Mack v. Dep't of Revenue, TC 5437

CourtOregon Tax Court
Writing for the CourtRobert T. Manicke Judge
PartiesGEORGE E. MACK and ANNA H. MACK, Plaintiffs, v. DEPARTMENT OF REVENUE, State of Oregon, Defendant. Tax Penalties/Fees Interest Refund/Offset Tax Penalties/Fees Interest Refund/Offset Tax Penalties/Fees Interest Refund/Offset
Docket NumberTC 5437
Decision Date08 November 2022

GEORGE E. MACK and ANNA H. MACK, Plaintiffs,
v.

DEPARTMENT OF REVENUE, State of Oregon, Defendant.

No. TC 5437

Tax Court of Oregon, Regular Division, Income Tax

November 8, 2022


ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

Robert T. Manicke Judge

I. INTRODUCTION

This personal income tax case is before the court on Defendant's motion for summary judgment under Tax Court Rule (TCR) 47. Plaintiffs oppose the motion but have not cross-moved. Defendant argues that Plaintiffs failed to pay "the tax assessed, and all penalties and interest due * * * on or before the filing of [their] complaint with the regular division of the Oregon Tax Court * * *." ORS 305.419(1).[1]

II. FACTS

Defendant has submitted declarations and exhibits that, together with the complaint, support the following factual narrative.

A. Facts Related to Tax Year 2016

On or about October 15, 2017, Plaintiffs paid Defendant by check $22,003, which was

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the amount shown on their return for tax year 2016. (See Def s Decl of Lawson, ¶ 2; Ex A at 1-4 (copies of check and payment coupon).) On May 6, 2019, Defendant sent Plaintiffs a letter stating that Defendant was commencing an audit of their return for tax year 2016. (See Def s Decl of Lawson, Ex B at 2-3 (explanation in notice of deficiency).)

1. March 9, 2020: Notice of Deficiency for Tax Year 2016

After the audit, Defendant issued a notice of deficiency, on March 9, 2020, adjusting Plaintiffs' 2016 income by denying certain business expense deductions they had claimed, and determining a deficiency of $24,901 in tax to pay, plus a 20-percent underpayment penalty of $4,980 and interest. (See id. at 2-4.) The notice of deficiency also stated: "If you do not pay the balance within 30 days from the return's due date or the date of this notice, whichever is later, a 5 percent penalty will be added." (Id. at 2.)

A statement of account that Defendant issued to Plaintiffs the same day as the notice of deficiency includes a table that shows the following (see id. at 7-8):

Period

Ending

Tax
Penalties/Fees
Interest
Refund/Offset

Credit

Balance

Dec 31, 2016

$44,868.00
$5,978.35
$4,931.00
$0.00

-$22,003.00

$33,774.35

The amount of $44,868 in the "Tax" column in the statement of account corresponds with the "tax to pay" amount "per audit" in the notice of deficiency, which apparently means the total amount of tax due for the year, before applying any payment already made. (See id. at 2.) The amount of -$22,003 in the "Credit" column corresponds with the amount Plaintiffs paid when they filed their return.

2. September 10, 2020: Notice of Assessment for Tax Year 2016

On September 10, 2020, Defendant issued its notice of assessment for the total amount of $35,776.66. (See Def s Decl of Lawson, Ex C.) The notice of assessment includes the following

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table (see id. at 12):

Period

Ending

Tax
Penalties/Fees
Interest
Refund/Offset

Balance

Dec 31, 2016

$24,901
$6,225.05
$4,655.46
$0.00

$35,776.66

The amount of $24,901 in the "Tax" column in the notice of assessment corresponds with the deficiency amount stated in the March 9, 2020, notice of deficiency. However, the court observes that the "Tax," "Penalties/Fees" and "Interest" amounts shown add up to $35,781.51, not the $35,776.66 amount shown.

A statement of account that Defendant issued to Plaintiffs the same day as the notice of assessment includes a table that shows the following (see id. at 15):

Period

Ending

Tax
Penalties/Fees
Interest
Refund/Offset

Credit

Balance

Dec 31, 2016

$44,868.00
$7,223.40
$5,688.26
$0.00

-$22,003.00

$35,776.66

The above amounts add up; the balance of $35,776.66 is the sum of the other amounts shown.

3. September 29, 2020: Appeal to Magistrate Division for Tax Year 2016

On or about September 29, 2020, Plaintiffs appealed the tax year 2016 assessment by filing a complaint in the Magistrate Division. (See id. at 3-4.) The magistrate issued a decision on January 24, 2022. (Ptfs' Compl at 5-19.) The decision upheld Defendant's disallowance of certain deductions Plaintiffs had claimed, but the decision granted Plaintiffs' appeal in part, ordering Defendant to reduce the assessment to reflect the court's allowance of $115,600 of previously disallowed expense deductions. (Id. at 17.)

