STATE OF WISCONSIN
TAX APPEALS COMMISSION
401 N. Lake Street
Neenah, WI 54956
WISCONSIN DEPARTMENT OF REVENUE
P.O. Box 8933
Madison, WI 53708-8933
|DOCKET NOS. 94-I-1497 and 97-I-392
DECISION AND ORDER
MARK E. MUSOLF, CHAIRPERSON:
This matter is before us on stipulated facts. On briefs are Attorneys John J. Herson and Julie C. H. Walsh for petitioner, and Attorney Lili Best Crane for respondent.(1)
Having considered the entire record, the Commission hereby finds, concludes, and orders as follows:
FINDINGS OF FACT
We adopt the following facts as stipulated by the parties, omitting references to exhibits:
1. Petitioner, Kimberly-Clark Corporation, timely filed its
Wisconsin corporation franchise/income tax returns for its 1981 through 1984 calendar tax years.
2. Respondent, Wisconsin Department of Revenue, conducted a field audit of petitioner's 1981 through 1984 Wisconsin corporation franchise/ income tax returns. As a result of the audit, by Notice of Amount Due dated August 30, 1990, respondent assessed petitioner as follows:
Additional Interest Due To
Tax Year Franchise Tax October 29, 1990 Total
1981 $222,640.01 $230,569.65 $453,209.66
1982 15,012.16 13,745.38 28,757.54
1983 207,022.40 164,642.36 371,664.76
1984 266,110.02 179,700.82 445,810.84
3. By letter dated October 29, 1990, received by respondent on October 31, 1990, petitioner filed a petition for redetermination of the Notice of Amount Due for the taxable years 1981 through 1984.
4. By letter dated October 14, 1992, received by respondent on October 19, 1992, petitioner filed claims for refund for the taxable years 1983 and 1984 in the amounts of $52,141 and $110,490, respectively.
5. By letter dated November 10, 1992, petitioner filed claims for refund for the taxable years 1983 through 1991. The amount of the claim for the taxable year 1983 was $1,571 and for the taxable year 1984 was $0, with $1,723 of nonrefundable credits to be carried forward to 1985.
6. By letter dated November 25, 1992, respondent rejected petitioner's 1983 and 1984 claims for refund which had been filed in October 1992.
7. By letter dated December 4, 1992, petitioner filed a petition for redetermination of the disallowance of its claims for refund filed in October 1992 for the taxable years 1983 and 1984.
8. By letter dated April 20, 1993, petitioner filed claims for refund for the 1983 through 1991 taxable years. The amount of the claim for the taxable year 1983 was $3,001 and for the taxable year 1984 was $0, with $2,211 of nonrefundable credits to be carried forward to 1985. The claims were dated April 23, 1993.
9. By letter dated May 26, 1993, respondent rejected petitioner's 1983 and 1984 claims for refund which had been filed in April 1993.
10. By letter dated June 7, 1993, petitioner filed a petition for redetermination of the disallowance of its claims for refund filed in April 1993 for the taxable years 1983 and 1984.
11. By its Notice of Action letter dated October 28, 1994, respondent granted in part and denied in part petitioner's October 1990, December 1992, and June 1993 petitions for redetermination and November 1992 claims for refund. Respondent amended its assessment of petitioner to the following:
Additional Interest Due To
Tax Year Franchise Tax December 28, 1994 Total
1981 $177,551.23 $272,660.32 $450,211.55
1982 (39,828.52) (42,288.07) (82,116.59)
1983 25,475.61 32,999.64 58,475.25
1984 (196,821.48) (173,499.48) (370,320.96)
12. Respondent's conferee sent to petitioner a letter dated October 28, 1994, explaining the Notice of Action of the same date.
13. On December 29, 1994, petitioner filed with the Wisconsin Tax Appeals Commission, by certified mail postmarked December 28, 1994, a petition for review of the Notice of Action dated October 28, 1994 referred to in ¶ 11., above.
