California Franchise Tax Board Cannot Tax Company as a California Corporation when its Ties are to the State of Nevada – Los Angeles Income Tax Planning and Income Tax Litigation Attorney Bruce Givner

by Bruce Givner on April 29, 2013

This case is a stunning example of overreach by the California Franchise Tax Board, and should comfort California owners of non-California businesses. Daniel V, a Nevada corporation, maintained its corporate office, bank and brokerage accounts, and books and records in Nevada. Board meetings were held at its office in Nevada, and the company’s sole corporate officer resided in and handled the company’s business affairs from Nevada. However, finding that Daniel V’s sole shareholder and member of the company’s board of directors was a California resident, the California Franchise Tax Board held that Daniel V was commercially domiciled in California and thus taxable as a California corporation.

The Franchise Tax Board then issued a Notice of Proposed Assessment for 1997 and 1998. The State Board of Equalization denied Daniel V’s appeal, so the company paid the Franchise Tax Board assessments and filed suit in Superior Court.

At trial both the shareholder and corporate officer testified that the shareholder did not instruct the corporate officer on investments nor make any corporate decisions. In fact, the shareholder relied upon the corporate officer to run the company. As such, the Superior Court found the evidence insufficient to make Daniel V a California corporation.

The Court ordered a refund of the taxes, interest, and penalties paid.

Givner & Kaye focuses on sophisticated income tax planning and compliance, tax litigation and procedure, estate planning, and asset protection plans for individuals and businesses in Beverly Hills, Calabasas, West Los Angeles, Hollywood, and other areas of Los Angeles, Orange, Ventura, San Bernardino, Riverside and Santa Barbara Counties. Call Los Angeles Estate Planning and Asset Protection Plan Attorneys Givner & Kaye at (310) 207-8008 today.

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