Could California use the eight-year assessment period because one unpermitted corporate division filed no returns when the corporation's other divisions did file?

Plain-English summary

Attorneys for a redacted New York corporation again argued at a November 15, 1968 Chicago meeting that its W division was not a Sales and Use Tax Law person and therefore was outside the eight-year period and penalty provisions. The Legal Division agreed only with the entity point: section 6005 made the corporation the person; W, one of several unincorporated internal divisions, was not a separate person.

Counsel read sections 6452, 6481, 6487 and 6511 to require one timely return per person per period. The corporation filed returns through its S and H divisions during the audit period, so it was not a person that failed to file. If the Board found those returns unsatisfactory, it had to use section 6481 rather than treat the corporation as a section 6511 nonfiler. The extended determination could not rest on W's separate nonfiling alone.

The district suggested the corporation intentionally disregarded the law by omitting W's taxable transactions. Counsel said an eight-year determination could be upheld for fraud or intent to evade. Marchica v. State Board of Equalization, 107 Cal. App. 2d 501, resolves to the named case and supplied the stated rule that fraud was not presumed and the Board bore the burden after limitations ran.

Legal requested any supporting evidence and said it would weigh that against the corporation's apparent position that W was unregistered and filed no returns because the corporate tax department believed no tax obligation arose. No response or evidence is supplied.

If fraud or intent to evade could not be established, counsel proposed recommending deletion of the audit assessment for July 1, 1955 through June 30, 1960 and related interest, plus the entire penalty for reasons in the missing district memorandum. The source provides neither amounts nor the later recommendation or Board action.

Source posture

The live 415.0126 annotation, in the 2026 revision of the Business Taxes Law Guide, preserves the corporation/division distinction, one-return-per-person rule, ordinary three-year result and fraud/evasion exception. It says three years applies absent conclusive evidence; the supporting memorandum instead says fraud is not presumed and the Board bears the burden, without using conclusive. It omits the identified divisions, meeting and memorandum, statutory pathway, audit period, corporate tax-department explanation, evidence request, proposed assessment/interest/penalty deletion, missing records and absent final action.

CDTFA's Annotated Legal Opinions collection says statutory law controls over an inconsistent annotation. The official two-page PDF has a clean native text layer and no raster images, so no OCR was required. Duplicate direct downloads and extractions matched, and the original-text tail remains byte-identical to the committed tail and fresh extraction after removing only terminal extractor whitespace.

What this means for you

Multi-division corporations and tax professionals

Entity-level filing matters. An unincorporated division's failure to register or separately file did not make this corporation a nonfiler when other divisions timely filed for the same person. Omitted transactions, adequacy of returns, fraud or evasion, limitations and penalties remain separate issues requiring current law and evidence.

Common questions

Q: Was the unincorporated division a separate statutory person?

A: No. The corporation was the section 6005 person; W was an internal unincorporated division.

Q: Did the division's nonfiling automatically support the eight-year period?

A: No. The corporation had filed returns through its S and H divisions.

Q: Could the eight-year period still apply?

A: Potentially, if the Board proved fraud or intent to evade after the ordinary period expired.

Q: Did the memorandum make a final assessment decision?

A: No. It requested evidence and conditionally proposed a later recommendation; neither the response nor final Board action is supplied.

Q: What period did counsel propose deleting if fraud was not proved?

A: The audit assessment for July 1, 1955 through June 30, 1960, related interest and the entire penalty. No amounts are provided.

Citations and references

• California Revenue and Taxation Code sections 6005, 6452, 6481, 6487, 6511 and 6563
• Marchica v. State Board of Equalization, 107 Cal. App. 2d 501 — reporter verified to the named case
• November 15 meeting and November 19 memorandum; permits; returns; transactions; audit; determination; tax, interest and penalty computations; attorneys' materials; tax-department records; fraud evidence; district response; recommendation; and final action — absent

Verbatim support

From the official January 29, 1969 Legal Division memorandum:

Thus, since G--- T--- Corporation made returns through its S--- Division and its H--- Division during this audit period, it was not a person which failed to make returns, and the eight-year determination cannot be supported on this ground.

