(a) General. A person may be relieved from
the liability for the payment of tax, defined in section
4901(a)(7),
imposed pursuant to applicable tax laws, defined in section
4901(a)(1),
including any penalties and interest added to the tax, when that liability
resulted from the failure to make a timely return or a payment and such failure
was found by the board to be due to reasonable reliance on:
(1) Written advice given by the board under
the conditions set forth in subdivision (b) below, or
(2) Written advice in the form of an
annotation or legal ruling of counsel under the conditions set forth in
subdivision (d) below; or
(3)
Written advice given by the board in a prior audit under the conditions set
forth in subdivision (c) below. As used in this regulation, the term "prior
audit" means any audit conducted prior to the current examination where the
issue in question was examined.
Written advice from the board may only be relied upon by the
person to whom it was originally issued or a legal or statutory successor to
that person. Written advice from the board which was received during a prior
audit of the person under the conditions set forth in subdivision (c) below,
may be relied upon by the person audited or a person with shared accounting and
common ownership with the audited person or by a legal or statutory successor
to those persons.
The term "written advice" includes advice that was incorrect
at the time it was issued as well as advice that was correct at the time it was
issued, but, subsequent to issuance, was invalidated by a change in statutory
or constitutional law, by a change in board regulations, or by a final decision
of a court of competent jurisdiction. Prior written advice may not be relied
upon subsequent to:
(1) the effective
date of a change in statutory or constitutional law and board regulations or
the date of a final decision of a court of competent jurisdiction regardless
that the board did not provide notice of such action; or
(2) the person receiving a subsequent writing
notifying the person that the advice was not valid at the time it was issued or
was subsequently rendered invalid. As generally used in this regulation, the
term "written advice" includes both written advice provided in a written
communication under subdivision (b) below and written advice provided in a
prior audit of the person under subdivision (c)
below.
(b)
Advice Provided in a Written Communication. Advice from the board provided to
the person in a written communication must have been in response to a specific
written inquiry from the person seeking relief from liability, or from his or
her representative. To be considered a specific written inquiry for purposes of
this regulation, representatives must identify the specific person for whom the
advice is requested. Such inquiry must have set forth and fully described the
facts and circumstances of the activity or transactions for which the advice
was requested.
(c) Written Advice
Provided in a Prior Audit. Presentation of the person's books and records for
examination by an auditor shall be deemed to be a written request for the audit
report by the audited person and any person with shared accounting and common
ownership with the audited person. If a prior audit report of the person
requesting relief contains written evidence which demonstrates that the issue
in question was examined, either in a sample or census (actual) review, such
evidence will be considered "written advice from the board" for purposes of
this regulation. A census, (actual) review, as opposed to a sample review,
involves examination of 100% of the person's transactions pertaining to the
issue in question. For written advice contained in a prior audit of the person
to apply to the person's activity or transaction in question, the facts and
conditions relating to the activity or transaction must not have changed from
those which occurred during the period of operation in the prior audit. Audit
comments, schedules, and other writings prepared by the board that become part
of the audit work papers which reflect that the activity or transaction in
question was properly reported and no amount was due are sufficient for a
finding for relief from liability, unless it can be shown that the person
seeking relief knew such advice was erroneous.
For the purposes of this section a person is considered to
have shared accounting and common ownership if the person:
(1) Is engaged in the same line of business
as the audited person,
(2) Has
common verifiable controlling ownership of 50% or greater ownership or has a
common majority shareholder with the audited person, and
(3) Shares centralized accounting functions
with the audited person. The audited person routinely follows the same business
practices that are followed by each entity involved. Evidence that may indicate
sharing of centralized accounting functions includes, but is not limited to,
the following:
(A) Quantifiable control of
the accounting practices of each business by the common ownership or management
that dictates office policies for accounting and tax return
preparation.
(B) Shared accounting
staff or an outside firm who maintains books and records and prepares returns
for tax and fee programs administered under the Revenue and Taxation Code
sections referenced under this regulation.
(C) Shared accounting policies and
procedures.
These requirements must be established as existing during the
periods for which relief is sought. A subsequent written notification stating
that the advice was not valid at the time it was issued or was subsequently
rendered invalid to any party with shared accounting and common ownership,
including the audited party, serves as notification to all parties with shared
accounting and common ownership, including the audited party, that the prior
written advice may not be relied upon as of the notification
date.
(d) Annotations and Legal Rulings of Counsel.
Advice from the board provided to the person in the form of an annotation or
legal ruling of counsel shall constitute written advice only if:
(1) The underlying legal ruling of counsel
involving the fact pattern at issue is addressed to the person or to his or her
representative under the conditions set forth in subdivision (b)
above.
(2) The annotation or legal
ruling of counsel is provided to the person or his or her representative by the
board within the body of a written communication and involves the same fact
pattern as that presented in the subject annotation or legal ruling of
counsel.
(e) Trade or
Industry Associations. A trade or industry association requesting advice on
behalf of its member(s) must identify and include the specific member name(s)
for whom the advice is requested for relief from liability under this
regulation.
Notes
Cal. Code Regs.
Tit. 18, §
4902
1. New section
filed 4-28-2003; operative 5-28-2003 (Register 2003, No. 18).
2.
Amendment of subsections (a)(3) and (c) and new subsections (c)(1)-(c)(3)(C)
filed 6-18-2014; operative 10-1-2014 (Register 2014, No.
25).
Note: Authority cited: Sections
8251,
9251,
30451,
32451,
40171,
41128,
43501,
45851,
46601,
50152
and
60601,
Revenue and Taxation Code. Reference: Sections
7657.1,
8879,
30284,
32257,
40104,
41098,
43159,
45157,
46158,
50112.5,
55045
and
60210,
Revenue and Taxation Code.
1. New section filed
4-28-2003; operative 5-28-2003 (Register 2003, No. 18).
2. Amendment
of subsections (a)(3) and (c) and new subsections (c)(1)-(c)(3)(C) filed
6-18-2014; operative 10/1/2014 (Register
2014, No. 25).
