Statutes of limitations are supposed to close the books on claims. But in California sales tax cases, that finality comes with a major asterisk, as fraud can pry the books back open and reset the clock.
That’s a useful reminder courtesy of the California Office of Tax Appeals’ pending precedential opinion in two cases involving a Palm Springs restaurant and adjacent nightclub. There, taxpayers faced sales tax assessments covering 2011 through 2017, with notices issued by the California Department of Tax and Fee Administration in 2022.
Given the three-year statute of limitations, the taxpayers argued the CDTFA was too late. They also argued that the agency couldn’t use fraud to sidestep the limitations period because it hadn’t imposed California’s 25% fraud penalty.
The OTA rejected the argument, holding that the limitations statute doesn’t require the CDTFA to impose the fraud penalty before relying on the fraud exception for statute-of-limitations purposes. That distinction means the penalty decision and limitations analysis run on separate tracks—so the CDTFA may be able to reopen otherwise closed years even if it ultimately doesn’t impose fraud penalties.
The restaurant and nightclub cases’ underlying facts made that conclusion much easier. The CDTFA found internal records that did more than illustrate a mismatch between sales made and sales reported; they allegedly showed how the mismatch was manufactured.
For California taxpayers, the pending opinion’s future use is obvious. The CDTFA can point to it in older audits where the normal limitations period has elapsed. It can argue the door is still open if the record shows fraud or intent to evade. The CDFTA now has a clean playbook: prove fraud, separate that proof from the penalty decision, and move past the three-year clock.
—Andrew Leahey
Welcome to the Week in Insights for Bloomberg Tax’s latest analysis and news commentary. This week, experts examined an Italian transfer pricing case, relocation for high-net-worth individuals and families, and more.
By All Accounts
When you start seeing a surge of advertising about new ways to pay less in taxes, it’s a signal that people believe the IRS no longer is watching, Danny Werfel argues in his latest By All Accounts column, citing a Bloomberg Tax investigation into abusive tax shelters. He says most people who are victims of abusive shelter schemes aren’t bad actors—they just trusted the wrong adviser who won’t be around if the IRS does eventually comes knocking.
“The taxpayer who thinks they’re speeding on an unwatched highway today are leaving a trail that is already on the record. And the promoter who told them the road was clear will be nowhere to be found,” Danny writes, adding that IRS’s dwindling resources makes protecting taxpayers harder.
Insights
Treasury’s Opportunity Zone Guidance Is Worth Parsing by States
States should consider identifying and nominating low-income communities in rural areas for designation as qualified opportunity zones in response to the Treasury Department’s latest guidance, Snell & Wilmer’s Marc Schultz says.
For the Wealthy, Relocation Must Be More Than a Tax Decision
As tax policy discussions continue to evolve, advisers of high-net-wealth individuals and families should focus on building plans that can hold up under change, which means prioritizing flexibility and coordination across teams, say Wilmington Trust’s Karin Christenson and Lisa Ligas.
Italy’s Top Court Looks at Economics in GE Transfer Pricing Case
The Italian Supreme Court’s decisions in the GE Medical Systems Italia cases are a reminder that agreeing on a transfer pricing method is only the first step—what courts are increasingly looking at is the quality of the benchmark used to apply it, Reptune Tax’s David Zarecky says.
High Court Pass on Oklahoma Tribal Tax Case Has Limited Impact
The Supreme Court’s decision not to review Oklahoma’s refusal to give a tribal member an income tax refund doesn’t mean that the justices will abandon precedent that bars states from taxing the income of tribal citizens, says Pippa Browde of the University of Montana School of Law.
Growth of Wealth-Driven Life Insurance Demands Scrutiny
Pillsbury’s Joshua Becker and Gideon Strategic Partners’ Robert Amoruso say the future of private placement life insurance will depend on advisers ensuring their clients comply with evolving legal standards while navigating growing regulatory attention.
ERISA Litigation Should Cue Higher Ed to Evaluate 403(b) Plans
Colleges and universities should closely evaluate process, documentation, and governance regarding their 403(b) plans given trends in ERISA litigation, Barclay Damon’s Michael McGovern says.
Five Questions With RSM Canada Corporate Tax Partner Clara Pham
Bloomberg Tax Insights & Commentary is featuring a recurring questionnaire of prominent tax professionals who are willing to share their thoughts about their work and the practice of tax these days. Today we feature Clara Pham, who leads the Canada national tax office for RSM.
Technically Speaking
France’s crypto kidnappings and alleged tax data leaks are a warning that should push US lawmakers to adopt better data governance, Andrew Leahey writes in his latest Technically Speaking column.
Congress should, at minimum, mandate “role-based access controls, automated logging, regular security and privacy audits, and breach notifications for the private crypto sector,” Andrew says, adding that government employees, contractors, and vendors that misuse or improperly disclose crypto-holder data should face meaningful penalties.
News Roundup
Trump Appeals Latest Legal Setback to His Tariff Regime Rollout
President
IRS Will Restart ‘Significant-Issue’ Letter Rulings on Spin-Offs
The IRS will resume providing private letter rulings to taxpayers on “significant issues” within their corporate reorganizations and spinoffs under certain circumstances, the agency said Tuesday.
EU Countries Back Value-Added Tax Anti-Fraud Reforms Bill
EU countries endorsed a bill that would force member states to share value-added tax data with anti-fraud agencies to help them clamp down fraud that costs the bloc up to €33 billion annually.
Washington State Millionaires’ Tax Spared From Voter Referendum
Washington state’s new income tax on high earners won’t be put to voters, after the state high court ruled that it falls under an exception to the constitutional right to subject legislation to a popular referendum.
Tax Management International Journal
How AI Powers China’s Golden Tax System, Audits, Transfer Pricing
Dr. Glenn DeSouza of Dentons discusses how as fiscal pressures rise and Golden Tax IV rolls out, China is intensifying tax enforcement, placing MNEs under greater scrutiny on transfer pricing, beneficial ownership status, High and New Technology Enterprise status, and R&D super deduction claims.
Tax Management Memorandum
AI Reshapes Employer Group Health Plans for Fiduciaries—Pt 1
ERISA fiduciaries should understand AI’s promise, risks, and rapidly evolving compliance challenges for employer-sponsored group health plans, states SBMA’s Alden Bianchi in the first of his three-part article.
AI Reshapes Employer Group Health Plans for Fiduciaries—Pt 2
A review of how large language models fit into the evolving compliance and governance landscape for employer‑sponsored group health plans by Alden Bianchi of SBMA.
AI Reshapes Employer Group Health Plans for Fiduciaries—Pt 3
AI adoption raises profound ethical concerns—such as bias, transparency, privacy, and fairness—that ERISA fiduciaries must actively manage under their duties of prudence and loyalty, SBMA’s Alden Bianchi states.
Career Moves
Paul Weiss Grows Houston Team With Kirkland, Latham Partners
Paul Weiss Rifkind Wharton & Garrison is accelerating its Houston build with the hire of two partners from Kirkland & Ellis and Latham & Watkins.
EisnerAmper Names Ramya Bala as New Global Tax Technology Leader
Ramya Bala was named global tax technology leader at EisnerAmper, the firm announced Tuesday.
Gowling WLG Adds Corporate Attorney Tom Rank to UK Tax Practice
Tom Rank joined Gowling WLG as a partner in its tax practice in Birmingham, the firm announced Tuesday.
To contact the editors responsible for this story:
Learn more about Bloomberg Tax or Log In to keep reading:
See Breaking News in Context
From research to software to news, find what you need to stay ahead.
Already a subscriber?
Log in to keep reading or access research tools and resources.