DOR v. Van Engel
| Decision Date | 28 September 1999 |
| Docket Number | No. 98-1110.,98-1110. |
| Citation | 230 Wis.2d 607,601 N.W.2d 830 |
| Parties | WISCONSIN DEPARTMENT OF REVENUE, Petitioner-Appellant, v. Kurt H. VAN ENGEL, Respondent-Respondent. |
| Court | Wisconsin Court of Appeals |
On behalf of the petitioner-appellant, the cause was submitted on the briefs of James E. Doyle, attorney general, and F. Thomas Creeron, III, assistant attorney general.
On behalf of the respondent-respondent, the cause was submitted on the brief of Stephen E. Kravit and Laurie E. Peterson of Kravit, Gass, Hovel & Leitner, S. C., of Milwaukee.
Before Wedemeyer, P.J., Fine and Curley, JJ.
The Wisconsin Department of Revenue (Department) appeals the Wisconsin Tax Appeals Commission's (Commission) order reversing the Department's determination that Kurt H. Van Engel was not entitled to offset untimely refund claims for tax years 1988 and 1989 against timely tax assessments for years 1990, 1991 and 1992.2 The Department's argument is twofold. The Department argues that the Commission should not have applied the equitable recoupment doctrine because equitable recoupment can only occur when the untimely refund claim to be set off against the timely assessment occurs within the same transaction or tax year, whereas here, there were different transactions and separate tax years. Alternatively, the Department claims that if the facts permit the application of the equitable recoupment doctrine, the Commission improperly applied it because the equities do not weigh in favor of Van Engel as he did not have "clean hands." We agree with the Department that the Commission should not have applied the equitable recoupment doctrine because the factual underpinnings permitting its use were not present.3
In May 1988, Van Engel received notification that he was the target of a federal criminal investigation. As a result, Van Engel's attorney advised him to stop filing federal or state income tax returns while the investigation was ongoing, and later, advised him to stop filing returns while the federal criminal charges were pending. Consequently, Van Engel did not file any state income tax returns for the years 1988 through 1992. During this time frame he did, however, estimate his state tax liability and he paid what he estimated were his state taxes each year. On March 20, 1995, after Van Engel was acquitted of several federal tax-related charges and he pled guilty to a federal misdemeanor, he filed State income tax returns for all the missing years. He calculated that by applying the refunds due him for tax years 1988 and 1989 to the other years, he was due a refund. He did this by applying what he claimed was his overpayment in 1988 to his 1989 tax liability, and then taking what he believed he was due as a refund in 1989 and applying it to 1990 and so on. As a result, he calculated he was owed over $62,000.4 The Department, however, was not receptive to Van Engel's accounting, and refused to apply the 1988 and 1989 refund to the other years' tax liability, citing § 71.75(2), STATS., 1993-94,5 the four-year statute of limitations, which the Department contended barred Van Engel from requesting a refund. Consequently, the Department refused to offset Van Engel's claimed refunds due in 1988 and 1989 against the tax assessments for years 1990, 1991 and 1992. Further, the Department, recognizing the bar created by § 71.77, made no additional assessments for the years 1988 and 1989, assessing Van Engel only for the years 1990, 1991, and 1992. According to the Department's numbers, Van Engel had a total unpaid tax liability of $21,020.46 for the years 1990, 1991 and 1992, and the Department notified him of this fact by sending him a "Notice of Action."
In response, Van Engel filed a document with the Department entitled "PROTEST," which protested the assessments for tax years 1990, 1991 and 1992. The Department considered this letter to be a petition for reconsideration, which prompted the Department to issue a "Notice of Action" in which the Department reiterated its earlier position that it refused to apply his claimed 1988 and 1989 tax refunds as an offset against the taxes owed by Van Engel for the other years because of the statute of limitations. The Department also informed Van Engel of his appeal rights to the Commission. Van Engel appealed the Department's determination to the Commission, asking the Commission to review his tax liability. After Van Engel started the appeal, the Department filed a motion to dismiss the petition for review with the Commission. Not only did the Commission deny the Department's motion, but it also treated the motion like one for summary judgment and granted judgment to Van Engel, claiming that the doctrine of equitable recoupment should be applied, offsetting the untimely 1988 and 1989 refund claims against the taxes assessed for 1991, 1992 and 1993. The Department then appealed this ruling to the circuit court, which upheld the Commission.
