McCool v. Dep't of Revenue
| Decision Date | 25 April 2022 |
| Docket Number | TC-MD 210259G |
| Parties | ELIZABETH M. McCOOL, Plaintiff, v. DEPARTMENT OF REVENUE, State of Oregon, Defendant. |
| Court | Oregon Tax Court |
DECISION
POUL F. LUNDGREN, MAGISTRATE
Plaintiff appealed from Defendant's Notice of Liable Entity, which assessed taxes on her under ORS 316.207 that were owed by the company of which she was an officer. The periods at issue are the second, third, and fourth quarters of 2018.
Although the parties briefed motions for summary judgment, at the time set for oral argument they requested that the court make findings of fact based on the written evidence and agreed to hold a trial without witnesses.[1] Plaintiff was represented by Carol Vogt Lavine, attorney-at-law, and Defendant was represented by Kelvin Adkins-Heljeson, Operations and Policy Analyst. The court received Stipulated Exhibits A to W Plaintiff's Exhibits 1 to 5, and declarations from Plaintiff and Carol Lavine.
Plaintiff's parents entered the newspaper business in 1953 with their purchase of The Bend Bulletin. (Stip Facts, ¶ 1.) The business expanded, and by 1974 the family owned several publishing and broadcasting companies that were merged into a single parent company, Western Communications, Inc. ("WesCom"). (Ex B.) Until his semi-retirement around 1993, Plaintiff's father served as chairman of WesCom's board of directors as well as WesCom's president and the editor of The Bend Bulletin. (Stip Facts, ¶ 2.) At that time, the family chose Plaintiff to succeed her father as board chair. (Id., ¶ 3.)
Under the bylaws adopted August 6, 2004, which were those in effect during the periods at issue, WesCom's chairman of the board was an officer-the officer with "general supervision, direction and control of the business and affairs of the corporation." (Ex F at 7-8.) The president, according to those bylaws, was "the company's chief operating officer, performing such duties as may be directed by the board of directors." (Id. at 8.)
Because neither Plaintiff nor her siblings were professional publishers, when Plaintiff became board chair "it was unanimously determined that the business would be run by professional management." (McCool Decl, ¶ 11; see also Ex E at 3.) In 1994, the board of directors hired Gordon Black, a newspaper industry veteran, to serve as WesCom's president and as publisher of The Bend Bulletin. (Id., ¶ 12.) Black in turn hired another newspaper veteran, John Costa, as the The Bend Bulletin's editor. (Id., ¶¶ 16-17.) When Black resigned in 2015, the board of directors approved his appointment of Costa to take over as president and publisher. (Id., ¶ 18.) Plaintiff was "never involved in any hiring or firing decisions" other than hiring Black and approving Costa's appointment as Black's successor. (Id., ¶ 24.)
Costa, like Black before him, "set the editorial and commercial direction for Wescom, making decisions about the markets their companies would serve, the type of content they would offer their audience, and was responsible for budgeting and reporting to the Board." (McCool Decl, ¶¶ 14, 20.) Costa was required to obtain the Board's approval of the budgets he submitted, but otherwise did not need the Board's approval for "most decisions." (Id., ¶ 21.) He made all hiring decisions, including the hiring of a Chief Financial Officer, Mark Owings, without Board input or approval in late 2017. (Id., ¶¶ 22-23; see Ex G at 1.)
Plaintiff describes her "primary responsibility" as reporting back to the family on "the actions taken by the professional management." (McCool Decl, ¶ 4.) Following the departure of Owings's predecessor as Chief Financial Officer, Plaintiff made the following report at an October 2017 board meeting: (Ex G at 1.) After Owings began in November 2017, Plaintiff met daily with him and Costa "as an observer." (McCool Decl, ¶¶ 27-28.) At those meetings, Costa and Owings would "review Wescom's cash position and which vendors to pay, as well as collaborat[e] on Wescom's annual budgets[.]" (Id.) Plaintiff was at times asked her opinion regarding payment of WesCom's creditors, but she did not make decisions on those issues before WesCom's bankruptcy. (Id., ¶ 54.) Plaintiff received a salary and was one of five signatories on WesCom's bank accounts. (Id., ¶ 56; see Ex V at 24-33.)
2017 was a "bleak" year for WesCom financially, with sharp revenue reductions in both advertising and circulation. (Ex H at 1-2.) To make matters worse, an error in WesCom's instructions to its credit card processor resulted in over $400, 000 being unnecessarily withheld and paid over to the IRS from December 2017 through March 2018. (Exs I at 4; J at 1.)
