The California Office of Tax Appeals sustained the majority of a proposed assessment resulting from a federal change as the taxpayer did not provide sufficient evidence to overcome the assertion of additional tax. In re: G. Barraza, OTA Case No. 231214989 (Apr. 25, 2025). This decision demonstrates the importance of providing sufficient evidence to win a case.
The Facts: Mr. G. Barraza filed both 2018 federal and California income tax returns but did not include income reported on a 1099-K that was issued by PayPal for items he sold online through eBay. The Internal Revenue Service (“IRS”) increased Mr. Barraza’s adjusted gross income to account for the unreported income and assessed additional tax.
The Franchise Tax Board (“FTB”) was informed of the IRS’ assessment and made corresponding adjustments to Mr. Barraza’s California adjusted gross income which resulted in additional tax due. The FTB then issued a Notice of Proposed Assessment and, subsequently, a Notice of Action which Mr. Barraza timely appealed to the Office of Tax Appeals (“OTA”).
At the OTA, Mr. Barraza asserted that the increase to his California adjusted gross income should be reduced by various expenses as well as refunds that he made to some customers.
The Decision: The OTA ultimately found that Mr. Barraza failed to satisfy his burden of establishing that the FTB’s determination was incorrect. The OTA began by stating that when a federal determination is made, the taxpayer must either concede the accuracy of the determination or state wherein it is erroneous.
Here, while Mr. Barraza did provide various items that he believed supported his position, the OTA found that only one actually did. To show that he should be allowed to deduct cellular phone expenses, his documentation did not establish the amount he was claiming to be able to deduct from his sales nor did the documentation prove that the phone expenses were related to his business, as opposed to his personal use. Regarding fees he purportedly incurred in his business, the OTA found that the invoices supported only one of the fees. However, the other fees were not supported with credible evidence.
A workbook that Mr. Barraza provided to establish that he had issued refunds to some customers and incurred deductible costs of goods sold was found not to constitute credible evidence and thus was not accepted.
Consequently, the majority of the FTB’s proposed assessment was affirmed.
This case illustrates the importance of providing credible evidence in overcoming assessments, especially assessments resulting from federal changes.
This update is one in a series of updates written for the December 2025 edition of The BR State + Local Tax Spotlight.
© 2025 Blank Rome LLP. All rights reserved. Please contact Blank Rome for permission to reprint. Notice: The purpose of this update is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This update should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.