The parties dispute what standard of review should apply. The Department cites Wisconsin DOR v. Milwaukee Brewers Baseball Club, 108 Wis. 2d 553, 556, 322 N.W.2d 528, 529 (Ct. App. 1982), for its position that since the facts are undisputed and only a question of law is at issue, the appropriate standard of review is a de novo review of the Commission's decision. On the other hand, Van Engel contends that because the Commission's position on equitable recoupment is "longstanding," and draws on the Commission's expertise, this court should apply a deferential standard of review.
[1, 2]
We determine that a de novo standard of review should be applied to the question posed in this appeal. The Commission's application of a legal doctrine to undisputed facts is a question of law which we decide de novo. See Froebel v. Wisconsin DNR, 217 Wis. 2d 652, 662-63, 579 N.W.2d 774, 779 (Ct. App. 1998). Further, the stance taken by the Commission concerning the equitable recoupment doctrine is not one of "longstanding"; indeed, the Commission has applied the equitable recoupment doctrine inconsistently. Evidence of this fact can be found in the Commission's Van Engel decision in which it attempts to explain why it has not always applied the doctrine to similarly situated taxpayers. Compare Lotzer v. Wisconsin DOR, No. 90-I-465, CCH Wis. Tax Rpts ¶ 203-260 (July 25, 1991), with Douglas Evers v. Wisconsin DOR, 11 WTA C 572 (Aug. 21, 1984).
After our review of the record and the case law, we are satisfied that the Commission improperly applied the doctrine of equitable recoupment under the facts presented. We reach this conclusion because: (1) the Department levied no additional assessment for the refund tax periods were not arising out of the same transaction or tax periods, both of which are mandatory prerequisites before the equitable recoupment doctrine can be utilized.
The Department argues that the Commission erred when it granted Van Engel's untimely refund claim for 1988 and 1989 because the statute of limitations had run on those years and, consequently, the Department maintains that the underpinnings necessary to apply equitable recoupment principles were absent. The Department's position is grounded on its belief that since the statute of limitations had run on the years 1988 and 1989, the Department was barred from assessing any additional taxes for that period and Van Engel was barred from claiming a refund. The Department contends the equitable recoupment doctrine should not have been applied here because the doctrine can only be used as a defense to an assessment made during the same transaction or tax period. The Department argues that since it had not assessed Van Engel for any taxes due in 1988 and 1989, equitable recoupment was unavailable. Moreover, the Department argues that time-barred refunds can only be offset against assessments that occur in the same tax period or same transaction. Since there were different tax periods involved, the Department reasons that equitable recoupment was improper. We agree that the factual underpinnings permitting the doctrine of equitable recoupment to offset otherwise time-barred refunds against tax assessments were not present here.
[3]
The doctrine of equitable recoupment "is a judgemade exception to the legislative policy of barring claims for and against the Government in tax matters by statutes of limitations." Smith v. United States, 373 F.2d 419, 422 (4th Cir. 1966). The most often-cited and landmark case applying the doctrine is Bull v. United States, 295 U.S. 247 (1935). There, the Supreme Court permitted the return of monies after the statute of limitations had run, but the Court cautioned that the doctrine was limited to disputes "arising out of the same transaction," id. at 261, and commented further that "[s]uch a defense is never barred by the statute of limitations so long as the main action itself is timely," id. at 262.
Our supreme court adopted the equitable recoupment doctrine and defined "same transaction" in American Motors Corp. v. DOR, 64 Wis. 2d 337, 219 N.W.2d 300 (1974). In that case, the major legal dispute between the parties dealt with the situs of certain sales. The Department disputed American Motors' claim that the sales occurred outside the state of Wisconsin, thereby reducing American Motors' tax liability, and the Department calculated the tax due from American Motors assuming that the sales occurred in Wisconsin. An ancillary question to be decided only if the supreme court agreed with American Motors, was whether the Department could offset any refunds due American Motors against an additional tax assessment that was discovered following an audit. The audit was conducted by the Department and was prompted by the sales tax dispute. This new assessment was for a tax year involved in the litigation but it became time-barred by the statute of limitations before the...
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...on basis of reasoning of American Motors Corp., that payment of estate tax constitutes single transaction); Dept. of Revenue v. Van Engel, 230 Wis.2d 607, 614-16, 601 N.W.2d 830 (acknowledging Wisconsin's adoption of broadened definition of same transaction), review denied, 231 Wis.2d 374, ......