As I tried to give a nonchalant demeanor while the clerk carefully checked the adequacy of the appeal, all of a sudden she reached for her pen and crossed out one of the "No" boxes I had checked. Instead she checked the "Yes" box saying, "Now I'm going to change this to say the application constitutes a claim for refund because most people want it."

"No, I don't want it to," I said. "It can't be in this situation because the payor of the tax is different from the applicant."

Claim for Refund: Possible Traps for the Unwary

The administrative appeal process and the claim for refund process are two separate steps, and each must be complied with. That is, one may win on an assessment appeal, but if the claim for refund is not also timely and properly filed when one is required, one could be precluded from obtaining the refund. Sometimes an assessment appeal can be designated also as a claim for refund ( Rev. & Tax. Code §§ 1604(b)(1), 5097(a)(3) and (b), and 5141(c)), but not always. (All section [§] references are to the California Rev. & Tax. Code.)

A claim for refund can only be made by the person who actually paid the tax (§ 5097(a)(1), cf. § 5140) and not an agent because of the required verification (BOE Annotation 720.0020 and 720.0011 and related correspondence), while an appeal is to be made by the property owner (the assessee) or other person affected (i.e., a person having a direct economic interest in the payment of the taxes on the property), or their agent (§ 1603(a), (f)).

Case law illustrates the necessity of the correct party, the party who actually paid the tax, to file the claim. In Mayhew Tech Center, Phase II v. County of Sacramento (1992) 4 Cal.App.4th 497, the State of California was denied a refund and forfeited its power to enforce its constitutional right of exemption from tax, because it did not follow the correct procedural rules (which must be strictly construed) for claims for refund (4 Cal.App.4th at 509-510). In Grotenhuis v. County of Santa Barbara (2010) 182 Cal.App.4th 1158, a sole shareholder of a corporation was not allowed to assert an "alter ego" doctrine in a creative attempt to save a refund action; and in IBM Personal Pension Plan v. City and County of San Francisco (2005) 131 CAl.App.4th 1291, a retirement plan was not allowed to pursue a refund action where the taxes were paid by the trustee of the plan.

In my situation, the applicant on the appeal and the payor of the taxes were not the same persons and so the appeal could not constitute a claim for refund. But I don't think the clerk at the desk heard or grasped what I said about this because she replied, "But most people want it because it just saves you from filing additional paperwork later."

"Oh, no, I'm also filing the claim for refund. It's OK."

"Oh." She reached for her white-out overlay tape to cover over her corrections and restore my "No" box check.

She was trying to be nice and helpful, but apparently just didn't know a claim for refund meant more than merely "additional [read: inconsequential] paperwork."

Gently I said, "The other thing is that if you later withdraw the appeal, then you have also withdrawn the claim for refund." This is another possible trap if one checks the "Yes" box to have the appeal constitute a claim for refund.

"Oh."

She filed my appeal with the "No" box checked.

Claim for Refund Procedure

There is one statutory exception where a refund is required to be made without the taxpayer filing a claim for refund. This is when an adjustment due to a change in ownership or new construction is made on the supplemental roll, and if that supplemental assessment results in a refund then the county auditor is to make the refund within 90 days of enrollment. (§ 75.43(a).) In addition to this exception, the county auditor also has the option to process a refund for other roll corrections without the necessity of filing a claim (see § 4836(a)), and in certain other situations the county tax collector or auditor may also make a refund within four years after the date of payment without a claim being filed (§ 5097.2) -- but note that both of these exceptions are in the county's discretion, not the taxpayer's. Absent these exceptions, case law on claims for refund is clear that the statutes require the taxpayer to timely file a claim before a refund can be granted (§ 5097(a)) or suit filed (§§ 5140, 5142(a)).

That being said, my frequent experience with settlements with an assessor is that often they put the refund into motion rather cooperatively. As a practical matter, a claim for refund does not need to be filed if the refund is received prior to the expiration of the statute of limitations for filing a refund claim. So with any settlement, I typically make sure to have a little discussion with the assessor's personnel confirming whether they will be putting the refund in motion. I avoid the "claim for refund" term and just ask something like, "Will you be taking care of the refund or do I need to do anything more?" I am used to getting the reply, "No, I'll take care of it. Your clients should get the refund in about 60 days." So I'll calendar the future deadline for filing the claim so that I don't miss the deadline, but typically the refund comes just as promised, and that is the end of that.

On the other hand, if one does not win the appeal and wants to proceed with litigation, typically the cause of action will be for refund of property taxes, and to file such litigation, a claim for refund must have been filed and denied by the board of supervisors. (§ 5140.) In that case, timely and properly filing the claim for refund is critical!

