Wangerin v. State
| Decision Date | 29 November 2022 |
| Docket Number | DA 22-0081 |
| Citation | 2022 MT 236 |
| Parties | JAMES C. WANGERIN, CPA, Petitioner and Appellant, v. STATE OF MONTANA, DEPARTMENT OF REVENUE, Respondent and Appellee. |
| Court | Montana Supreme Court |
COUNSEL OF RECORD:
For Appellant: James C. Wangerin, Self-represented, Deer Lodge Montana
For Appellee: David Burleigh, Senior Tax Counsel, Montana Department of Revenue, Helena, Montana
¶1 James C. Wangerin (Wangerin) appeals pro se the February 2022 judgment of the Montana Third Judicial District Court, Powell County, affirming on judicial review the July 2021 Montana Department of Revenue (MDOR) denial of his petition to adopt a proposed administrative rule construing § 15-30-2605(3), MCA (three-year deadline for MDOR revision of erroneous income tax return). We address the following restated issue:
Whether the District Court erroneously affirmed the MDOR decision denying Wangerin's petition to adopt a proposed administrative rule construing § 15-30-2605(3) MCA?
We affirm.
¶2 Wangerin is a certified public accountant who provides professional income tax return assistance services in Deer Lodge, Montana. In 2020, MDOR audited several 2017 state income tax returns made by Wangerin clients. Based on those audits, MDOR subsequently issued "Audit Adjustment Letters" to the subject taxpayers pursuant to §§ 15-30-2605(1), (3), and -2642(1), MCA (authorization for and notice of MDOR revision of materially incorrect income tax returns and determination of additional tax due). All of the adjustments included the following introductory language, inter alia:
We have completed our audit of your 2017 Montana individual income tax return(s). As a result of our audit, we've made the adjustments shown on the enclosed Statement of Adjusted Income Tax Liability, Form 18. It explains in detail the adjustments we made including tax, penalty and interest as allowed by Montana law.
Each adjustment letter thus notified the subject taxpayer of: (1) the MDOR-asserted errors or deficiencies in the taxpayer's individual income tax return; (2) the MDOR-asserted revised tax debt for each taxpayer; and (3) the taxpayer's right to timely file a written objection and request for informal MDOR review. The adjustment letters referenced a specific MDOR application form for informal review which in turn referenced the right to formally dispute any adverse informal review result before the MDOR Office of Dispute Resolution (ODR).[1]
¶3 The referenced taxpayer right to seek informal MDOR review and then, if still aggrieved, a more formal review before the MDOR ODR, stems from § 15-1-211, MCA, which requires MDOR to provide by administrative rule a two-tiered "uniform dispute review procedure" for taxpayer-requested review of state tax determinations made by MDOR. The first available administrative remedy is an informal review of the subject tax determination with the MDOR official responsible for a noticed MDOR dispute with the taxpayer. Section 15-1-211(3), MCA. If the dispute remains unresolved, either party may transfer the dispute to ODR for more formal review and "a final department decision" from ODR within 180 days. See § 15-1-211(1)(a), (2)(b), (d)-(e), and (3), MCA (emphasis added). If the taxpayer elects to "bypass" further review upon transfer of the dispute to ODR, then ODR must issue a "final department decision" on the dispute within 30 days of receipt of the election. See § 15-1-211(2)(b)-(c), MCA (emphasis added).[2] Upon timely ODR issuance of a final department decision, or ODR failure to timely issue a final department decision, the taxpayer may then timely appeal to the Montana tax appeal board (MTAB) for further administrative review as a "contested case" proceeding under the Montana Administrative Procedure Act (MAPA). See §§ 15-1-222(9), -211(2)(e), 15-2-201(1)(d), -302(1)(a)-(b), and (5), MCA (taxpayer right to MTAB or court review, "or both," of "any final decision of" MDOR "assessing an additional tax," and any "appeal of a final decision" of MDOR involving any tax other than property tax imposed under Title 15 "must be made" to MTAB). The resulting "final decision" of MTAB upon contested case appeal of a final MDOR ODR decision under § 15-1-211, MCA, is then subject to judicial review upon taxpayer petition. See §§ 15-2-302(5), (6), and -303(1), MCA (required conduct of MTAB appeals "in accordance with [MAPA] contested case provisions" and provision for judicial review of MTAB "final decision").
