Reed v. Department of Revenue
Decision Date | 30 August 1990 |
Parties | Roland H. REED, Appellant, v. DEPARTMENT OF REVENUE, State of Oregon, Respondent. TC 2747; SC S35830. |
Court | Oregon Supreme Court |
Jerry Bronner, Asst. Atty. Gen., Salem, argued the cause on behalf of respondent. With him on the brief was Dave Frohnmayer, Atty. Gen., Salem.
Before PETERSON, C.J., and CARSON, JONES, * GILLETTE, VAN HOOMISSEN, FADELEY, and UNIS, JJ.
This case involves an appeal from the Oregon Tax Court concerning the appropriate amount of certain payroll deductions allowable to the plaintiff/taxpayer, Roland H. Reed (Taxpayer), as business expenses. Taxpayer filed a 1984 income tax return in which he claimed certain business expenses as deductions from his gross income. In 1986, the defendant Department of Revenue (the Department) audited Taxpayer's 1984 return and disallowed twenty-five percent of his claimed payroll business expenses. Plaintiff appealed to the Tax Court, which affirmed the Department's action. Reed v. Dept. of Rev., TC 2747 (Nov. 29, 1988). Taxpayer now appeals to this Court. In this purely factual dispute, we review de novo. ORS 305.445. 1
We find the following facts, as also found by the Tax Court:
Taxpayer appealed to the Tax Court. Before the Tax Court, Taxpayer, for the first time, presented cancelled checks which he claimed were his 1984 payroll checks. 4 Taxpayer also introduced into evidence his 1984 business ledgers and some employee time cards. Although the Tax Court accepted these items into evidence, it did not thoroughly examine the evidence: Id. at 4-5. Instead the court limited itself to an examination of the evidence pertaining to four employees. 5
In a tax case, the taxpayer bears the burden of proof and must demonstrate by a preponderance of the evidence that a deduction is allowable. ORS 305.427. In this case, Taxpayer furnished the Tax Court with a great deal of disorganized and incomplete documentation of his payroll expenses. Although it admitted the material into evidence, the Tax Court declined to examine this evidence thoroughly, apparently under the impression that it was not required to do so:
Reed v. Dept. of Rev., TC 2747, slip op at 6 (Nov. 29, 1988). The Tax Court cited no authority for this position.
The statutory scheme permits the Department to require a taxpayer to produce all documents the Department deems necessary to conduct an investigation. ORS 305.190(1). 7 If a taxpayer fails to comply, the Department may apply to the Tax Court for an order to produce. Failure to obey such an order is contempt of court. ORS 305.190(2). We do not find the alternative consequence selected by the Tax Court--disregarding evidence after admitting it--in the statutes.
In any event, the Tax Court did not dismiss the appeal. Therefore, it was required to conduct a trial de novo. ORS 305.425(1). 8 Although the burden of proof falls on the taxpayer to demonstrate that the Department's earlier decision was Taxpayer produced in the Tax Court a significant amount of new evidence. Under such circumstances, the Department's final order, which was merely an estimate made in the absence of hard proof, was unlikely to be exactly correct. The Tax Court, having admitted the evidence, was required to evaluate the evidence and reach its own conclusions. 9
wrong, a trial de novo requires the Tax Court to consider all properly admitted evidence and reach its own independent conclusions. Of course, if the evidence is inconclusive or unpersuasive, the taxpayer will have failed to meet his burden of proof and the Tax Court's final judgment will affirm the Department's order. However, such was not the case here.
We understand the Tax Court's expressed concern over the behavior of Taxpayer:
"The ourt feels it is appropriate to comment on this case.
Reed v. Dept. of Rev., TC 2747, slip op at 6 (Nov. 29, 1988). We are not unsympathetic with the Tax Court's and the Department's problems in dealing with Taxpayer. Even at the Tax Court hearing, Taxpayer's statements, testimony, and arguments certainly were not models of clarity. But the evidence was presented and received. Therefore, it was the Tax Court's obligation to consider it. We turn to the evidence.
We have examined the evidence in detail to determine which of Taxpayer's claimed payroll expenses should be allowed. We have considered each document and its relationship to other documents in evaluating whether a particular expense has been shown by a preponderance of the evidence to be a payroll expense. Although Taxpayer now claims a deduction of $13,992.74, it is quite possible that Taxpayer incurred payroll expenses in excess even of this amount. However, the statutory scheme does not permit us to allow expenses that are merely "possible;" only those expenses proved by a preponderance of the evidence may be allowed.
Taxpayer produced four categories of payroll expense evidence. First, there are Taxpayer's copies of the Form 1099 reports of wages paid he issued to certain employees. Throughout these proceedings, Taxpayer claimed that the Forms 1099 are sufficient to document his payroll expenses. The Department and the Tax Court both correctly rejected this argument. Forms 1099 are informational forms filed with Internal Revenue Service. IRC §§ 6041(a) & 6041A(a). They are no more conclusive evidence of payroll expenses than a taxpayer's completed income tax form is conclusive proof of his income. Furthermore, Taxpayer's Forms 1099 sometimes bear no apparent relationship to any of Taxpayer's other evidence. On the other hand, some Forms 1099 match up exactly with cancelled paychecks. Those Forms 1099 we consider in conjunction with the other evidence.
Taxpayer also furnished some employee time sheets. Gene...
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