So, yes, often a property tax appeal can, indeed, check the box that says "Yes" and constitute the appeal as a claim for refund to save filing a separate claim. But not always!

And many times a clerk's helpful suggestion might be good. But not always! So I will continue to walk all my appeal filings down in person -- because you just never know what might come up!

With warm regards for a cheerful and bright Christmas season,

Dibby Allan Green, ACP

Statute of Limitations for Filing a Claim for Refund

See discussion above ("Claim for Refund Procedure") for situations where a formal claim for refund of property tax may not be required. However, also note that an appeal of the assessment does not toll the time within which a claim for refund of taxes must be filed. Mission Housing Development Co. v. City and County of San Francisco (1997) 59 Cal.App.4th 55.

Following are the applicable statutes of limitations for filing a claim for refund, #1 applies if a property tax appeal is also filed, and #2 applies when no appeal is filed. The "months" and "years" below are the calendar years (assessment years). All section (§) references are to the California Revenue & Taxation Code.

1. When a property tax appeal is also filed with the Assessment Appeals Board ("AAB") (see LTA 2009/016):
   1. If the application is designated to be a claim for refund, then the requirement is met (assuming the appeal is not withdrawn, which would also withdraw the claim). If not so designated, then:
   2. Within six months after AAB makes a final determination, and the Clerk of the Board mails a written notice of the Board's final determination to the applicant, and the written notice to the applicant advises the applicant to file a claim for refund within six months of the date of the Board's final determination. (§ 5097(a)(3)(B).)
   3. Within one year after either of the following events:
   1. After AAB makes a final determination and the Clerk of the Board mails a notice of the Board's final determination to the applicant, but the notice does not advise the applicant to file a claim for refund. (§ 5097(a)(3)(A)(i).)
   2. After the expiration of the two-year time period specified in § 1604(c) if the Board failed to hear evidence and make a final determination on an application. (§ 5097(a)(3)(A)(ii).)
2. When no property tax appeal is filed (see § 5097(a)(2)):
   1. Within four years after making the payment; OR
   2. Within one year after the mailing of the tax collector's notice of overpayment (under § 2635, general collection provisions which applies to regular assessment); OR
   3. The period agreed to between assessor and taxpayer under § 532.1 (written agreement to extend time); OR
   4. Within 60 days of the date of a notice under § 4836, which is a notice of correction to the roll under § 4831 (includes roll corrections except for those involved in establishing a new base year [cf. § 51.5]), and such notice has to state that the taxpayer is entitled to a refund and must file a claim under § 5097 within 60 days;
   5. WHICHEVER IS EARLIER.
   6. Note: § 4831 and § 4836 were in the Code prior to the adoption of Proposition 13. § 51.5 pertaining establishing a new base year value after a change in ownership or new construction was added to the Code after Prop. 13. Although not referenced in § 4836 or § 4831, one might anticipate that the statement in § 51.5(d) that refunds "shall be granted in accordance with this division" would incorporate (for purposes of § 51.5) the auditor's option to process the refund or serve a § 4836 notice to taxpayer, as described above.

3. The claim for refund procedure, while separate from the appeals procedure, cannot be used to claim a retroactive refund for a situation which would otherwise be barred by statute from appeal or correction to the roll retroactively. For example, if the 60-day window for appealing a Notice of Supplemental Assessment (or supplemental tax bill in LA County) is missed (so ability to seek or appeal for a retroactive adjustment to the assessment is lost), then a correction (informally or upon appeal) of the new base year value may still be sought under § 80 or § 51.5(b), but the correction will then only be made prospectively. (See § 80(a)(5) which states that a reduction in assessment under § 80, including § 51.5 per § 80(a)(4), shall apply for the assessment year in which the appeal is taken and prospectively thereafter.) Filing a claim for refund in such situation, therefore, cannnot serve to seek or obtain retroactive relief if the time for appeal on the retroactive relief has expired. Metropolitan Culinary Services, Inc. v. County of Los Angeles (1998) 61 CA4th 935, which also discusses Sea World, Inc. v. County of San Diego (1994), 27 Cal.App.4th 1390. In other words, if one misses the statute of limitations to appeal for retroactive relief, the longer statute of limitations to file a claim for refund will not help you!
4. The refund ordered by the board of supervisors may include county taxes and taxes collected by county officers for a city or revenue district. (§ 5099.) Presumably, therefore, this same claim for refund procedure is applicable for seeking a refund of such other taxes. (In a somewhat similar vein, San Luis Obispo County has on their website a claim form under § 5096 for refund of documentary transfer taxes. )

