Fadner v. Commissioner of Revenue Services

Decision Date27 March 2007
Docket NumberNo. 17655.,17655.
Citation281 Conn. 719,917 A.2d 540
CourtConnecticut Supreme Court
PartiesKenneth FADNER et al. v. COMMISSIONER OF REVENUE SERVICES.

Paul L. Bollo, Danbury, for the appellants (plaintiffs).

Paul M. Scimonelli, assistant attorney general, with whom, on the brief, was Richard Blumenthal, attorney general, for the appellee (defendant).

NORCOTT, KATZ, PALMER, VERTEFEUILLE and ZARELLA, Js.

NORCOTT, J.

The plaintiffs, Kenneth Fadner and Pamela Fadner, appeal from the judgment of the trial court dismissing their tax appeal from the decision of the defendant, the commissioner of revenue services, denying their request for a tax refund or equitable relief. On appeal,1 the plaintiffs claim that the defendant should have permitted them to use certain net operating losses as a basis for downward modifications on their state income taxes, and that the trial court improperly declined to exercise its equitable powers pursuant to General Statutes § 12-730,2 to permit them to pursue a claim for a refund of overpaid taxes that otherwise was barred by the applicable statutes of limitations.3

Specifically, the plaintiffs claim that the trial court improperly declined to apply the doctrines of equitable estoppel and equitable recoupment. We affirm the judgment of the trial court.

The record reveals the following facts and procedural history. The plaintiffs are Connecticut residents who lived in the town of Wilton at all times relevant to this appeal. Kenneth Fadner, who has a degree in finance, regularly prepared the plaintiffs' tax returns. In 1992 and 1993, the plaintiffs incurred substantial net operating losses.4 For federal income tax purposes, the plaintiffs elected to carry back the net operating losses to the years 1989 and 1990.5 They subsequently filed amended federal income tax returns for 1989 and 1990, in which they deducted the net operating losses, reducing their federal adjusted gross income to zero for both years and entitling them to a refund from the federal government. The plaintiffs did not, however, amend their Connecticut tax returns for 1989 and 1990.

Calculation of Connecticut income tax begins with a taxpayer's federal adjusted gross income with certain modifications. Regs., Conn. State Agencies § 12-701(a)(20)-1 (a).6 The modifications do not include the subtraction of net operating losses from a taxpayer's adjusted gross income. See General Statutes § 12-701(a)(20)(B). Nevertheless, the plaintiffs chose to modify their adjusted gross income in 1995 and 1996 by subtracting the net operating losses they had incurred in 1992 and 1993.7 In 1995, the plaintiffs took a modification of $3,189,607, and in 1996, a modification of $3,170,061.

It is undisputed that the modifications were improper under the applicable state tax law,8 but the plaintiffs claim that Kenneth Fadner was advised to take the modifications when he called the toll-free number (help line) maintained by the Department of Revenue Services (department), to assist taxpayers. According to Kenneth Fadner, he had telephoned the help line and asked about whether he could carry back the net operating losses because Connecticut did not have a state income tax until 1991.9 The plaintiffs claim that a help line representative informed Kenneth Fadner that he could not carry back the losses, but could carry them forward for the years 1994 through 1999.

In May 1999, the defendant informed the plaintiffs via letter that, following an audit of their 1995 and 1996 state income tax returns, it was disallowing the net operating loss modifications taken by the plaintiffs in those years. This required the defendant to add the net operating loss amounts to the plaintiffs' federal adjusted gross income for Connecticut income tax purposes, which resulted in a total deficiency against the plaintiffs of $26,154.84, including penalties and interest.10 Although the plaintiffs protested the assessments, the department's appellate division upheld the audit findings of deficiency for 1995 and 1996, and denied their petition for reassessment in March, 2001.

The plaintiffs appealed to the trial court pursuant to § 12-730, challenging the denial of their petition. After a court trial, the trial court concluded that (1) the defendant was not required to allow the plaintiffs to subtract the 1992 and 1993 net operating losses from their adjusted gross income on their 1995 and 1996 returns because net operating losses are not included within the specific modifications permitted by § 12-701(a)(20)(B) (2) the plaintiffs' request to file amended tax returns for 1989 and 1990 to claim net operating losses incurred in 1992 and 1993 was barred by General Statutes § 12-515, the applicable statute of limitations, and (3) the defendant was not estopped from making deficiency assessments and denying the plaintiffs the use of the net operating losses that they had incurred in 1992 and 1993. This appeal followed.

On appeal, the plaintiffs claim that the trial court improperly declined to exercise its equitable power to estop the defendant from imposing additional assessments. The plaintiffs also argue that the trial court improperly failed to apply "general equitable principles" to allow them to recoup their overpaid taxes.

I EQUITABLE ESTOPPEL

The trial court concluded that the doctrine of equitable estoppel did not bar the defendant from assessing deficiencies against the plaintiffs. The plaintiffs claim that this decision was improper because they relied to their detriment on advice from the tax help line in determining how to treat net operating losses under the income tax law, which was new at the time. The defendant argues in response that (1) the plaintiffs have failed to meet the factual burden of proving equitable estoppel against a public agency, and (2) even if one of its agents had provided the plaintiffs with mistaken information, the defendant can never be estopped from correcting misinterpretations of the law. We agree with the defendant's first claim, and conclude that the plaintiffs failed to establish a factual basis for the application of equitable estoppel.