14. By letter dated January 10, 1997, petitioner filed claims for refund for the 1981 through 1984 taxable years. The amount of the claim for the taxable year 1981 was $153,958, for the taxable year 1982 was $141,108, for the taxable year 1983 was $187,758, and for the taxable year 1984 was $0, with $68,874 of nonrefundable credits to be carried forward to 1985.
15. By letter dated June 5, 1997, respondent rejected petitioner's claims for refund for the taxable years 1981 through 1983 which had been filed in January 1997. By separate letter dated June 5, 1997, respondent rejected petitioner's claim for refund for the taxable year 1984 which had been filed in January 1997.
16. By letter dated July 11, 1997, petitioner filed a petition for redetermination of the disallowance of its claims for refund filed in January 1997 for the taxable years 1981 through 1984.
17. By its Notice of Action letter dated October 9, 1997, received by petitioner on October 10, 1997, respondent denied petitioner's July 1997 petition for redetermination.
18. On November 28, 1997, petitioner filed with the Wisconsin Tax Appeals Commission, by certified mail postmarked November 26, 1997, a petition for review of the Notice of Action issued by respondent, dated October 9, 1997, rejecting petitioner's petition for redetermination regarding respondent's denial of petitioner's claims for refund for its 1981 through 1984 calendar years.
19. Petitioner and respondent entered into a Stipulation for Partial Settlement which was filed with the Wisconsin Tax Appeals Commission on October 1, 1998. Among other matters addressed in that stipulation, it resulted in respondent amending its assessment of petitioner to the following:
Additional Interest Due To
Tax Year Franchise Tax July 30, 1997 Total
1981 $61,960.49 $114,401.13 $176,361.62
1982 (129,487.77) (167,656.51) (297,144.28)
1983 82,393.90 132,326.86 214,720.76
1984 (199,359.93) (222,190.74) (421,550.67)
20. If petitioner prevails in this proceeding, the following additional deductions from income would be allowed:
Tax Year ACRS Issue NCR Issue Total
1981 $0 ($15,021,890) ($15,021,890)
1982 0 (12,242,173) (12,242,173)
1983 (10,542,449) (16,726,310) (26,830,600)
1984 (10,104,290) (8,225,330) (18,767,779)
21. If petitioner prevails in this proceeding, the following tax refund amounts would be due, not including interest:
1981 1982 1983 1984 Total
$0 ($129,488) $0 ($199,360) ($328,848)
The Commission makes the following additional Finding of Fact based on the Stipulation for Partial Settlement filed on October 1, 1999:
22. The parties agreed to brief and submit to the Tax Appeals Commission the following issue: Whether equitable recoupment may be applied to an audit period in which petitioner has a net tax refund, although in some of the taxable years of the audit period petitioner has tax owing.
WISCONSIN STATUTE INVOLVED
71.75 Claims for refund.
* * *
(5) A claim for refund may be made within 2 years after the assessment of a tax or an assessment to recover all or part of any tax credit, including penalties and interest, under this chapter, assessed by office audit or field audit and paid if the assessment was not protested by the filing of a petition for redetermination. No claim may be allowed under this subsection for any tax, interest or penalty paid with respect to any item of income, credit or deduction self-assessed or determined by the taxpayer or assessed as the result of any assessment made by the department with respect to which all the conditions specified in this subsection are not met. ...
CONCLUSION OF LAW
Under the doctrine of equitable recoupment, petitioner may apply a tax overpayment for a year which would otherwise be barred from refund under Wis. Stat. § 71.75(5), to offset a tax liability assessed for that year in an audit period, even though the final audit determination, which was the result of a settlement stipulation, was a net refund for the entire four-year audit period.
The doctrine of equitable recoupment is a judge-made exception to the legislative policy of barring claims for and against the government in tax matters by statutes of limitations. Wisconsin Department of Revenue v. Kurt H. Van Engel, No. 98-1110, Wisc. App. LEXIS 1072, 8-9 (Sept. 28, 1999). A seminal case applying the doctrine of equitable recoupment is Bull v. United States, 295 U.S. 247 (1935), where the Supreme Court permitted the return of monies after the statute of limitations had run, but cautioned that the doctrine was limited to disputes "arising out of the same transaction." Id., at 261.