Form for Claim for Refund

Most counties do not have a printed form for a claim for refund of proprety tax, and usually a typed claim is used. Los Angeles County does have a printed form, and it is located at http://file.lacounty.gov/Auditor/portal/cms1_017801.pdf

The claim must specify whether the whole assessment is claimed to be void, or if only a part, what portion (§ 5097.02(a)); the grounds on which the claim is founded (§ 5097.02(b)); if the refund is due to a reduction in base year value, certification under penalty of perjury whether ownership has been transferred to any other person and the date of such transfer (§ 5096.8(b) if applicable in that county (see § 5096.8(c)); and must be verified by the person who paid the tax (§ 5097(a)(1)). One would also want to clearly identify the property, the year and type of taxes in dispute, the amount of refund claimed, and whether an assessment appeal has been filed and if so, the appeal number.

It is important to be clear on the grounds for the refund in the claim because no later recovery may be held in any refund action upon any ground not specified in the refund claim. (§ 5142(a).) The grounds for a refund are specified in § 5096:

1. Paid more than once.
2. Erroneously or illegally collected.
3. Illegally assessed or levied.
4. Paid on an assessment in excess of the ratio of assessed value to the full value of the property as provided in Section 401 [following Prop. 13, § 401 requires assessment at full value] by reason of the assessor's clerical error or excessive or improper assessments attributable to erroneous property information supplied by the assessee.
5. Paid on an assessment in excess of the equalized value of the property as determined pursuant to Section 1610.8 [pursuant to an appeal] by the county board of equalization.
6. Paid on an assessment in excess of the value of the property as determined by the assessor pursuant to Section 469 [trade fixture or business property audit].

Where to file the claim? Interestingly, the Revenue and Taxation Code is not clear. The main statute on claims for refund, § 5097, is silent. § 5099 and § 5140 assume action on the claim is made by the board of supervisors, while §§ 75.43(a), 4836(a) and 5097.2 refer to refunds being made by the county auditor (and § 5097.2, tax collector), but are silent about filing of the claim. In general, claims against a county are filed with the board of supervisors. The Los Angeles County claim for refund form referenced above instructs that it be filed with the auditor-controller. In other counties I have experienced resistance from the auditor-controller's office in accepting a claim. Absent specific county directives, my practice is to file the claim for refund with the board of supervisors and also the auditor-controller (if they will accept it), with a courtesy copy to the assessor.

So in many situations, if the County voluntarily makes the refund, no claim is required to later be filed. And in many situations, an assessment appeal can be designated as a claim for refund. But in those situations where it cannot, then always the due date for filing the claim for refund should be calendard so it is not missed.

Recent Legislation: More on SB 507

In the October 2011 Digest, we referred in brief to SB 507 which extends the general change in ownership reporting period from 45 days to 90 days effective January 1, 2012, and also changes some of the reporting penalty provisions. More complete discussions of these provisions have been published in the Santa Barbara Lawyer magazine and are linked below:

• "2012 Changes to Property Tax Reporting Requirements for Legal Entities," published in the November 2011 issue, discusses reporting on transfers of ownership interests in legal entities (corporations, partnerships, LLC -- but not trusts), and gives five tips for protecting a legal entity and its owners from the automatic mandatory reporting penalties.
• "2012 Changes to Property Tax Reporting Requirements for Real Property," published in the December 2011 issue, discusses the rules and changes to reporting transfers of ownership interests in real property itself, the increased penalty amounts under SB 507, and gives four tips for protecting property owners from these reporting penalties.

The State Board of Equalization has issued Letter to Assessors No. 2011/048 notify Assessors of the changes for reporting real property transfers, and of newly modified forms for "Change in Ownership Statement" and "Change in Ownership Statement -- Death of Real Property Owner." Apparently there is no change to the PCOR form. We anticipate that Form BOE-100-B for legal entity reporting will also be updated.

Protection for Legal Entities

One of our suggestions for legal entities (and their owners) to protect themselves from the automatic mandatory reporting penalties applicable to transfers of interests in legal entities, is for the owners to agree in writing (preferably in organizational documents, so it is binding on future assignees) on provisions such as:

• to timely notify the entity of any transfers of ownership interest,
• to agree who will be responsible for the reporting,
• to agree who will bear the cost of any reporting penalties,
• to indemnify the entity and other owners for such costs,
• to agree who will bear an increased tax cost resulting from any reassessment, and
• authorizing any such payments to be deducted from the responsible owner/assignee's share of distributions.

Possible language for such a provision could be the language set forth below. Disclaimer: This language is provided as a public service as an example of what language could look like. No warranty or guarantee of the legal effect of such language is made.