However, as held in Marchica v. State Board of Equalization, 107 Cal.App.2d 501, the presumption is against fraud, and the burden of proving fraud or intent to evade is on the board if the deficiency is assessed after the statute of limitations has run, as is the case here.

In the event that fraud or intent to evade the law cannot be established, we propose to recommend to the board that the determination be redetermined by deleting the assessment made in the audit for the period July 1, 1955, to June 30, 1960, together with the interest thereon.

Source

• Annotated Legal Opinions collection: CDTFA Annotated Legal Opinions
• Live annotation: Annotation 415.0126
• Original supporting memorandum: 415.0126 PDF

Original ruling text

State of California

Board of Equalization
Legal Division

Memorandum

To:

Out-of-State – District Administrator
(DRK)

From:

Tax Counsel (JKM) - Headquarters

Subject:

W--- Division of G--- T--Corporation of New York
--- ---, ---

415.0126

January 29, 1969

SR – XX XXXXXX

Reference is made to your memorandum dated November 19, 1968, concerning the
meeting held November 15, 1968, at the Chicago office with the attorneys for the G--- T--Corporation. At that meeting, it was again asserted by the attorneys that W---Division was not a “person” under the Sales and Use Tax Law and, therefore, was not subject to the eight-year limitation period under section 6487 or the penalty provisions of section 6511. Under section 6005, “person” includes, among other things, any corporation. Thus, G--T--- Corporation is a “person” as defined by this section, and the attorneys are correct in asserting that W--- Division, one of several unincorporated divisions of G--- T---Corporation, is not a person under the law. Section 6487 provides that except in the case of fraud, intent to evade the law, failure to make a return, or claim for additional amount pursuant to section 6563, notice of a deficiency determination shall be mailed to a taxpayer within three years. In the case of the latter two exceptions, the period is extended eight years. We have attempted to uphold the eight-year determination in this case on the ground that G--- T--- Corporation failed to make returns for its W--- Division during the audit period. However, as we read section 6452, 6481, 6487 and 6511, a person (G--- T--- Corporation) is only required to make one timely return per period, and if it does so, the board is required to proceed pursuant to the provisions of section 6481 rather than those of section 6511 in the event that it is not satisfied with the return. Thus, since G--- T--Corporation made returns through its S--- Division and its H--- Division during this audit period, it was not a person which failed to make returns, and the eight-year determination cannot be supported on this ground. In your memorandum you raise the possibility that G--- T--- Corporation might have intentionally disregarded the law in not reporting the taxable transactions of its W--- Division. Under section 6487, the eight-year determination could be upheld if it could be shown that G---

Out-of-State – District Administrator
(DRK)
(SR – XX XXXXXX)

-2-

January 29, 1969
415.0126

T--- Corporation was guilty of fraud or intent to evade the law. However, as held in Marchica v. State Board of Equalization, 107 Cal.App.2d 501, the presumption is against fraud, and the burden of proving fraud or intent to evade is on the board if the deficiency is assessed after the statute of limitations has run, as is the case here. Thus, we request that you inform us of any evidence or information you might have which would support the conclusion that G--- T--Corporation was guilty of fraud or intent to evade the law by failing to make returns for its W--Division during the audit period. Upon receipt of your response, we shall weigh your evidence and information against the apparent position of the G--- T--- Corporation, namely, that the reason its W--- Division was not registered with the board or filing returns was because G--- T--Corporation’s tax department was of the opinion that it had incurred no tax obligation or liability during the audit period. In the event that fraud or intent to evade the law cannot be established, we propose to recommend to the board that the determination be redetermined by deleting the assessment made in the audit for the period July 1, 1955, to June 30, 1960, together with the interest thereon. With regard to the penalty assessment, we propose to recommend the elimination of the entire penalty for the reasons set forth in your memorandum. Please forward your reply at your convenience. JKM:smk cc:

415.0126.doc

Chicago
San Francisco – Dist. Admin.