GAO Probe of State Tax Agencies Is Sought

Allegations of taxpayer abuse--particularly involving the rich and famous--have prompted an Illinois congressman to call for a federal investigation of state tax agencies, including the California Franchise Tax Board.

Rep. Jerry Weller (R-Ill.), in a letter to the General Accounting Office, cited an Aug. 2 story in The Times about the FTB’s tough collection tactics. In the letter, he requested that the GAO, which investigated alleged abuses by the Internal Revenue Service last year, now look into reports that state tax agencies are unfairly pursuing wealthy former residents.

“I am . . . disturbed to learn that while we addressed taxpayer abuses at the federal level, there may be just as many oppressive actions occurring throughout the country on the state level,” Weller wrote earlier this month. He did not return calls for comment.

A GAO spokesman said the office had not received the request and could not comment on the likelihood of such an investigation being launched. The GAO typically investigates federal matters at the request of committee chairmen, assigning lower priority to appeals by other Congress members. Weller is vice chairman of the House Policy Committee and a member of the House Ways and Means Committee.

Weller wrote that California’s FTB targets rich and famous former residents for audits “because they are particularly vulnerable to threats of violating their privacy and causing them bad publicity.”

The Times’ report did not address the problems of the wealthy, but it found that tax experts consider the FTB more efficient and aggressive than the IRS. Corporate tax executives have ranked California among the toughest, least fair and least predictable state tax agencies in the country. A former member of the board that oversees the agency described its staff as “brutal.”

Weller charged that FTB auditors “trespass onto the victim’s property, record the victim’s movements and even probe the victim’s garbage and mail, all while making sure to avoid contact with the victim.”

Local tax preparers and FTB officials agree that rich residents who leave the state can come under special scrutiny as the state looks for income earned in California. But the FTB says it does not use illegal tactics and audits an array of people and corporations--not just the wealthiest.

“The spectrum of audits runs the gamut,” said Jim Reber, FTB spokesman. “Residency is one of the most difficult areas to deal with. It’s not black and white.”

Charles Rettig, a Beverly Hills tax attorney who has represented sports stars and other celebrities in FTB residency battles, said the agency rarely targets average taxpayers for residency audits but vigorously pursues the wealthy.

“From [the FTB’s] perspective, it seems that just about the only nonresident is someone who has never been present in or flown over California on their way elsewhere,” Rettig said. “Residency auditors often overemphasize any California contact they can locate and underemphasize or even ignore relevant out-of-state contacts.”

Rettig said FTB auditors sometimes assess penalties, including civil fraud penalties, by charging that a celebrity intentionally set up a scheme to evade California taxes by buying a home, voting and joining social clubs in another state--even though such actions are typical of people who move to a new state.