WERTIN

The Franchise Tax Board (FTB) appeals from an adverse judgment after a court trial in an action brought by John and Barbara Wertin (the Wertins) for a refund of assessed delinquent taxes and interest thereon. The trial court found the FTB’s issuance of a notice of proposed assessment of a tax deficiency without reviewing the Wertins’ tax returns for the relevant year rendered the FTB’s assessment invalid. On appeal, the FTB argues the trial court erred in applying federal case law and standards to a question of California tax law, under which it asserts it was not required to review the taxpayers’ actual returns before issuing the notice of proposed deficiency. The FTB also contends the trial court improperly awarded interest to the Wertins because they failed to file a claim for interest and thus failed to exhaust their administrative remedies.

The FTB also appeals from a postjudgment order awarding the Wertins their attorneys’ fees under Revenue and Taxation Code section 19717. The trial court found under Revenue and Taxation Code section 19717 the FTB’s position in the Wertins’ tax refund case was not “substantially justified,” thus entitling the Wertins to an award…