The Franchise Tax Board, under pressure from the authors of the Taxpayer Bill of Rights, agreed Thursday to exempt individuals from additional taxes, penalties and interest whenever state lawyers provide erroneous written advice on income tax questions.
Overruling guidelines established by its staff, the three-member board also agreed to protect taxpayers against penalties and interest when general written information on tax questions provided by the agency for mass distribution turns out to be incorrect.
And to make sure taxpayers are aware of their new rights to written advice and the protection against penalties, the board directed its staff to post advisories in the agency’s tax information offices, insert notices in information brochures and, whenever possible, advise taxpayers individually when they call an 800 number for advice.
“The taxpayer has the right to rely on written advice from the government. If government doesn’t know the law, then who does? If it makes a mistake, it, not the taxpayer, should bear the financial risk,” Gray Davis, state controller and a board member, said in a written statement.
The board’s action came in response to criticism from Assemblyman Elihu Harris (D-Oakland) and Board of Equalization member Conway Collis, who complained that the state bureaucracy had interpreted the Taxpayer Bill of Rights so narrowly that only tax professionals would be able to avail themselves of the new protections.
The Taxpayer Bill of Rights, which became effective in January, entitles taxpayers to written legal advice from the Franchise Tax Board staff and protects them from additional income taxes, penalties and interest if the advice is wrong. If other forms of written advice provided by the agency are incorrect, the new law requires that the taxpayer be protected from penalties and interest.
The guidelines, as written by the staff, had required that protections against additional taxes, penalties and interest would be provided only to those who sought what it called a “chief counsel ruling.” To get the ruling, the taxpayer had to submit a detailed analysis of his tax question and a proposed “conclusion.”
Public Not Told
Executive Director Gerald Goldberg acknowledged that the agency, expecting only tax professionals to seek the ruling, had not advised the general public of its availability. He said the only mention of it had been in a news bulletin that the agency distributes to 40,000 tax professionals throughout the state.
He said that under the same guidelines, the “information letters” that were commonly distributed to average taxpayers who wrote the agency for advice provided no protections.
“The problem is the tax professional, the tax lawyer, is going to know what they ought to do is write in and ask for a legal ruling from the board, but they are the only ones that would know that,” Collis said.
Although the decision to change the guidelines was unanimous, board member Jesse R. Huff warned that it could spawn an avalanche of requests and require the agency to increase its legal staff possibly as much as tenfold.
Huff, who is an ex officio board member because he is state finance director, said he wanted to ensure that the taxpayer “receives a fair break,” and he expressed resentment over Collis’ suggestion that the board and the staff, which administers the tax laws, had no concern for the taxpayer.
“The thing that bothers me is . . . some sort of implication that people are trying to deliberately thwart the law, and I don’t think that’s the case,” Huff said.
Huff accused Collis of seeking publicity and noted that Collis’ remarks to the board appeared to have been presented in “sound bites” for the benefit of the television cameras.
“I think that (Huff’s remark) was a sound bite,” Collis shot back.
Goldberg said individuals may now find it more difficult to reach the operators who answer the 800 information number because of the additional time they will have to spend advising taxpayers of their new rights.
The agency, which provides the information until 10 p.m. every weekday, answers approximately 155,000 calls a month. Officials said its response time is about 71%, meaning callers will be able to reach someone without getting a busy signal 71% of the time.
7% Error Rate
Goldberg said the agency’s studies have shown that erroneous information is given to taxpayers 7% of the time. Similar studies by the federal Internal Revenue Service have shown that its tax advisers give wrong advice 30.8% of the time. An independent study has put the IRS error rate at 40%.
“Even if the state error rate is only 7%, if you’re one of those 7% who get erroneous information from your government, you sure as hell are going to want these protections,” said Collis.