be done now, and -- because I'm always of the opinion that, we're elected, you are elected, the governor is elected. And people should have access to their elected officials.

I, quite honestly, found that before we had prohibitions at the board, we were able to work with the department and whatnot to get things reasonable, such as, the cases that came before us were solid, good cases. There were no snafus in them. They were really good cases. And we found that we were ruling with the department almost all the time because the cases had been vetted in both matters.

So I think for efficiency and whatnot, there might be something I'm unaware of. I do appreciate the changes in the language.

The problem that I have, though, with those changes is not defined as to what the method is for notice, who has to be noticed, how long they have to be noticed. These are the same things we had with the board.

And so luckily, for me, I had no reasons to do any more ex parte. I had great staff that just dug into the files and figured out the taxpayer's argument and the board's argument, the staff's argument. You know, we retained some really good people.

But I am concerned that, as an elected person, maybe I or a member of my staff might not follow what somebody else believes to be the way it should be handled, and then we would be subject to ridicule, at best, and maybe legal issues, at worst.

So I'm just concerned as to why this is such a rush, I guess. And I'm not real -- I'm not real supportive of it. I just don't know why it's here.

CHAIRPERSON YEE: Okay. Thank you, Member Harkey.

Let me see if I can just chime in. Then I do want to ask our legal staff to comment.

I think there's a distinction to be made between a rulemaking, regulatory process, and just the process of board self-governance. And you know, Member Harkey, I tried to institute some board governance,

self-governance at the Board of Equalization within this last year. In other words, just taking the regulations and the rules that are already in existence, and we, as part of our self-governance, continue to refine, update, to clarify what some of the provisions mean.

I think, with the enactment of AB 102, there is a consistency issue with respect to trying to have, now, this amendment to this resolution really reflect a consistency with what was enacted in AB 102, relative to ex parte communications.

I think I'm right in saying this: Even if we were to go into a rulemaking process or a formal regulatory process, it would still require us to, as a body, to first agree to the self-governance policies, to put it into that process. And I'm going to refer to legal on that.

But it seems to me that there's a distinction between really clarifying, as part of how we govern ourselves, as compared to putting forth an entire rulemaking process.

Bruce?

MR. LANGSTON: Yes. And I would remind your board that last year, you authorized staff to go forward with the section 25137 procedure regulation, and, in fact, it is reflected in the rulemaking calendar that you just approved earlier today.

Staff had an interested parties meeting last summer and plans to have another interested parties meeting sometime in the spring. And that will cover not only the filing of the petition and the working with Franchise Tax Board staff about it, but can also cover this issue of ex parte communication when and if the petition comes before your board.

CHAIRPERSON YEE: So that discussion is not precluded, Member Harkey. And I guess what I would say is, I think it is important for us to look at how we clarify ex parte communications, as reflected in the resolution, as proposed to be amended.

And then once this board acts, then I think the staff could then take steps to look at how the policy could be part of the pending regulation process.

MEMBER HARKEY: So am I to understand, then, that this will be part of interested parties, as was requested?

MR. LANGSTON: Yes.

MEMBER HARKEY: Okay. So what we're approving here is intent? Because there's still no guidelines. And I don't want to beat this up too much and I appreciate what's -- but I will probably not be sitting up here next year. But if there's another member up here, that we have really strong guidelines as to how exactly this process -- what the notice period and everything else. And where does that get fleshed out?

MR. LANGSTON: If I may, a resolution just provides general principles and guidance for the board. Staff will be happy to prepare a memo for the members with suggestions for more specific procedures in this area, if the board would like.

MEMBER HARKEY: Thank you. We did get a first memo. Then we got a clarification memo from our chief counsel. I kind of let it drop and it never got really presented to the board because we had a new

chief counsel coming on and we had a lot of confusion at the board after everything got split up, and we were short-staffed and without people. So it was a little bit difficult to drive this forward.

But I do know that it's not a slam dunk for implementation. And I think it's really important that the members know that they are protected for anything that might come up. And that's suffering personal liability for an infraction.

So that is really a concern with me. I just want to be sure that if the rules are in place, and I know what the rules are, I'm fine. But if the rules are vague, I'm not.

So if we pass this resolution -- let me ask this. If we pass this resolution, is it binding on us, from day one, or is it not binding until we get through the IP process?

MR. LANGSTON: The text of the resolution would apply as of January 1st of next year.

MEMBER HARKEY: And the instruction for how it's to be implemented?

MR. LANGSTON: That, staff would have to prepare that and provide it to the board.

MEMBER HARKEY: And I guess my next question is when?

Sorry. But I would like to have a chief counsel memo telling us exactly how this is supposed to be implemented before we decide it's binding.

CHIEF COUNSEL BRUNETT: Well, I don't know that it would happen before you decide it's binding. If we decide today that the resolution passes, it will be effective January 1 and we would start working -- and we may have already -- on a memo for you providing that type of guideline. We currently don't know what the next board meeting agenda is going to be.

MEMBER HARKEY: And the next board meeting is in March, right?

MR. LANGSTON: Usually is. It has not yet been set.

MEMBER HARKEY: Usually. That's still coming up.

Okay. If we could have guidance on this before the next board meeting, maybe even by, let's say, the beginning of February, only because you are going to have new members coming in, and there may be a case that's on the next board agenda that will be a questionable item. So if we could have guidance as how it's to be implemented by, let's say, February 1, to board members.

CHAIRPERSON YEE: Member Harkey, let me suggest something. Instead of a hard date, I think the goal here is to -- we've got the pending rulemaking process, and then we also should a matter come before this board, I will ask the staff to be sure that there's appropriate guidance, whichever comes first.

And I think that my intent for the action today is to actually, then, incorporate this into the pending regulatory process. And I think that will get picked up. And I would venture to say, it probably will get picked up and hopefully resolve before we even see a case come before us.

But I think that's the goal of the staff.

MEMBER HARKEY: Yeah. You know, a lot of times, these cases are scheduled and we'll get a phone call or something will happen prior to getting them on to the agenda but they know before they are coming before the board. So that's just my concern.

Okay. I think I have spoken, and I won't say any more.

Thank you.

CHAIRPERSON YEE: Thank you, Member Harkey.

Let me just raise a couple other issues.

One is, I know there's been a lot of concerns around this, but I actually think this will facilitate these hearing matters to the extent that communications are consistent and that they are understood, with respect to who participates and how they are noticed and communicated.