4. February 10, 2022: Appeal to Regular Division for Tax Year 2016

On or about February 10, 2022, Plaintiffs filed their complaint in this division of the court to appeal from the magistrate's decision. On March 23, 2022, counsel for Plaintiffs sent a letter to Defendant's counsel that, among other things, asked for a computation of the "amount

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necessary to have standing" for tax year 2016. (Def s Decl of Rieder, Ex A.) On April 21, 2022, counsel for Plaintiffs apparently sent another letter, suggesting settlement. (See id., Ex B at 1.) On May 26, 2022, counsel for the Department sent Plaintiffs' counsel an email stating, in part, that Defendant had decided to not challenge the expenses that the magistrate had ordered the Department to allow as deductions. (See id.) In the same email, counsel for Defendant stated that the "payoff amount" for tax year 2016 was $21,060.27. (Id.)

5. June 7, 2022: Payment of Assessment for Tax Year 2016

Except for the $22,003 paid with their tax return, Plaintiffs' only payment for tax year 2016 was by check dated June 7, 2022, in the amount of $35,910. (Def s Decl of Lawson at 2, ¶¶ 6-7.) Defendant has not asserted that the amount paid was less than the full amount of tax, penalty and interest assessed.

B. Facts Related to Tax Years 2019, 2020 and 2021

Between the March 9, 2020, notice of deficiency and the June 7, 2022, payment for tax year 2016, the following occurred.

1. January 20, 2021: Plaintiffs File Late and Overpay ($63,237) for Tax Year 2019

Plaintiffs filed their return for tax year 2019 on or about January 20, 2021, several months after the extended due date. (See Def sl Decl of Lawson, Ex 1 at 1.) They overpaid. (See Def s Decl of Lawson at 3, ¶ 13; Decl of Lawson, Ex E at 1.)

Plaintiffs initially sought to apply $63,237 of the tax year 2019 overpayment to tax year 2020, entering the amount of the overpayment on line 31 of their return for tax year 2020. (See Def s Decl of Lawson at 2, ¶ 8; Decl of Lawson, Ex E at 1.) Defendant, however, treated Plaintiffs' request as a request to apply the refund to the next "open estimated tax account." (Def s Decl of Lawson, Ex 1 at 1; see OAR 150-316-0480 (procedure for applying overpayments).) By the time Plaintiffs filed their return for tax year 2019, Defendant no longer

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considered tax year 2020 an "open estimated tax account." (See Def s Decl of Lawson, Ex I at I.) Defendant, therefore, instead applied the tax year 2019 overpayment (as reduced for interest and late filing penalties) to the tax year 2021 estimated tax account, which apparently was still "open" when Plaintiffs filed their 2019 return on January 20, 2021. (See id.)

2. November 5, 2021: Defendant issues notice of proposed refund adjustment and statement of account for tax year 2020.

On November 5, 2021, Defendant informed Plaintiffs of the change to the application of their tax year 2019 overpayment by sending two documents. First, Defendant issued a notice of proposed refund adjustment for tax year 2020, as Plaintiffs had reported the overpayment as a credit or payment on their tax year 2020 return. (See Def s Decl of Lawson at 2, ¶ 8.) On page I of that notice appears an "Explanation of Adjustments Made" that consists of the following table, apparently organized according to the lines on the Oregon personal income tax return form:

Line

Description

Original

Adjusted

31.

Amount applied from your prior year’s tax refund

$63,237.00

$0.00

We adjusted the amount of any prior year’s refund you applied to your 2020 estimated tax to reflect the amount we have on record. If we adjusted your applied refund, you need to use the adjusted amount. To view your estimated payments, register for Revenue Online at www.oregon.gov/dor. (ORS 316.583)

(See Def s Decl of Lawson, Ex E at I.)

The second document Defendant sent on November 5, 2021, was a statement of account. It purports to "provide a summary of your accounts and any amounts owed and includes penalties, fees and interest." (Def s Decl of Lawson, Ex E at 5.) It states, however, that "the amount [owed] doesn't include balances you've appealed." (Id.) Similarly, the following sentence appears on the next page: "Debts you've appealed are shown on the statement but aren't included in the balance due." (Id. at 6.) The statement includes a table that shows the following (see id.):

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Period

Ending

Tax

Penalties/Fees

Interest

Refund/Offset

Credit

Balance

Dec 31, 2016

$44,868.00

$7,223.40

$7,975.06

$0.00

-$22,003.00

$0.00

You appealed this period’s financials. The balance won’t be displayed until your appeal has been resolved.

Dec 31, 2020

$260,276.00

$0.00

$193.69

$0.00

-$250,000.00

$10,469.69

$10,469.69

On November 23, 2021, while awaiting a decision from the magistrate for tax year 2016, counsel for Plaintiffs sent a letter to Defendant, stating:

"I am enclosing a copy of the Notice of Proposed Refund Adjustment applying an overpayment made by the
...

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