Notes: The following example language is drafted for a partnership or LLC taxed as a partnership. Terms with an asterisk (*) are presumed to be already defined terms in the partnership agreement or LLC operating agreement. The term "Interest" as defined in the agreement must include both capital and profits (for a partnership or LLC). The term "Transfer" is presumed to not already be a defined term as it is defined in the language below. The 90-day reporting period is for transfers in 2012 and following; prior to 2012 the period was 45 days.

Example Language

Property Tax Reporting Requirement; Indemnification by *Partner/*Member or *Assignee. If the *Partnership/*Company should come to hold any interest in real property located in the State of California, or any interest in any legal entity which owns real property in the State of California, directly or indirectly, California law requires the Partnership/Company, or certain Partners/Members, to report to the State Board of Equalization ("BOE") certain Transfers (as defined below) of Partnership/*Membership *Interests or Interests of an Assignee. If the Partnership/Company does not report these certain Transfers of Interests within 90 days of the effective date of Transfer (or 90 days from a request from the BOE) then the Partnership/Company is subject to automatic mandatory penalties of 10% of the applicable real property taxes (Revenue and Taxation Code sections 480.1(a) and (b), 482(b)). Therefore, each Partner/Member and Assignee agrees to notify the Partnership/Company in writing of each and every Transfer within 30 days of the effective date of any such Transfer, or within 15 days of any request from the Partnership/Company, whichever is earlier. The Partnership/Company will then determine whether any such Transfer constitutes a "change in ownership" or "change of control" as those terms are defined by California Revenue and Taxation Code section 64 (and which triggers a property tax reassessment), and so the Transfer be required to be reported to BOE.

For purposes of this paragraph, a "Transfer" means (a) a sale, gift, other assignment of the Interest; (b) a judicial decision determining ownership of the Interest; (c) death of the holder of an Interest; (d) if an Interest is held by a revocable trust, any change in or death of the settlor/trustor or other person holding the power to revoke, or any event in which the revocable trust becomes irrevocable, or any distribution of the Interest from the trust; and (e) if an Interest is held by an irrevocable trust, any change in the present (current) beneficiaries of the trust, which beneficiaries include all persons currently eligible to receive income, principal or use of trust property, including all persons who are eligible to possibly receive the same in the discretion of a trustee, special trustee, trust protector or other special advisor, or any distribution of the Interest from the trust.

If the Partnership/Company is not so timely notified, each Partner/Member and Assignee therefore agrees to indemnify the Partnership/Company for any penalties levied upon the Partnership/Company for failing to timely report such Transfer to the BOE, and further agrees that reimbursement for such penalties may be made by deduction from *Distributions to which the Partner/Member or Assignee is otherwise entitled.

For a corporation, the language can be modified as either a bylaw provision or a separate shareholder agreement. The term "Interest" should instead refer to the voting stock of the corporation.

Any suggestions for better or alternative language are most welcome.

August 13th Seminar Materials and Recordings Available

Recordings and materials (outlines, forms, charts, examples) from the August 13, 2011, seminar, "California Real Property Taxation: Strategies and Traps for the Practitioner," presented by The Southern California Tax & Estate Planning Forum in Los Angeles (and organized by Dibby Green) are still available for order at the Forum's website, www.clenet.com.

Presenters included Dibby, Daniel Paul, Esq., State Board of Equalization, Dan Goodwin, Ventura County Assessor, and Cris K. O'Neall, Esq., and Michael T. Lebeau, Esq., both with Cahill, Davis & O'Neall, LLP, Los Angeles.

Additional property tax resources are available on Ambrecht & Associates website at this page:

www.taxlawsb.com/resources/PptyTax.htm

California Property Tax Planning Digest is provided as a public service and is intended to provide information of general interest to the general public; it is not intended to offer legal advice about specific situations or problems. Ambrecht & Associates does not intend to create and attorney-client relationship by offering this information, and anyone's review of the information shall not be deemed to create such a relationship. You should consult a lawyer if you have a legal matter requiring attention. Because of the rapidly changing nature of the law, we make no warranty or guarantee of the accuracy or reliability of information contained herein or at websites to which we link.

In addition, please be advised that any communications (whether via email or phone or fax or any other means) to us from readers cannot have an expectation of confidentiality and will not be under the attorney-client privilege.

Ambrecht & Associates
1224 Coast Village Circle, Suite 32, Santa Barbara, CA 93108
Tel: (805) 965-1329, Fax: (805) 965-7637
www.taxlawsb.com

For further information, contact Dibby Green at Ext. 211, or email her at green@taxlawsb.com
All content © 2011 Dibby Allan Green