But the whole goal of this is to try to facilitate a good outcome when these hearings come before us, and I do think that there's a different hat that we wear with respect to being an elected official and being the decider of adjudicatory matters. And these rules are really meant for that second hat that we wear.

But I think they are important to be sure that there's consistency with respect to how we treat each matter that comes before us, and by each of us who will be making a decision in them.

So I think the resolution is the first step of what we need to adopt here, with then having this incorporated in the larger, as I said, pending process for the regulation.

MEMBER ORTEGA: Madam Chair, can I ask a question.

CHAIRPERSON YEE: Yes, of course, Member Ortega.

MEMBER ORTEGA: So I am supportive of the resolution, but I am a little unclear as to what the regulatory process then brings back to us, if we are adopting the resolution today.

So if the policy goes into place, what exactly is the incorporating of the interested parties' process into the policy?

CHAIRPERSON YEE: Yeah. Do you want to speak to that?

MR. LANGSTON: Well, regulations are published, and they are available in all of the reference materials and online and things like that.

And once we have enforceable regulation -- it's gone through the process, it goes to the Office of Administrative Law for approval -- then it basically is binding on the public as well as board members.

And a resolution, on the other hand, is simply a statement of what the board believes its own procedures should be. So the value of the rulemaking process is, you do have public input. It is vetted through the other agency, the Office of Administrative Law, for language and clarity and a number of other things.

So there is a value to going through that process and having public input on all of the rules, sort of like we had today.

MEMBER ORTEGA: Okay. Thank you.

So that's very helpful.

And the way I see it is, if we approve the resolution today, it's a self-governance policy until it makes its way through the regulatory process, in which case, it's more of an official policy that exists for the board and for parties and everyone would have the opportunity to make public comment and to be aware, in a timely manner, of the rules.

So with that, I would move adoption of the resolution.

CHAIRPERSON YEE: We have a motion by Member Ortega to adopt the resolution as proposed to be amended.

I will second that.

Ms. Twomey?

MS. TWOMEY: Madam Chair, may I ask a question?

So in the meantime, before a regulatory process is initiated, and before the regs are finalized and adopted, although a memo may be provided to the board, how does the taxpayer, the other party to these communications, know and understand what the process is?

Once again, the board has made some very important points and trying to make sure that the members do not inadvertently -- are out of compliance but, at the same time, we like to have the same assurance on the taxpayer end as well.

CHAIRPERSON YEE: I think that we should put in place the appropriate outreach mechanisms to be sure that taxpayers and, certainly, their representatives, are clear about what the expectation is on ex parte communications.

And then, obviously, when the rulemaking process proceeds, there's still opportunity to comment on that. But relative to the resolution that will be adopted today, we have the votes and then I will go ahead and ask staff to provide some information, more publicly, about what to expect.

MS. TWOMEY: And then, if I may, one other point is that, you know, if that proposal that's submitted to the board, will that require a vote, would that then subjugate the regulatory process to the procedures that have already been provided to the members?

If you proceed with ex parte guidelines before the regulatory process, in advance of the regulations being adopted, how does that supersede what will be done in the regulatory process?

CHAIRPERSON YEE: I have a view about that.

But Bruce, do you want to comment?

MR. LANGSTON: Yes. I think this is pretty much what happens with every regulation. Typically, there are guidelines or informal rules that are in place that then become the basis for the discussion for the interested parties.

So typically, regulations are not done in a vacuum. Typically, there is some sort of guidance out there that is the basis for the discussion, and that would be the same situation here.

MS. TWOMEY: So just to clarify, the timing for the procedures will precede the regulatory process?

CHAIRPERSON YEE: The guidance will take effect January 1st and the regulatory process will still be there.

Maybe what's throwing people off? This is a resolution that really speaks to our self-governance. So this is how we are deciding to proceed, ourselves, under existing authority, as we're clarifying something that's already in existence. And the resolution, if it's adopted today, will then be incorporated into the pending rulemaking process.

So I think what you are probably asking, and being very nice about it, is, are we doing underground regulations? And the answer is no.

MS. TWOMEY: Absolutely not. I'm not asking that at all.

I appreciate the self-governance. We're just concerned. How do we know and how do we understand what that is?

CHAIRPERSON YEE: No. And I appreciate that concern and I am going to direct staff to really make an effort to do that outreach and, really, with your assistance, in terms of how best to get the word out about that while we still have the regulatory process pending.

MS. TWOMEY: Thank you, Madam Chair.

CHAIRPERSON YEE: Member Harkey.

MEMBER HARKEY: If it's self-governance, wouldn't it be up to the member?

CHAIRPERSON YEE: It is. It's before us.

MEMBER HARKEY: That's what I am saying. So when a taxpayer, somebody were to call our office, we would then decide the procedure?

CHAIRPERSON YEE: No. It's the self-governance of the board. It's a board self-governance policy, not an individual board member policy.

Mr. Aprea?

MR. APREA: Madam Chair, Marc Aprea on behalf of California Alliance of Taxpayer Advocates.

So I just want to be clear. So after January of 2018, on the matter in the resolution, there is no ex parte communication. I want to make sure that I and the others understand what the new language is. I have not seen it.

Is that something that could be available to us today? Or will it be available to us in the near future, since we haven't had an opportunity to see the language that you have just presented to us?

CHAIRPERSON YEE: We can make it available after the meeting today.

But it's not anything new. It's really consistent with what is provided for in AB 102, and it is adding the provision of – “without notice and opportunity for all parties to participate in the communications.” So it's very similar to what was provided in AB 102.

MR. APREA: Okay. And I just wanted to make sure that we had an opportunity to get that language --

CHAIRPERSON YEE: Sure.

MR. APREA: -- so that we could get it out to our members.

CHAIRPERSON YEE: That will very helpful.

MR. APREA: All right.

CHAIRPERSON YEE: We'll be sure that you have that.

MR. APREA: All right. Thank you very much.

MR. LANGSTON: If I may, if and when the resolution is adopted, it will be posted on our website, along with the other materials, as soon as we can.

MR. APREA: All right. Thank you.

CHAIRPERSON YEE: Very good.

Thank you.

Any other questions or comments, Members?

Okay. Motion by Member Ortega.

Second that motion.

Any objection?

MEMBER HARKEY: Objection.

CHAIRPERSON YEE: Okay. Please call the roll?

BOARD LIAISON CASEY: Member Harkey?

