1. (a) Generally. A taxpayer appealing an action of FTB or CDTFA, as applicable, may elect under subdivision (e) to participate in the Small Case Program if:

   1. (1) FTB total amount in dispute limitation. In the case of an appeal of an action of FTB by a taxpayer subject to the Personal Income Tax Law (Part 10 (commencing with Section 17001) of Division 2 of the Revenue and Taxation Code), the total amount in dispute is less than five thousand dollars ($5,000) per tax year as specified in subdivision (c); or
   2. (2) CDTFA gross receipts and total amount in dispute limitations. In the case of an appeal of an action of CDTFA arising from a tax, fee, or penalty administered by the CDTFA, (i) the person filing the appeal has gross receipts of less than twenty million dollars ($20,000,000) for each federal income tax year that is included, in whole or part, in the CDTFA liability or claim period, and (ii) the total amount in dispute is less than fifty thousand dollars ($50,000) per calendar year (or fraction thereof) for each calendar year of the liability or claim period as specified in subdivision (c).

2. (b) Total amount in dispute. For purposes of determining eligibility for the Small Case Program, the “total amount in dispute” shall mean the total amount of taxes, fees, and penalties reflected on the action of FTB or CDTFA, as applicable, reduced by:

   1. (1) The amount of any interest for which the taxpayer elects to not request abatement, relief, or suspension,
   2. (2) The amount of any taxes, fees, or penalties for which the taxpayer elects to not separately dispute the taxpayer's liability for such amounts, or
   3. (3) Any amount reflected on the action of FTB or CDTFA, as applicable, and for which the Agency asserting the liability concedes in writing in its opening brief is no longer in dispute.
3. (c) Eligibility determined based on each year. For purposes of determining whether an appeal qualifies for the Small Case Program, each year or reporting period (or fraction of a year or reporting period), reflected on the action of FTB or CDTFA, as applicable, shall be treated separately in applying the applicable total amount in dispute limitation specified under subdivision (a).
4. (d) Deconsolidation. For purposes of applying this regulation and regulation 30212, the inability to meet qualifications for the Small Case Program unless the appeals are deconsolidated shall not be considered good cause to deconsolidate appeals.

5. (e) Special eligibility rules. A taxpayer may not elect to participate in the Small Case Program if any of the following applies:

   1. (1) Any of the tax years or reporting periods specified in the action of FTB or CDTFA, as applicable, has a total amount in dispute which exceeds the applicable dollar limitations specified in Government Code section 15676.2;
   2. (2) The FTB or CDTFA action is a denial of a claim for refund (including, in the case of an action by FTB, a deemed denial within the meaning of subdivision (a)(4) of regulation 30103) for an amount identified as “$1 or more,” or other unspecified amount;
   3. (3) The parties do not agree as to the total amount in dispute for any tax year or reporting period after applying the rules of this regulation, and OTA is unable to determine whether the total amount in dispute is within the limitations imposed pursuant to this regulation. In making this determination, OTA may consider the amount stated on the action of FTB or CDTFA, as applicable, as the total amount in dispute for purposes of this regulation;
   4. (4) The appeal involves an issue of law with potential for precedential consideration pursuant to those factors listed in subdivision (c) of regulation 30502, as determined by OTA;
   5. (5) The appeal involves complex or novel issues of fact or procedure, as determined by OTA;
   6. (6) The appeal involves any issue or issues of law, facts, or procedures, which OTA has designated in a published notice as being incompatible with the goals or procedures of the Small Case Program; or
   7. (7) The appellant is an Agency, the respondent is an Agency other than FTB or CDTFA, or the appeal involves a petition for reallocation of local taxes.
6. (f) Irrevocable election to participate in the Small Case Program. An election to participate in the Small Case Program shall be irrevocable by the party making the election and shall be made within twenty-one (21) calendar days of the date that OTA mails to appellant acknowledgment of OTA's receipt of the opening brief of FTB or CDTFA, as applicable, and confirmation of eligibility of the appeal for the Small Case Program, which shall be in the form and manner as prescribed by OTA. Such election shall include a specific waiver with respect to any amounts (except for any Agency conceded amount specified in paragraph (3) of subdivision (b)) that reduce the total amount in dispute. After submission of all evidence, OTA may remove a case from the Small Case Program if it determines that the appeal is not eligible for the Small Case Program pursuant to subdivision (d), or the appeal was otherwise improperly accepted into the Small Case Program.

7. (g) Examples. The following examples illustrate the eligibility rules for the Small Case Program:

   1. (1) Example 1 (FTB). Assume a taxpayer subject to the Personal Income Tax Law receives final Notices of Action from FTB for tax year 2017 in the amount of $2,500, for tax year 2018 in the amount of $3,000, and for tax year 2019 in the amount of $4,500, and files a timely appeal of each of the three actions of FTB with OTA. Would the amount in dispute of the taxpayer's appeals qualify the taxpayer to make an election to have one or more of those appeals determined under the Small Case Program?

      Although the aggregate amount on the appeals exceeds $5,000, since each tax year is treated separately for purposes of applying the total amount in dispute limitation under subdivision (a), and none of the individual tax years has a total amount in dispute that is $5,000 or more, the taxpayer may make the election for one or more of those appeals to be determined under the Small Case Program. If those three appeals have been consolidated, the taxpayer may still make an election to have the appeals determined under the Small Case Program for all three consolidated appeals as if those appeals were a single appeal.

   2. (2) Example 2 (FTB). Same facts as Example 1, except that the final Notice of Action for tax year 2019 is in the amount of $5,500.

      Assuming the total amount in dispute for tax year 2019 is not reduced under the reduction rules in subdivision (b), the taxpayer would not be eligible to make the election to have the appeal for tax year 2019 determined under the Small Case Program.

   3. (3) Example 3 (CDTFA). Assume a taxpayer receives a Notice of Determination from CDTFA for the period July 1, 2017, through December 31, 2018, for a total deficiency of tax of $75,000. The audit workpapers indicate that the tax for the third quarter 2017 is $25,000, the tax for the fourth quarter 2017 is $10,000, and the tax for each quarter of 2018 is $10,000. CDTFA denies the taxpayer's appeal of the Notice of Determination, and the taxpayer files a timely appeal of the action of CDTFA with OTA. Further assume that the taxpayer files income tax returns on a calendar year basis and reported gross receipts of $11,000,000 for 2017, and $15,000,000 for 2018. Would the taxpayer qualify to make an election to have the appeal determined under the Small Case Program?

      First, the total amount on appeal for all years is $75,000. However, the amount in dispute for each calendar year (or fraction thereof) is treated separately for purposes of applying the $50,000 total amount in dispute limitation. Here, the total amount in dispute for the six-months (i.e., fraction) of calendar year 2017 at issue is $35,000, and the total amount in dispute for calendar year 2018 is $40,000. Neither of the individual calendar years (or fractions thereof) have a total amount in dispute that is $50,000 or more. This appeal does not exceed the total amount in dispute limitation.

      Second, the income tax years covered by the audit are 2017 and 2018. The annual gross receipts are under the $20 million gross receipts limitation during each income tax year.

      Therefore, the taxpayer may elect to participate in the Small Case Program.

   4. (4) Example 4 (CDTFA). Same facts as Example 3, except that the amount of tax for the first quarter 2018 is $25,000.

      Assuming the total amount in dispute is not reduced below $50,000 under the reduction rules in subdivision (b), the taxpayer would not be eligible to participate in the Small Case Program since the total amount in dispute for 2018 is $55,000, and this exceeds the $50,000 total amount in dispute per calendar year limitation.

