Could a person improperly included in a jeopardy determination claim a refund after paying under protest to stop collection against a recorded real-estate lien?

Plain-English summary

The management consultant could file a refund claim because the Board's collection from him was treated as illegal and his payment was coerced rather than voluntary.

Although tax was due from the business, hearing staff had concluded that the consultant was improperly included as an interested party in the jeopardy determination. The Board recorded a lien on his Los Angeles County real estate, and he paid under protest to stop further extraordinary collection measures while submitting a petition for redetermination.

The memorandum distinguished an ordinary voluntary payment of an illegal tax. Section 6901 supplied a statutory refund remedy for amounts erroneously or illegally collected, and the lien-backed jeopardy collection brought this payment within that remedy.

Common questions

Why was the payment involuntary?

The Board had issued an immediately payable jeopardy determination and recorded a real-estate lien before the consultant paid to stop further collection.

Did the source say no tax was owed by the business?

No. It said tax was clearly due from the business but the consultant had been improperly included.

Did paying under protest matter?

The memorandum noted both the protest and the accompanying redetermination petition as part of the circumstances.

Citations and references

• California Revenue and Taxation Code section 6901 — refund for amounts paid more than once or erroneously or illegally collected or computed
• Southern Service Co., Ltd. v. County of Los Angeles (1940) 15 Cal.2d 1 — voluntary-payment and duress rule discussed

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/465-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/465-0040.pdf

Original ruling text

STATE BOARD OF EQUALIZATION
OFFICE CORRESPONDENCE

To:

Principal Tax Auditor

From:

Tax Counsel (JHK)

Re:

“L” & “D”

465.0040
September 4, 1964

You returned the file of the above named taxpayer to me so I could look further into the matter of whether the Board could make a refund in this case. You will recall that “L” is a management consultant who advised “D” in setting up a business. Our West Los Angeles office determined that the corporate status could properly be disregarded. However, at the preliminary hearing we were convinced that “L” was improperly included in the determination as an interested party. The problem here is that a tax is clearly due from the business. If “L” paid the tax voluntarily he may not be entitled to a refund. In the leading property tax case, Southern Service Co., Ltd. V. County of Los Angeles (1940) 15 Cal. 2d 1, the Supreme Court stated: “It is the settled law of this state that illegal taxes voluntarily paid may not be recovered by the taxpayer in the absence of a statute permitting a refund thereof; and in the absence of such statute, only illegal taxes paid under duress, coercion or compulsion are considered to be involuntarily paid and therefore recoverable.” The Legislature has provided in the case of the sales tax a statutory means for refund (Rev. & Tax. Code § 6901). It provides: “If the board determines that any amount, penalty, or interest has been paid more than once or has been erroneously or illegally collected or computed, the board…(shall approve the refund according to statutory means).” Since refunds are a matter of statutory grace, the question devolves into whether “L” comes within our claim for refund statute. We believe a claim for refund is proper in this instance because the amount was illegally collected within the meaning of Section 6901. You will recall that “L” only paid the tax, after a jeopardy determination was issued and a lien recorded on his real estate in Los Angeles County. A jeopardy assessment differs from a normal determination in that it is immediately due and payable. Extraordinary means of collection are available to the state. In fact, on extraordinary remedy was utilized by our recording the lien. Payment of the tax in order to stop further collection procedures does not constitute a voluntary payment. The state’s efforts were, in our opinion, coercive. It should also be noted that “L” paid the determination under protest and accompanied his check with a petition for redetermination. The coerced payment of monies in question constitutes an illegal collection under Section 6901 making a claim for refund proper.

JHK:mm

[1b]