MEMBER HARKEY: No.

BOARD LIAISON CASEY: Member Ortega?

MEMBER ORTEGA: Aye.

BOARD LIAISON CASEY: Chair Member Yee?

CHAIRPERSON YEE: Aye.

That motion carries and passed.

All right. We will now move on to Item 6, which is our annual Taxpayer Bill of Rights hearing; something to look forward to every year.

This is the time set for the Board's annual Taxpayer Bill of Rights hearing, as required by section 21006 of the Revenue and Taxation Code. And the purpose of this hearing is to allow taxpayers and tax practitioners the opportunity to present directly to this board any proposals that they may have for changes in existing state income tax law.

Our staff of the Franchise Tax Board is available to respond to member questions, which may be raised as a result of the taxpayer proposals. And present are Executive Officer Selvi Stanislaus; Jozel Brunett, our Chief Counsel; Bruce Langston, our Assistant Chief Counsel; and Susan Maples, our Taxpayer Rights Advocate.

Staff will analyze the fiscal and administrative consequences of the proposals brought before us. Susan, I believe you have some introductory comments, and then I will call the names of the individuals that have indicated they want to make a presentation.

And when I do call your name, please come forward and state your name and present your proposals -- we generally give three minutes for each presentation, but we'll see how involved some of them are.

So Susan, welcome. If you will start with your introductory comments.

MS. MAPLES: Thank you, Madam Chair, and good afternoon, Board Members.

This year has certainly flown by more quickly than any of us could imagine. Here at FTB and in the Taxpayer Rights Advocates Office, we've been busy resolving many issues brought to our attention in previous Bill of Rights hearings.

I would like to share a little bit of what we've accomplished this year, but before I do so, I would like to take the opportunity to thank Selvi and your board for the support you have shown us throughout the year. Your commitment to the balance between the Taxpayer Bill of Rights and FTB's obligation to collect the proper amount of tax, and no more, is extremely important and very much appreciated.

At last year's Taxpayer Bill of Rights hearing, we once again heard the need for administrative dissolution processes for those business entities that were created but never did business, or those entities that partially completed the dissolution process and are now currently suspended. In response to this, a Business Dissolution/Cancellation Process Analysis Team was created. This multi-state agency team, with representatives from FTB, Secretary of State, and the Governor's Office of Business and Economic Development, studied the entity dissolution/cancellation process and recommended increasing and improving our education and outreach.

Together we added language to our forms and publications referencing the corresponding agency for the appropriate steps in the dissolution or cancellation of a business entity. We also provided important information about this process to our various education and outreach events. We created a Tax News live video called closing your business entity, which has now been viewed over 13,000 times. We also worked with GO-Biz on our California business portal Web page entitled "Closing a Business" so that it now includes an embedded drop down link to the dissolution and cancellation information for both FTB and Secretary of State. And finally, they helped develop a legislative proposal recommendation, which you heard Diane Deatherage present earlier in the meeting.

Another issue previously brought to your board was the late filing penalty for pass-through entities, also known as the per partner penalty. Because of how this penalty is calculated, the balance due can be

disproportionate to the underlying transgression. In response to a request for relief, FTB looked at various legislative, educational, and relief possibilities. We developed a plan to educate our staff about the penalty and reasonable cause exceptions so that they could find relief in many instances.

In addition, two bills were chaptered this year to help taxpayers with this issue. The first, Assembly Bill 1719, expands the Voluntary Disclosure Program to allow S corporations and LLCs classified as partnerships relief from the failure-to-file penalty.

Additionally, Senate Bill 813 expands the Voluntary Disclosure Program to allow most out-of-state partnerships with nonresident partners, limited partnerships, and limited liability partnerships into the program.

Working with taxpayers and hearing their concerns on this issue has helped us move toward a solution.

And finally, I would like to address the issue of amended return processing timeliness, also brought to your board at this annual Bill of Rights hearing. Our Filing Division has made it a priority to improve the processing time frame for amended returns, and it's providing information about current processing times on our external customer service dashboard. This past year, they have also accelerated the processing of amended returns and will continue processing these returns during our peak filing season.

These efforts have resulted in quicker and more accurate service to both personal income tax and business entity taxpayers. The average time to process an amended return has been three to four months. FTB's goal is to maintain these improved processing time frames and continue to look at other opportunities to improve service, including making it easier to file an amended return.

Finally, FTB will launch a new personal income tax amended return beginning in 2018, for the 2017 tax year, and we already have several software companies that plan to support electronic filing of these returns in future years.

In conclusion, I would like to thank my partners in the community. Having the support and trust of taxpayers, tax professionals, and trade media is key for me to be an effective advocate. The hearing today is to allow these external stakeholders the opportunity to present directly to the board any issues or concerns that they have.

After the last speaker, I would like to share the issues of two taxpayers who have written letters but were unable to attend today.

My commitment is to ensure a written response from the department to all of the issues raised today, by February 1st, 2018.

These responses will also be published on our website.

CHAIRPERSON YEE: Thank you very much, Susan.

Okay. Why don't we have our speakers come forward?

First is Vicki Mulak with California Society of Enrolled Agents.

And Vicki will be followed by Lynn Freer with Spidell.

MS. MULAK: Good afternoon, Chairman Yee and members of the board, Selvi, and Susan, and staff of the Franchise Tax Board.

And we always welcome our opportunity to come before you annually. This year, we have four proposals for recommendations. I hope to make it in the three-minute time limit, but I might need to bear your patience for just another minute or two.

We do concur with everything that Susan said, about the never-launched entities, the problem with business entities and the solutions. We raised these at prior meetings and we are very grateful for the movement that we see right now in assisting these taxpayers.

So our first issue, we did write a three-page letter, which they are in receipt of. And the first issue is about the Franchise Tax Board FE-INC program, which stands for Filing Enforcement Integrated Nonfiler Compliance.

And this is a program that looks at the various occupational and professional licenses that are regulated by the State of California and who has these licenses. And some of these folks, if they don't file returns, there is a Notice of Proposed Assessment that is sent to them based on industry averages. And we believe that there should be evidence of income, and an occupational and professional license doesn't necessarily equate to evidence of income.

State of California now has their FIRM Program. They get quarterly bank uploads from banks so they know where the money is. And we think there has to be evidence. So it's almost like a net that’s laid to see if we can catch any fish. And I'm sure there is a nonfiler or two that is captured in that net-laying experience, but we think there could be some innocents being captured that don't know how to fight NPAs and probably would just roll over and start marking payments on these assessments, which are really fictional in nature. And we think it's a fishing expedition.

We do want nonfilers brought into the system. We support that kind of a system. But we're not sure that this is the best means to accomplish that. I know they have many different means of filing enforcement, but this is one of them.

Our second issue today has also been mentioned in Susan's opening comments, and it's the Voluntary Disclosure Program in two recent bills in this 2017 session, which made that program more viable, for more taxpayers, for more relief. And so we're very happy about that.

We did discover a glitch, though. And the glitch is this: At the time you are an out-of-state taxpayer, an out-of-state partnership LLC or an S corp. and you have this aha moment that you are supposed to be filing with California under the single sales factor, market assignment rules, and you say, hum, there's this great program, and I can avail myself of that program, and I can be relieved of penalties. If you, by accident, decide to come clean with the Secretary of State's Office and register first, before you have submitted your application to the Franchise Tax Board, the way the code sections read, you have invalidated or made yourself ineligible. And the two sections that I refer to are Revenue and Taxation Code section 19191 and 19192.

I think the spirit of the law was not to allow already registered businesses that should know to take advantage of this program. But because the code is written so simply, it's actually being interpreted, in practice, very pragmatically. Register, no VDP.

So we think that somehow the code should be altered to include businesses that are registering kind of concurrent or simultaneous with their VDP applications. So some reasonable time frame, rather than, if you register, you are out. If you didn't register, you are in. We don't think your message should be, stay noncompliant with one agency --

BOARD LIAISON CASEY: Time expired.

MS. MULAK: -- with another agency.

I am going to continue, if that's okay with you.

CHAIRPERSON YEE: Yes.

MS. MULAK: Our third issue has to do with California's other withholding programs, referred to as Withhold at Source. And this is withholding that centers around real estate withholding, nonresident withholding, and back-up withholding. Real estate withholding, due to California's highly priced real estate, can produce a lot of withholding per transaction, because you can be withheld at 3.3 percent of your gross sales price; or you can select alternative withholding, which is a certain higher rate on your actual net gain, depending on your type of taxpayer, individual or corporate.

So if you come to your tax return, if you did not receive your 593 withholding statement from your escrow company, believe it or not, a lot of taxpayers do not understand their closing statements on their escrow transactions. If you do not claim that withholding the way the code sections read -- and the two that are being utilized for this are RTC Regulation 19002(a) and Revenue and Taxation Code 19307 -- you technically are not given credit for that withholding because a return is required. So then, the next step is, you are supposed to amend your return. And we already talked about -- Susan said they are improving the amended return time frames for processing, but they still have historically been high.

We think, in the interest of the State of California and taxpayers, California needs folks who report their investment sales of real estate, but taxpayers also need to be able to claim their withholding in a reasonable manner.

So you have to file an amended return, and there's no trigger when you file your return from the Franchise Tax Board as part of the notice of tax return change that, hey, you left something off, be it the sale, be it the withholding, or be it both.

So we think it's something that should be looked at, because if you do not claim this withholding in four years, we know what happens to it: It's a donation to the State of California. And you would not want that type of unfavorable publicity, where a taxpayer realizes they had a bunch of withholding taken away.

You get a lot of proceeds on a real estate sale. To know that you are short 20 or 30 thousand or 40 thousand is very easily done. And if they recognize it, go to file it -- we did have one person approach our organization that did fail to claim it in four years and would appear to have forfeited the real estate withholding.

Okay. And our fourth and final item is a looking forward item with federal tax reform on the horizon that we brought this issue before, is that a California stand-alone tax return, when you compute your

California AGI, not starting with your federal AGI -- if we keep our specified date of conformity, we would be still conforming in California to a very old Internal Revenue Code if tax reform is successful.

And so we think it would be easiest to go back to our pre-'87 way, which is to just add up and calculate separately -- I don't think it would be that hard. Schedule CA will become a monster in terms of "plusing" and "minussing" to federal AGI. So that's just a proposal, looking forward.

And again, we thank you for your attention to our matters, and we look forward to your response.

CHAIRPERSON YEE: Thank you very much, Ms. Mulak.

Any comments at this point?

MS. MAPLES: Yeah. I wanted to address two of the issues that Vicki brought forward.

I think that we all agree that FTB has to consider the burden that's placed on taxpayers, when they receive tax assessments from us that are either unwarranted or "uncorrect." So I appreciate the fact that CSEA has brought this to the board today.

It's truly a difficult task to balance this burden with the requirements to collect the proper amount of tax from everyone, particularly those folks that are not filing.

We continue to review the selection process for the file enforcements, and we will take all of these comments into consideration.

I might also add that this is one of the issues that I, myself, addressed in the annual report to the legislature; and that I was able to work with filing enforcement to ensure that those who have established that they do not have a filing requirement through these occupational licenses are going to be contacted less frequently.

So I look forward to working with CSEA on this issue.

Secondly, I wanted to address the unclaimed real estate withholding. First, I want to thank, again, Vicki and CSEA for reaching out to my staff as well as the withholding program area so that we could get a better understanding of what your concerns are. In the past, we also worked together; we've had success in improving the process of applying real estate withholding when a return is filed.

So I am really optimistic that this partnership will once again provide wins for the taxpayer and the tax professional. And, of course, I look forward to working with you, Vicki and CSEA, again on this issue.

MS. MULAK: Thank you.

CHAIRPERSON YEE: Thank you, Susan. Thank you so much.

Next we have Lynn Freer.

MS. FREER: Chairwoman, Selvi, Susan, Bruce, Jozel, and everybody, thank you very much for the opportunity to present in front of you.

My name is Lynn Freer with Spidell Publishing. And, first of all, I wanted to thank the Franchise Tax Board and particularly the MyFTB folks.

MyFTB has gone from a screaming little baby through the kindergarten years through grade school. I think we have gotten through preteen years and now, hopefully, our teenagers will grow up, and it looks like, in the very near future, we're going to have a really good system that balances both the needs of the taxpayer, the needs of the state, and, certainly, the security of our taxpayers and our information.

So regarding that, the new power of attorney that's coming out, I applaud you. I think it's a great system. I look forward to using it. We've done a webinar. We've talked, already, to about 4,000 people about it in our seminars, and we'll see a bunch more.