¶4 At issue here, inter alia, in the § 15-1-211, MCA, internal MDOR reviews initiated by Wangerin clients regarding the January 2021 MDOR adjustment notices regarding their 2017 income tax returns was Wangerin's assertion that the noticed MDOR adjustments were untimely beyond the three-year deadline specified by § 15-30-2605(3), MCA ("the amount of tax due under any return may be determined by" MDOR on corrective revision under § 15-30-2605(1) "within 3 years after the return was filed"-emphasis added). Wangerin asserted that the three-year deadline specified by § 15-30-2605(3), MCA, applied not only to the date of any initial audit adjustment notice issued by MDOR pursuant to §§ 15-30-2605(1), (3), and -2642(1), MCA, but also to exhaustion of any taxpayer-initiated internal MDOR review(s) under § 15-1-211, MCA. In other words, Wangerin asserted that § 15-30-2605(3), MCA, time-barred MDOR from assessing any additional income tax due on audit under § 15-30-2605(1) and (3), MCA, unless any resulting taxpayer-initiated review of the underlying MDOR adjustment notice under § 151-211, MCA, is fully exhausted within three years of the filing date of the subject taxpayer return. MDOR contrarily asserted that the three-year deadline specified by § 15-302605(3), MCA, applies only to the date of the initial audit adjustment notice issued by MDOR under §§ 15-30-2605(1), (3), and -2642, MCA, if any.
¶5 With his clients' disputes of the 2021 MDOR audit adjustment notices still pending internal MDOR review under § 15-1-211, MCA, Wangerin separately petitioned MDOR by email pursuant to § 2-4-315, MCA (MAPA provision for petition for adoption, amendment, or repeal of administrative rules),[3] to "Adopt a Rule to Clarify MCA 15-30-2605" based on his contrary interpretation of § 15-30-2605(3), MCA. The petition asserted that MDOR's interpretation of § 15-30-2605(3), MCA, was "invalid" and erroneously allowed it to routinely conduct "late audits" just prior to expiration of the three-year deadline specified by § 15-30-2605(3), MCA, often coinciding with the April 15th income tax return filing deadline for subsequent tax years, and thereby burdening his busy tax preparation season. The petition asserted that the Legislature intended § 15-30-2605(1) and (3), MCA, to parallel the individual tax return audit procedure utilized by the Internal Revenue Service (IRS) regarding federal income tax returns "so that there is time to exhaust [the MDOR] administrative appeal" process under § 15-1-211, MCA, prior to ripeness for MTAB appeal. The petition thus proposed that MDOR adopt an interpretive administrative rule providing:
The date for stopping the [§ 15-30-2605(3)] statute of limitations . . . is the date of decision with respect to which all rights of appeal have been waived or exhausted.[4]
While Wangerin's rule petition under § 2-4-315, MCA was pending, MDOR and the subject Wangerin clients settled the 2017 tax liability disputes parallel-pending under the internal MDOR review process provided by § 15-1-211, MCA.[5]
¶6 Thereafter, MDOR issued a written denial of Wangerin's § 2-4-315, MCA, rule petition in July 2021 on the stated grounds, inter alia, that: (1) the proposed rule was "unsupported by the record and laws of Montana"; (2) § 15-30-2605 "expressly states that [MDOR] can determine the amount of tax due for up to three years"; (3) § 15-30-2605(1) and (3), MCA, clearly and unambiguously requires only that MDOR "complete its audit within the three-year deadline" and thus contemplates that the ultimate resolution of any administrative appeals under § 15-1-211, MCA, may not occur until after expiration of the three-year deadline specified by § 15-30-2605(3), MCA; and (4) Wangerin's proposed rule would thus "engraft a requirement that [MDOR] follow federal audit guidelines," thereby exceeding the scope of MDOR's "rule-making authority" inconsistent with the express language of § 15-30-2605(1) and (3), MCA.
¶7 By pro se petition filed July 2021, Wangerin petitioned for judicial review of the MDOR rulemaking denial without reference to any asserted MAPA or other statutory predicate for judicial review. In substance, Wangerin's petition asserted that MDOR's construction of § 15-30-2605(3), MCA, was erroneous as earlier asserted. The petition thus prayed for "revers[al]" of the MDOR denial of his petition to adopt a proposed administrative rule "clarify[ing]" § 15-30-2605, MCA. MDOR opposed the petition on various asserted grounds consistent with its prior petition denial.
¶8 In February 2022, on briefing and oral argument, the District Court affirmed the MDOR denial of Wangerin's rule petition. Applying § 2-4-704, MCA, the court determined, inter alia, that MDOR's construction of § 15-30-2605(3), MCA, was correct and that Wangerin failed to demonstrate that its denial of his rulemaking petition was arbitrary, capricious, or based on an erroneous conclusion or application of law. Wangerin timely appeals.
¶9 In contrast to the broader standard of judicial...
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