Because tax appeals are de novo proceedings; Leonard v. Commissioner of Revenue Services, 264 Conn. 286, 294, 823 A.2d 1184 (2003); "[w]e first set forth the standard of review and applicable legal principles that guide our resolution of this claim. The party claiming estoppel . . . has the burden of proof. . . . Whether that burden has been met is a question of fact that will not be overturned unless it is clearly erroneous. . . . A court's determination is clearly erroneous only in cases in which the record contains no evidence to support it, or in cases in which there is evidence, but the reviewing court is left with the definite and firm conviction that a mistake has been made. . . . The legal conclusions of the trial court will stand, however, only if they are legally and logically correct and are consistent with the facts of the case. . . . Accordingly, we will reverse the trial court's legal conclusions regarding estoppel only if they involve an erroneous application of the law." (Internal quotation marks omitted.) Celentano v. Oaks Condominium Assn., 265 Conn. 579, 614, 830 A.2d 164 (2003).

"There are two essential elements to an estoppel—the party must do or say something that is intended or calculated to induce another to believe in the existence of certain facts and to act upon that belief; and the other party, influenced thereby, must actually change his position or do some act to his injury which he otherwise would not have done." (Internal quotation marks omitted.) Pet Car Products, Inc. v. Barnett, 150 Conn. 42,53-54,184 A.2d 797 (1962). "In addition, estoppel against a public agency is limited and may be invoked: (1) only with great caution; (2) only when the action in question has been induced by an agent having authority in such matters; and (3) only when special circumstances make it highly inequitable or oppressive not to estop the agency . . . . As noted, this exception applies where the party claiming estoppel would be subjected to substantial loss if the public agency were permitted to negate the acts of its agents." (Citations omitted.) Kimberly-Clark Corp. v. Dubno, 204 Conn 137, 148, 527 A.2d 679 (1987); see also Dupuis v. Submarine Base Credit Union, Inc., 170 Conn. 344, 354, 365 A.2d 1093 (1976) (application of equitable estoppel against government agency is "limited and invoked [1] only with great caution, [2] only when the resulting violation has been unjustifiably induced by an agent having authority in such matters, and [3] only when special circumstances make it highly inequitable or oppressive to enforce the . . . regulations"). We previously have held these principles to be applicable to the department of revenue services. Kimberly-Clark Corp. v. Dubno, supra, at 147, 527 A.2d 679.

A party seeking to justify the application of the estoppel doctrine by establishing that a public agency has induced his actions carries a significant burden of proof. For example, in Dupuis, the town of Groton sought an order compelling the defendant credit union to secure a permit for the construction of a new building on the Groton submarine base. Dupuis v. Submarine Base Credit Union, Inc., supra, 170 Conn. at 345, 365 A.2d 1093. In its defense, the credit union claimed that, prior to beginning construction, its representative had called the town building inspector's office to inquire specifically about the necessity of a permit, and was told that it did not need one because it was building on federal property. Id., at 355, 365 A.2d 1093. The credit union also claimed that it had telephoned the town building inspector's office two additional times about issues that had arisen after the project began, and was never told that it needed a permit. Id. This court held that these facts were insufficient to invoke the doctrine of equitable...

To continue reading

Request your trial
26 cases
  • Chief Info. Officer v. Computers Plus Ctr., Inc.
    • United States
    • Connecticut Supreme Court
    • September 3, 2013
    ...in nature and used only as a defensive maneuver, rather than as an affirmative claim. See Fadner v. Commissioner of Revenue Services, 281 Conn. 719, 731 and n.14, 917 A.2d 540 (2007) (Describing recoupment as "a tool of equity" and stating that "[t]he defense of recoupment has two character......
  • White v. Mazda Motor of Am., Inc.
    • United States
    • Connecticut Supreme Court
    • September 23, 2014
    ...authority is one factor to be considered in a determination of the preservation issue. Thus, in Fadner v. Commissioner of Revenue Services, 281 Conn. 719, 729 n. 12, 917 A.2d 540 (2007), we stated: “The plaintiffs did not specifically refer to the doctrine of equitable recoupment before the......
  • Chief Info. Officer v. Computers Plus Ctr., Inc.
    • United States
    • Connecticut Supreme Court
    • September 3, 2013
    ...in nature and used only as a defensive maneuver, rather than as an affirmative claim. See Fadner v. Commissioner of Revenue Services, 281 Conn. 719, 731 and n. 14, 917 A.2d 540 (2007) (Describing recoupment as “a tool of equity” and stating that “[t]he defense of recoupment has two characte......
  • Cefaratti v. Aranow
    • United States
    • Connecticut Court of Appeals
    • December 9, 2014
    ...sister states. This determination is a question of law over which our review is plenary. See, e.g., Fadner v. Commissioner of Revenue Services, 281 Conn. 719, 730, 917 A.2d 540 (2007) (whether Connecticut courts have adopted common-law doctrine of equitable recoupment, as applied by federal......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT