California Tax Appeals Office Upholds FTB’s Assessments in Tax Avoidance Dispute

The California Office of Tax Appeals issued an opinion sustaining the Franchise Tax Board’s (FTB) proposed assessments on taxpayers for tax years 2004 through 2011. The dispute centered around transactions where taxpayers transferred interests in real estate properties to a trust in exchange for annuity payments. The trust subsequently sold those interests to third parties, with taxpayers claiming the sales proceeds as installment sale income. The Tax Appeals Office found that the transactions lacked economic substance and a valid business purpose other than tax avoidance, as the trust’s ownership was temporary and designed solely to manufacture installment sales, with the ...