This month we heard an item requesting relief of interest in the amount of $324,852 for a case that we ruled in the taxpayer's favor on June 24, 2015. The facts of the case were as follows: (a) the taxpayer was audited for the period of April 30, 2002, through March 31, 2005; (b) the taxpayer, a small business owner, had been reporting his taxes on a cash basis; and (c) the BOE auditor changed the accounting method to accrual as appropriate, and in accordance with the statute as approved by the Legislature.

However, a switch from cash to accrual accounting is not without consequences, and the taxpayer owed roughly $477,000 in taxes for the audit period. A subsequently contiguous audit was performed from April 1, 2005, through March 31, 2008, which (due again to the accounting shift) showed the taxpayer had overpaid by $470,000 for that audit period. In short, the audits somewhat cancelled each other out and the taxpayer had only underpaid taxes by $7,000! 

Unfortunately, the audit results were not consolidated, and the taxpayer was assessed $324,852 in interest for the initial audit. While the assessment was legal, the Board asserted that: (a) the taxpayer was not trying to avoid taxes as he had paid all but $7,000; (b) the two audits and results might have been more representative if consolidated; and (c) some adjustment should be made. 

Ultimately the Board concluded that relief of interest from July 11, 2006 through May 27, 2011 was warranted.  Accordingly, the Board ordered relief of interest in the amount of $211,084.96.