And everybody is very, very excited, so I'm glad.

There's only one issue that I wanted to bring forward regarding the power of attorney, and it's come to our attention that, for certain types of notices, the power of attorney is not given a copy of those notices. They seem to be notices that have to do with collections and the withholding notices. And so you got a power of attorney who is taking care of a client's issues, and they are maybe out of the country or unavailable, and a notice comes out of intent to levy, and that taxpayer representative does not get the notice. And the result is, of course, that the account gets levied, and there's generally not a way to get that money back if they do owe the money.

So I would request that you put some additional resources toward revising this particular issue.

The second is the Form 1099-G. And here, we have the Franchise Tax Board in the middle of the IRS and the needs of the California people, and identity theft and return security.

So what's happening is, when someone files a tax return around the due date of the return, the filing due date, in October, and if there's any identity theft possibility, then a notice goes out to the taxpayer to contact the Franchise Tax Board to make sure that they are who they say they are.

By the time this happens, and the return is put back into process, often the refund doesn't come until January. And the refund coming through January, then, is recorded by the Franchise Tax Board for the just prior year return; what should have come in 2017 would be dated 2018. So it now is not going to match up with the software that pro forms that refund that should have been in November or December, but didn't, in fact, come until January.

Now, federal law seems to say that that's what we have to do. But what I would suggest is that maybe the FTB could work with the IRS to find some sort of work-around situation. I know we have the solution when the refund is applied to estimated tax for the following year, but when the refund comes as a taxable refund, then we have a problem.

Now, that may all be moot in a month or so, but for last year and this year, it won't be. So who knows what's going to happen out there.

My next issue is earned income credit tax refunds. The IRS postpones processing and sending refunds on EITC returns until February 15th, and, hopefully, at that point, they have all of the wage and withholding information for the taxpayers and being able to process that refund.

Since Franchise Tax Board legislatively now will be granting refunds based on self-employment income, we would like to suggest that the Franchise Tax Board institute a policy that would follow the federal policy of waiting another 15 days to get those refunds out.

I think it would be helpful to the state. It wouldn't cost us less money. It's not going to be too much longer for the taxpayer, and I do know, we need to balance the correctness of the refund that's mailed with the needs of the low income taxpayer for the refund. But we think it's something that we would like you to consider.

Next, audits. I know that the audit process time has decreased significantly. We have many more audits being finalized within the standard. However, what we're still hearing from our people are that many audits that are complex, particularly a business audit, can go on and on and on.

And this is a result of a couple of things: The first one is that the taxpayer gets a request for information and then sends that information in, and then gets another one and another one and another one. And sometimes these are far apart. Sometimes they are because the original auditor has left or is on leave or whatever.

But this causes a great deal of consternation for the tax professional and the taxpayer, who is sort of in limbo, and many times, the issue is something that's going to involve a current or future year return. The longer it takes to resolve, the more work that has to be done to go back and correct anything from the prior years.

Like I said, have mentioned before, the other reason is often because the auditor has either left the Franchise Tax Board, is out on some sort of leave, and then the audit just kind of sits there.

So I don't know if there's a possibility of having two people work on an audit at a time, sort of a back-up. I know, when I was in practice, the big cases, I always had another person in the office working with me, or some way to prevent these long-time gaps in the completion of the audit.

Office of Tax Appeals, I would like to request that the Franchise Tax Board, as soon as possible, amend the Publication 985, to include the new name, of course. But also contact information, where to send those appeals, and whether you are going to fax or e-mail or online or mail. There's a number of different things out there. I think it's important we get that information out. And Spidell Publishing certainly will be as helpful as we can be in trying to get that information out to tax professionals.

The final issue I want to address is the "Swart" case. We do have a -- we do have a final agreement from the court on the "Swart" and I would like to see the Franchise Tax Board issue a new legal ruling that encompasses the details of "Swart." I think that the letter rulings -- or the rulings that have come out are basically, if you look like "Swart," you can act like "Swart." But there's no real guidelines there. Is it exactly 0.2 percent? What if it's 0.25? What if it's 0.3?

I think that we need to have some sort of guidelines as to when "Swart" applies and when it doesn't apply.

I would like to thank you all for your attention, and have a lovely holiday.

CHAIRPERSON YEE: Thank you very much, Ms. Freer.

Susan?

MS. MAPLES: Thank you.

First I would like to thank Spidell for all of the work that you have done with us in promoting our education and outreach efforts surrounding MyFTB. They have really been a huge help and made many efforts to help us get the word out to practitioners about how to use the system and why it's important. So I wanted to extend a thank you to Lynn because she's done an awful lot of work.

I also wanted to share her analogy of the crying baby. I think that's the term that Kathy and our EDR coined "crawl, walk, run" for us. So I found that kind of amusing.

But I did want to -- I did want to let you know, of course, as we have matured in this process, we do a lot every time we are updating the system, you know, and looking to those pain points for practitioners and trying to figure out what changes we need to make and how important they are -- and we've held focus groups and we've had a lot of discussions with tax professionals and taxpayers about what's important to them about the system. And again, Lynn, has been instrumental in helping with that as well.

So I do want to thank her for bringing the issue about the notices, because it is important to us that powers of attorney are adequately able to represent their clients and also to let you know that this issue of notices that are not within the MyFTB folder -- so powers of attorney -- are not able to see them is on our radar, and we have been looking at potential fixes and hopefully we'll have something in a future update at MyFTB to resolve that issue.

Secondly, I wanted to address the form 1099-G issue. As Lynn accurately noted, should federal tax reform pass, eliminating deduction for state tax -- this will probably become a moot point, but we did have this issue last year. It is something that's on our radar as well, and we've been trying to figure out a fix for that, for this year.

And then, finally, with regards to her audit issues, several years ago, issues with audit were brought to your board, and, as a result, our audit division held several audit roundtables to discuss some of the pain points with audits for our taxpayers and tax professionals. And as a result of that, we developed a policy of on all initial contact letters that go out on the audits, that they include both the supervisor and the manager's names and contact information.

So I do want to encourage tax professionals, should they have issues or feel there's an unreasonable delay in the progress of an audit, that they know that they always can reach out to both the supervisor and manager, just to rectify that issue, as well as my office.

But additionally, I want to let you know that I'm happy to work with audit to see what improvements we can make in the process, when an audit is reassigned. So we'll be looking at that as well.

Thank you, Lynn.

MS. FREER: Thank you.