   5. (5) Example 5 (CDTFA). A taxpayer receives a Notice of Determination from CDTFA for the period January 1, 2017, through December 31, 2017, for a total deficiency of $60,000. The audit workpapers indicate that the tax for each quarter of 2017 is $15,000. CDTFA denies the taxpayer's petition of the Notice of Determination, and the taxpayer files a timely appeal of such action of CDTFA with OTA. Further assume that the taxpayer files income tax returns on a fiscal year basis and has annual gross receipts of $15,000,000 for the 2016/2017 fiscal year, and $15,000,000 for the 2017/2018 fiscal year. Would the taxpayer qualify to make an election to have the appeal determined under the Small Case Program?

      First, the CDTFA liability period (January 1, 2017, though December 31, 2017) overlaps two federal income tax reporting periods: fiscal years 2016/2017 and 2017/2018. The taxpayer had less than $20 million in gross receipts for every federal income tax year falling within the audit period. This appeal does not exceed the gross receipts limitation.

      Second, assuming the total amount in dispute is not reduced under the reduction rules in subdivision (b), the taxpayer would not be eligible to participate in the Small Case Program because the total amount in dispute for the four quarterly reporting periods in calendar year 2017 was $60,000, which exceeds the $50,000 threshold.

   6. (6) Example 6 (CDTFA). Assume a taxpayer receives a Notice of Determination from CDTFA for the period July 1, 2017 through March 31, 2018, for a total tax deficiency of $65,000. The audit workpapers indicate that the tax for the third quarter 2017 is $20,000, the tax for the fourth quarter 2017 is $20,000, and the tax for the first quarter 2018 is $25,000. CDTFA denies the taxpayer's petition, and the taxpayer files a timely appeal of such action of CDTFA with OTA. Further assume that the taxpayer has annual gross receipts for the calendar year 2017 in the amount of $17,000,000 and annual gross receipts for the calendar year 2018 in the amount of $21,000,000. Would the taxpayer qualify to make an election to have the appeal determined under the Small Case Program?

      The taxpayer is not eligible to participate in the Small Case Program because the taxpayer had gross receipts for calendar year 2018 in the amount of $21,000,000, which exceeds the gross receipts limitation.

   7. (7) Example 7 (FTB). Assume an individual taxpayer receives a final Notice of Action from FTB for tax year 2016 in the amount of $5,250, of which $300 is interest, and files a timely appeal of that action of FTB with OTA. Further assume in the appeal that the taxpayer does not separately request abatement or suspension of interest. What is the total amount in dispute?

      Assuming the taxpayer makes an election under paragraph (1) of subdivision (b) to not request abatement or suspension of interest, then the $300 of interest is excluded from the total amount in dispute because the taxpayer did not separately request abatement or suspension of interest, and the total amount in dispute would be $4,950.

   8. (8) Example 8 (FTB). Same facts as Example 7, except the taxpayer requests abatement or suspension of interest. What is the total amount in dispute?

      Since the taxpayer has not agreed to waive their right to separately request abatement or suspension of interest under paragraph (1) of subdivision (b), the total amount in dispute remains $5,250.

   9. (9) Example 9 (FTB). Assume an individual taxpayer appealing an action of FTB receives a final Notice of Action from FTB for the tax year 2017 in the amount of $7,000, of which $4,900 is additional tax, $1,500 is a late-filing penalty, and $600 is interest, and files a timely appeal of such action of FTB with OTA. What is the total amount in dispute?

      If the taxpayer does not separately dispute the late-filing penalty and does not separately request abatement or suspension of interest, the amount in dispute is the $4,900 of additional tax.

      Further assume in its appeal that the taxpayer agrees to concede the $4,900 of additional tax and $600 of interest, but wishes to continue to separately request abatement of the $1,500 late-filing penalty. What is the total amount in dispute?

      Because the taxpayer makes an election under paragraphs (1) and (2) of subdivision (b) to concede the tax and not separately request abatement or suspension of interest, the total amount in dispute is $1,500.

   10. (10) Example 10 (FTB). Same facts as Example 9, except the taxpayer wishes to concede $1,500 of the $4,900 in additional tax, and further continues to request waiver of the $1,500 late-filing penalty and abatement or suspension of the interest of $600. What is the total amount in dispute?

       Although the taxpayer agrees to concede $1,500 in additional tax, the total amount in dispute is $5,500 since the taxpayer is still contesting the remaining $3,400 of additional tax, as well as waiver of the $1,500 late-filing penalty and abatement or suspension of the interest of $600.

   11. (11) Example 11 (FTB). Assume an individual taxpayer appealing an action of FTB received a final Notice of Action from FTB for the tax year 2017 denying its claim for refund in the amount of $5,750. In its opening brief, FTB concedes that the taxpayer is entitled to a refund of $1,000 of the total claim amount of $5,750. What is the total amount in dispute?

       Although the final Notice of Action denying the taxpayer's claim for refund was in the amount of $5,750, the total amount in dispute is $4,750 because FTB conceded $1,000 of the total claim amount in its opening brief filed with OTA.

   12. (12) Example 12 (FTB). Assume an individual taxpayer appealing an action of FTB receives a final Notice of Action from FTB for the tax year 2017 in the amount of $6,000, of which $4,500 is additional tax, $1,000 is a late-payment penalty, and $500 is interest, and files a timely appeal of such action of FTB with OTA. Further assume FTB, in their opening brief filed with OTA, concedes $1,000 of the proposed additional tax in the NOA (thereby reducing the contested tax from $4,500 to $3,500), which in turn reduces the late-payment penalty to $650 and the interest to $350. What is the total amount in dispute?

       Although the original Notice of Action was in the amount of $6,000, the total amount in dispute is $4,500 because FTB conceded $1,000 in additional tax, as well as reducing the late payment penalty by $350 and the interest by $150, or $1,500 total, in its opening brief filed with OTA.

   13. (13) Example 13 (FTB). Assume an individual taxpayer appealing an action of FTB receives a final denial from FTB of a protective claim for refund in which the taxpayer claimed a refund of “$1 or more,” and files a timely appeal of such action of FTB with OTA. Would the taxpayer qualify to make the election to have the appeal determined under the Small Case Program?

       Although an appeal with OTA may result in a finding the taxpayer is owed a refund that is under the total amount in dispute limitation, the taxpayer may not elect to have the appeal determined under the Small Case Program because a claim for refund of “$1 or more” is an appeal that is not eligible for the Small Case Program.

8. (h) Petitions for rehearing. The provisions of Chapter 7 (commencing with regulation 30601) of OTA's Rules for Tax Appeals shall apply to proceedings under this regulation, except that:

   1. (1) Any petition for rehearing shall be assigned to a three member Panel, with the Lead Panel Member on that three member Panel being the Panel Member who issued the Opinion in the original proceeding. An Opinion issued by a Panel on a petition for rehearing under the Small Case Program shall not have precedential effect.
   2. (2) If a petition for rehearing is granted, any new hearing shall be assigned to a different single Lead Panel Member under the provisions of the Small Case Program.
9. (i) Incorporation. Except as otherwise provided in this Article, the provisions of OTA's Rules for Tax Appeals shall apply to proceedings under the Small Case Program.
10. (j) Effective date. The provisions of this Article shall be effective with respect to any appeal of an action of FTB or CDTFA, as applicable, which is originally filed on or after January 1, 2021.

Note: Authority cited: Sections 15679 and 15679.5, Government Code. Reference: Section 15676.2, Government Code.

History

1. New article 1.5 (section 30209.1) and section filed 3-1-2021; operative 3-1-2021. This action is exempt from OAL review pursuant to Government Code section 15679(b). Submitted to OAL for filing and printing only pursuant to Government Code section 11343.8 (Register 2021, No. 10).

2. Amendment of section and Note filed 6-26-2023; operative 6-30-2023. This action is exempt from the Administrative Procedure Act pursuant to Government Code section 15679(b). Submitted to OAL for filing and printing only pursuant to Government Code section 11343.8 (Register 2023, No. 26).