From late 2017 through at least the middle of 2018, Plaintiff was involved in negotiations to sell WesCom's building in Bend and lease back a portion of it at a lower monthly rate. (See Exs G at 3-4; I at 1.) Those efforts were ultimately unsuccessful. (McCool Decl, ¶ 51.) In February 2018, Plaintiff renewed a $1, 250, 000 loan, and in she obtained another $282, 000 loan in September 2018, shortly before her husband's death. (Id., ¶ 49.) She and her husband were personally liable for those loans. (Id.)
Plaintiff's husband was hospitalized on May 28, 2018, and never returned home before he died in late September 2018. (McCool Decl, ¶¶ 32-44.) Throughout that time, Plaintiff visited him daily, did his shopping and cleaning after he was moved to a senior living facility, and represented him in his medical treatment because he could not act on his own behalf. (Id.)
By the summer of 2018, Plaintiff was aware that WesCom had unpaid federal withholding tax liaibilities. (McCool Decl, ¶ 46.) She does not recall discussing or becoming aware of unpaid Oregon tax liabilities before January 2020. (Id., ¶¶ 47-48.)
On October 9, 2018, Costa copied Plaintiff on an email he sent to Owings stating he was "very aware and worried about the taxes." (Ex P at 1.) Costa urged using "new money for back taxes alone" and outlined a strategy for raising the needed "million." (Id.) That strategy included cost cutting, increased revenue, and "talk[ing] with [Plaintiff] about the use of the near $200, 000 she has remaining" from the September 2018 loan. (Id.) Costa also informed Owings that Plaintiff was "working on a bridge loan possibility[.]" (Id.)
Costa did not copy Plaintiff, but did copy Owings, on a tax-related email to a lawyer dated October 31, 2018. (Ptf's Mot Summ J, Ex 3.) In that email, Costa reported the IRS was "willing to work with us" and inquired about a notice the IRS was supposed to have sent. (Id.)
WesCom filed quarterly tax reports (Form OQ) with Defendant for the periods at issue in July 2018, October 2018, and January 2019. (Ex Q at 1, 13, 18.) On all three of those reports, WesCom reported $0.00 due for state withholding and transit district taxes. (Id.) WesCom later admitted those reports were in error because they excluded manual checks and therefore underreported wages. (Ex R at 1, 3, 5.)
On January 22, 2019, WesCom petitioned for relief from the United States Bankruptcy Court under Chapter 11 of Title 11 of the United States Code. (Ex C.) Plaintiff signed the petition. (Id. at 4.) "Plaintiff continued as Board Chair during the bankruptcy proceeding to work with Wescom's bankruptcy lawyers, as needed, which essentially involved signing documents as directed by the lawyers." (Stip Facts, ¶ 4.) Another such document was the Statement of Financial Affairs for Non-Individuals Filing for Bankruptcy, which was completed for execution by Plaintiff on February 12, 2019. (Ex V at 13.)
On April 11, 2019, Plaintiff signed a client instruction letter to Paycom Payroll, LLC. (Ex S at 1.) In that letter, she referenced amended returns to be filed for federal and state taxes, including "Oregon Forms 132, OQ, Schedule B for Q2-4." (Id.) Plaintiff directed Paycom to "file returns with no payments to the applicable taxing authorities." (Id.) In the letter, Plaintiff explained that WesCom "has filed Chapter 11 Bankruptcy and must only make pay [sic] pre-petition debt payments with the approval of the court." (Id.)
WesCom's amended Form OQs were filed with Defendant on July 26 and August 15, 2019. (Ex R.) Having previously underreported wages, WesCom now reported state withholding tax due of $25, 935.27 for the second quarter; $107, 570.68 for the third quarter; and $33, 833.79 for the fourth quarter of 2019. (See id.) Also on August 15, 2019, WesCom filed an amended Form OR-WR stating that statewide transit tax had been underreported "due to an administrative error." (Ex U at 1.)
Defendant sent Plaintiff an Investigation of Authority letter on January 14, 2020, questioning "who was responsible or had the authority" to perform various activities for WesCom from April to December 2018. (Ex M at 1-2.) It was on receipt of that letter that Plaintiff alleges she became aware of unpaid Oregon taxes. (McCool Decl, ¶ 48.) Plaintiff signed her response on January 28, 2020. (Ex M at 2.) In response to the question "Decide which creditors to pay?" she wrote: "Mark Owings after conferring with [Plaintiff] and John Costa." (Id.) She listed only Mark Owings in response to the questions "Sign withholding tax reports?" and "Pay withholding taxes for the business?" (Id.) She listed herself among five people in response to "Sign checks?"; among 13 people in response to "Hire or fire employees?"; and among 21 people in response to "Set employee work schedules?" (Id.)
WesCom through its lawyers, moved to dismiss its bankruptcy case on April 29, 2020...
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