CHAIRPERSON YEE: Thank you, Susan.

Could I also just ask -- Lynn brought up another point, and that with respect to the new Office of Tax Appeals, and I know there have been a lot of discussions with respect to getting the office established and the processes that will be in place.

Now, do you have any updates with respect to just broader public communication around --?

MS. MAPLES: So we have changed the notices that are going into the inserts so every time we mail out a final assessment, it will tell the taxpayer to now submit their appeal to the Office of Tax Appeals, as well as the more current address.

We also updated our website so that it now has the current address for the Office of Tax Appeals and guides taxpayers through that process.

We also submitted a Tax News article in one of our previous "Tax News" issues to let tax professionals know that should they want to appeal an assessment, which it's now at the Office of Tax Appeals.

I don't know -- do we have any other things that we want to share about what we're doing?

CHIEF COUNSEL BRUNETT: Just that all the forms and publications are being updated, in January, everything will be updated. And as we get more information about, specific phone numbers and things for Office of Tax Appeals, we'll update our forms again and provide that. So we're in constant communication so that we can make sure we get all the information out to the taxpayers.

CHAIRPERSON YEE: Great. Thank you, Jozel.

MS. MAPLES: And to Lynn's point, I would also like to add, if we do have more information for your tax updates for the practitioners throughout the filing season, we'll be sure and give you that information, so that even though it's not in the materials, that you can share that.

MS. FREER: Great. Thank you.

CHAIRPERSON YEE: Thank you.

So I believe those are the public speakers for this Taxpayer Bill of Rights hearing.

Are there others in the audience?

Okay. Susan, do you have some final comments for us?

MS. MAPLES: I have two other submissions from taxpayers who were unable to attend the hearing today.

The first is from James Garrison, the president of Pacific Federal Insurance Company. Mr. Garrison is concerned about the language on our billing notices and the amount of the EFT penalty.

Our billing notices sometimes instruct taxpayers to return a portion of the notice with their payment, which implies mailing us a check for the amount due.

However, if the taxpayer has a mandatory electronic payment requirement, we will impose a 10 percent penalty because they did not pay electronically.

Mr. Garrison has asked us to improve the language on our billing notices and to consider reducing the EFT penalty from 10 percent of the amount paid by check to a fee that is commensurate with the additional processing costs. His suggestion is $250.

The second submission is from Ms. Christina Grab, a personal income taxpayer. Ms. Grab's primary issue is that we do not apply overpayments from an earlier year to a current year filing enforcement

assessment. Instead, we bill taxpayers for the entire amount of the assessment and do not apply credits forward until an actual return is filed.

Ms. Grab also has a few other additional issues she would like for us to consider. She asked FTB to implement a policy that all FTB notices be sent out with the correct department phone number and not only the general assistance toll-free number.

Continuing on: Ms. Grab states that the IRS sends a notice annually when a taxpayer is owed a refund but has not yet filed. She would like FTB to consider making its policy in this area more closely aligned with the IRS.

Additionally, Ms. Grab's understanding is that FTB will not grant an extension of time to file or abate penalties for married couples filing late, when only one spouse has a qualifying illness. She believes FTB should offer extensions and relief to all caregivers.

Finally, she would also like FTB staff to better inform people about our annual Taxpayer Bill of Rights hearings.

As with the other issues raised today, my commitment is to ensure a written response from the department by February 1st, 2018, and these responses will also be published on FTB's website.

CHAIRPERSON YEE: Great. Thank you very much, Susan.

Comments or questions, Members?

Member Harkey.

MEMBER HARKEY:

I think the Office of Tax Appeals is going to be very well-served from the FTB side. Albert Rosas, who was in my office assisting me through this year, is now going to be an ALJ, I think. And he was excellent. Just one of the best attorneys I have worked with. So we have another one too, Mr. Hite, Jay Hite, who is coming back to the FTB. So I am just very pleased. I think we've got great representation, and I think I have more hope for the OTA.

Albert was great, and Ms. Stanislaus knows this. He's a great guy. Really good. Upbeat. Happy. Does his work. Knows his law, and not afraid to take on the challenge. And I think that's really important in a public servant.

CHAIRPERSON YEE: Great. Thank you.

All right. Thank you, Susan, very much.

MS. MAPLES: Thank you so much.

CHAIRPERSON YEE: Let's move on to Item number 7, which is Executive Officer's Time. Selvi?

EXECUTIVE OFFICER STANISLAUS: Thank you, Chairwoman.

For today, during my time, I would like to thank three good friends of FTB. First, Board Member Eraina Ortega. Today is Member Ortega's last FTB meeting before she moves on to her new job as Inspector General for Caltrans.

Member Ortega, you have been a great partner since you first joined FTB four years ago. You are easy to work with, you understand the complexities of state income taxation, and you have been very supportive of our efforts to serve all taxpayers better. In short, you have been a perfect role model board member. You are a wonderful public servant, and we certainly will miss you. Good luck in your new job.

But sadly, Member Ortega isn't the only board member we will be missing in 2018. As you heard today from Member Diane Harkey, she said that she may not be back at FTB next year and that she may rotate out as chair of the Board of Equalization.

So Member Harkey, we are going to miss you a lot. In all our conversations, you have been very understanding of FTB's goals and challenges. We have all enjoyed working with you. You have such a heart for public service and also for state employees.

You too have been a model board member and, honestly, I'm a little nervous seeing two-thirds of our board turn over at the same time.

So last, I would like to thank our board chair, Controller Betty Yee. Controller Yee, you and your representative, Yvette Stowers, are here for us, day in and day out. We appreciate everything you do for FTB and your tireless efforts to serve the people of California.

You are on 50-plus boards.

CHAIRPERSON YEE: 70.

EXECUTIVE OFFICER STANISLAUS: 70-plus boards. And every time I send you an e-mail or call you, you respond back within seconds. So thank you.

So with that, I would like to wish all of you a very happy holiday season and a prosperous New Year.

Thank you, Board Members.

CHAIRPERSON YEE: Thank you, Selvi, very much.

Member Harkey?

MEMBER HARKEY: I just want to say to the staff and say to the FTB members that I have worked with, it has been truly a pleasure. I'm very impressed. I was very impressed with the Board of Equalization staff, the professionalism, and their knowledge of the law and of the regulatory process and I'm very impressed with the FTB. I think it's a very smoothly run organization.

And I think that, Ms. Stanislaus, you couldn't ask for a better executive officer. She is very even, very even-keeled; knows how to gravitate between an elected member and the staff. And I have had the utmost cooperation from staff here.

So I want to thank you all for the work you do. Remember those taxpayers out there. They have a tough duty. You have a tough duty enforcing the laws. I understand that.

And so, I do appreciate the work on both sides. Those who make the remittances to pay our salaries, and those who have to go through the collection process to ensure they arrive where they are supposed to.

So thank you very, very much. And it's been an honor and a pleasure. I'm sure, if I am reelected to the board next year, that you may have me back at some point in time.

But anyway, thank you very much. And thank you. Thank you for your service.

CHAIRPERSON YEE: Thank you.

Member Ortega?

MEMBER ORTEGA: Sure. Thank you.

I would also like to thank the staff for all the patience and kindness in answering all the questions that I would always ask.

And I did want to say -- someone had asked me from Selvi's staff about memories of the time on the board, and the one thing that I will always remember is the annual videos and slide shows that we would see with all of the staff and the different events that are coordinated here and the generosity of the FTB staff. Because some of the images that stick with me are the food drives and the stuffed animal drive, in particular, and the large picture with everyone, with all the stuffed animals that were collected.

So I will always think of FTB and the generosity of the staff and how much participation there is here and lots of fun activities, in addition to all the hard work and dedication that you perform all year long.

So thank you.

CHAIRPERSON YEE: Thank you, Member Ortega.

Okay. Thank you.

We'll now move on the Item number 8, which is Board Members' Time.

Any board members wish to speak at this point?

MEMBER HARKEY: I think I said it all. Thank you. It's been a pleasure.

CHAIRPERSON YEE: All right. Then I will go ahead and make a couple comments. Just a matter of housekeeping.

This is probably to the legal staff, but I know there was a letter submitted that requested an interested parties meeting with respect to the other state tax credit and unlawful deductions.

Could you just give us an update on that?

CHIEF COUNSEL BRUNETT: Yes, of course.

We are examining that, and we will come back to the board with our recommendation on that.

CHAIRPERSON YEE: Very good. Okay. Thank you.

Will there will be an interested parties process that's starting on that?

CHIEF COUNSEL BRUNETT: We're examining the sufficiency of whether that should be a regulation or not, and we'll come back with that process.

CHAIRPERSON YEE: All right.

CHIEF COUNSEL BRUNETT: So we're still in the process of looking at that.

CHAIRPERSON YEE: Thank you. Thank you, Jozel.

Okay. And just want to pick up on what Ms. Ortega and Member Harkey spoke about, and that is really the true excellence of the staff here, at the Franchise Tax Board, but also the heart and the generosity of the staff here. And this being the holiday season, where not only are we celebrating with family and loved ones, but also our hearts reaching out to those who are less fortunate than we.

So I just want to extend my best wishes to all of you for a very, very joyous holiday season, a meaningful holiday season. But to just thank you, year-round, for always remembering the community in which the Franchise Tax Board is a part of, statewide.

Secondly, I want to just add my comments about my colleagues. It has been really, truly an honor to serve with Member Ortega. And as I said last week at the State Lands Commission, it's not only here at the Franchise Tax Board, but the State Lands Commission and CalSTRS and the Financing Authorities and the Treasurer's Office. And so I will miss her multifold.

But to have a chief deputy who has just been so well-versed on these issues, but really with such a critical and fair eye, always protecting the best interest of the State of California. And Eraina has been a pleasure to work with. And I know that Caltrans will be served very well with your leadership there and hope that you will not consider yourself a stranger here or any of the other boards.

Thank you for your service with us.

And then, to Member Harkey, during what I would say a fairly turbulent time at the Board of Equalization to have you at the helm to, you know, really see through some very, very difficult decisions and moments at the Board of Equalization has meant a lot, in terms of your willingness to dig in and just really try to overcome what that board has faced and to now be facing, as you say, the new Office of Tax Appeals, with some positive expectations; that we would not have gotten there without your diligence in terms of working through those issues. And I know they have been tough. But always, always with the lens of what's in the best interest of being fair to taxpayers of California.

So thank you. And we do look forward to you coming back, at some point, to this board.

MEMBER HARKEY: Well, thank you.

CHAIRPERSON YEE: And then, what I would like to conclude my remarks with is something that's always bittersweet, and that is, I do have two retirement resolutions. And, you know, what's so difficult about retirement resolutions is, not that we're not happy for the people who are retiring, but when you think about the collective years of experience that they are retiring from.

Between Marco Esquivel and Cathy Cleek, we're talking about 65 years of state service and, you know, 65 years of contributions. It's 65 years of really doing their part to make this organization better, each and every day. And I do want to pay tribute to each of them separately, and we'll begin with Marco, who is our director of financial management here at the Franchise Tax Board.

And what I particularly appreciate about Marco is that -- really, with both Marco and Kathy, their commitment to mentoring others around them, that this isn't just about their occupying a position and certainly serving in the leadership role, but that the sense of a responsibility and the doing it with just such grace relative to mentoring others.

And what I would like to do is just read the resolution that this board will be presenting to each one, because I do think it captures, really, the spirit of their contributions and some of the lasting legacies that will remain.

So for Marco Esquivel:

Whereas, Mr. Marco Esquivel faithfully served the people of the State of California for the past 31 years. Most recently as director of Financial Management Bureau of the Franchise Tax Board;

And whereas, Mr. Esquivel joined state service in 1984 as a youth aide for the Department of Parks and Recreation, where he lasted six weeks before moving to the more lucrative position of student assistant -- (laughter) -- for the Department of Social Services;

And whereas, Mr. Esquivel spent the next decade of his misspent youth bouncing between Consumer Affairs and Water Resources, before he finally landed at the Franchise Tax Board in 1996, which eventually lead to managing the department's $762 million budget;

And whereas, Mr. Esquivel is recognized not only for the substantial contribution to state service, but also for the positive influence invested in countless youth through his 27 years of coaching high school and junior college football, where success is not measured only in six conference titles but also life lessons learned on and off the field;

And whereas, Mr. Esquivel, who is never one to rest on his laurels, has already earned his real estate license and plans to dabble in this profession while living large in Southern California with his lovely wife, Mary, as they take pride watching their children, Christina and Marco Jr., finish and begin their careers;

And now, therefore let it be resolved, this 7th day of December, 2017, by the Franchise Tax Board, that we recognize and thank Mr. Marco Esquivel on the occasion of his retirement for his professional and personal dedication to the Franchise Tax Board and, most importantly, to the people of the State of California.

And Marco is joined today by his mother, Elaine Esquivel. Would you please stand? And brother John Esquivel; sister Marie Ortega; brother-in-law Eddie Ortega; and nephew John Jr. Esquivel.

Thank you. Thank you.

(Applause)

CHAIRPERSON YEE: Would you like to say a few words before we present you with the resolution?

MR. ESQUIVEL: Just that it's very humbling and I am very thankful, and very thankful for having the opportunity to work with so many wonderful people throughout my career, from the time I was 18 years old, 19 years old, till now. And very thankful for, you know, when I look -- walked in here and then looking at all the faces and even all the faces, the people that I've worked for or worked with in the past,

just feel very lucky, very fortunate. A lot of people have helped me along the way in my career, so for that, I will be forever thankful for that.

And look forward to the next chapter. You know, it's interesting. It's been pretty fun. So for all of you, you know, I wish you all the best and hopefully we'll cross paths again.

CHAIRPERSON YEE: Great. Thank you very much, Marco. And I will ask the members to join me.

(Applause)

CHAIRPERSON YEE: Our next retirement resolution is for Cathy Cleek, chief of our Technology Services Division and our chief information officer here at the Franchise Tax Board.

And I don't think a resolution kind of can fully encapsulate Cathy's contributions, but there are many, many lasting legacies which I will refer to.

First, Ms. Cathy Cleek faithfully served the people of the State of California for the past 34 years, most recently as the chief of the Technology Services Division of the Franchise Tax Board, and one of the most popular and successful CIOs in state service;

And whereas, Ms. Cleek was appointed as CIO in 2005, which was the result of her vision and leadership at continually championing for new and refreshed technology, that eventually led to IMC, CCSAS, EDR, and a host of other acronyms that now comprise our corporate alphabet soup;

And whereas, Ms. Cleek is exceedingly appreciated for her personal and professional investment in FTB's Mentoring Program and co-creation of the Executive Assessment and Development Program that has positively affected the lives and careers of FTB leaders;

And whereas, Ms. Cleek will be forever remembered in FTB lore for her Star Wars tradition of "May the Fourth be with You," when staff more resembled the crew of the Death Star than the tax agency; and for her many Cathy-isms, such as "crawl, walk, run," and "hope is not a plan;”

And whereas, Ms. Cleek will soon have abundant time to travel to exotic lands with her favorite nieces and nephews, explore her creative side using watercolors; and help those in Puerto Rico, who are still trying to recover from Hurricane Maria;

And now, therefore little it we resolved this 7th day of December, 2017, by the Franchise Tax Board that we recognize and thank Ms. Cathy Cleek on the occasion of her retirement for her professional and personal dedication to the Franchise Tax Board and, most importantly, for the people of the State of California.

And Cathy is joined here today by her parents, Vince and Ellen Cleek; her sister Julie Shea; her sister-in-law Tammy Cleek; and her niece, Karen Shea.

Thank you very much.

(Applause)

CHAIRPERSON YEE: I'm sorry. I neglected to welcome other members' comments on either retirement resolution.

Member Harkey?

MEMBER HARKEY: I just think it's great. But doesn't time go by fast?

MS. CLEEK: Absolutely.

MEMBER HARKEY: Well, you are not as old as me. You just wait.

MS. CLEEK: Thank you for that advice.

MEMBER HARKEY: It starts to speed by.

CHAIRPERSON YEE: Great.

Cathy?

MS. CLEEK: Chairman Yee and our board members --

CHAIRPERSON YEE: I'm sorry. Ms. Stowers had some comments.

MS. STOWERS: Thank you, Cathy Cleek.

Some of the comments in this resolution really touched my heart. You are an excellent mentor. You have been someone that I've looked up to for many years. I used to joke about I was patterning my career after you. And I think just seeing you work, when you were in the audit division, really helped me. So I want to say thank you very much. And you have been excellent.

MS. CLEEK: Thank you, Yvette.

So thank you. Selvi and FTB friends, when you look back on your career of 34 years, first, I just couldn't help but say thank you to Lynette Iwafuchi, our prior chief deputy who hired me, and was a role model to me from the start.

But you know, when you think about a whole year, it's really the people that first come to mind. And what I've been telling people, the FTB secret sauce is we lift people up. And that's my request, you know, to help bring the best of everyone. We came here, oftentimes, very young. I was 21. And so many people have helped me along the way. That's why I'm so passionate about mentoring. Because hopefully I -- I know some of my phrases will live on -- (Laughter) -- and I hear everyone say "crawl, walk, run." I've even heard the CPAs respond with "crawl, walk, run." But the people that have made it just a great place to work.

And I just think of my career as, I got to work on cool things that really mattered, both at Franchise Tax Board and with the Child Support Program. And we got to work on cool things that mattered for the taxpayers.

And so thank you very much.

CHAIRPERSON YEE: Thank you, Cathy, very much. And if you will come forward, we will --

(Applause)

CHAIRPERSON YEE: Thank you. And thank you to the family members who were able to join us today.

Members, Agenda Item 9, the 25137 petition, has been removed from the agenda and will not be heard today.

And at this time, the board is going into closed session to discuss pending litigation.

Audience, please remain seated here while the board members exit.

(Board recessed into closed session from 3:21 p.m. to 3:37 p.m.)

CHAIRPERSON YEE: We are now reconvened in open session. And the board met in closed session and discussed pending litigation.

And seeing no further business before us, we are adjourned.

Thank you very much and happy holidays.

(Proceedings concluded at 3:37 p.m.)

---o0o---

CERTIFICATE OF REPORTER

I, KATHRYN S. SWANK, a Certified Shorthand Reporter of the State of California, do hereby certify:

That I am a disinterested person herein; that the foregoing proceedings was reported in shorthand by me, Kathryn S. Swank, a Certified Shorthand Reporter of the State of California, and thereafter transcribed into typewriting.

I further certify that I am not of counsel or attorney for any of the parties to said proceedings nor in any way interested in the outcome of said proceedings.

IN WITNESS WHEREOF, I have hereunto set my hand this 20th day of December 2017.

/s/ Kathryn S. Swank

KATHRYN S. SWANK, CSR

Certified Shorthand Reporter

License No. 13061