In Wisconsin, equitable recoupment is applicable in two situations where there has been a tax assessment or refund claim. First, the State may invoke the doctrine to reduce a timely tax refund claim by the amount of a deficiency assessment barred by the statute of limitations. American Motors Corp. v. Dept. of Revenue, 64 Wis. 2d 337, 351 (1974).
Similarly, if the State makes a timely additional assessment against a taxpayer, the taxpayer may credit a refund claim that would ordinarily be barred by the statute of limitations against the deficiency. Dairyland Harvestore v. DOR, 151 Wis. 2d 799, 806-07 (Ct. App. 1989) (citing American Motors Corp., at 351).
In applying the doctrine of equitable recoupment, the Wisconsin Supreme Court adopted a "same transaction" test, embracing the one used in Matter of National Cash Register v. Joseph, 299 N.Y. 200, 86 N.E.2d 561 (1949):
The result of this broader test or definition is that either the state or the taxpayer can counter with a "stale" claim, meaning one barred by the statute of limitations, so long as the same year or income tax period is involved.
American Motors Corp., supra, at 353 [emphasis supplied].
The court found "both equity and equality of treatment of the contending parties served by [this] approach", id., but clarified that this "does not allow one transaction to be offset against another, but only permits a transaction which is made the subject of a suit by a plaintiff to be examined in all its aspects, and judgment to be rendered that does justice in view of the one transaction as a whole." Id., at 353, n. 27 (quoting National Cash Register, supra, 299 N.Y. at 203).
We must therefore apply the "same transaction" test to determine if equitable recoupment can be applied to allow petitioner's stale refund claims for 1981 and 1983 to offset the respondent's assessment for those same years. More precisely, we must determine if petitioner's time-barred refund claims apply to the "the same year or income tax period" as respondent's timely assessments.
Respondent posits that it made no "assessment" but rather a refund for the audit period, 1981 through 1984. Petitioner counters that, even though the net audit result was a refund, respondent assessed additional tax for the years 1981 and 1983, and the doctrine of equitable recoupment may therefore be applied to allow petitioner's stale refund claims for those years to offset the assessments for those years.(2)
The stipulated facts show that respondent initially audited and assessed petitioner additional tax for each year from 1981 through 1984.(3) After various petitions for redetermination and refund claims which respondent denied and/or granted in part, the parties finally stipulated that respondent would amend its assessment to assess additional tax of $61,960.49 for 1981 and $82,393.90 for 1983 and to grant tax refunds exceeding those amounts for 1982 and 1984.
The parties further stipulated that they would submit to the Commission the question of whether equitable recoupment could be applied to allow stale claims to offset the additional tax determined for 1981 and 1983 even though the audit resulted in a net refund.
In American Motors Corp., supra, the Wisconsin Supreme Court expressly adopted the definition of "same transaction" as meaning "any transaction in the tax period involved in either a claim by the taxpayer for refund or by the state for additional assessment." 64 Wis. 2d at 353.
Even though respondent finally determined a net refund for the entire four-year audit period (after initially assessing additional tax for all four years), the fact remains that there were two years, 1981 and 1983, for which respondent assessed additional franchise tax. We conclude that each of these years is a distinct "tax period involved in a claim by the state for additional assessment" and therefore subject to offset under the doctrine of equitable recruitment.
This conclusion is reinforced by the "broader test" language in National Cash Register v. Joseph, supra, which was quoted and unequivocally embraced by our Supreme Court in American Motors Corp. That language makes it clear that equitable recoupment may be applied "so long as the same year or income tax period is involved." 64 Wis. 2d at 353. Here, it is not disputed that respondent assessed additional taxes for 1981 and 1983. These are the identical years and distinct income tax periods for which petitioner has stale refund claims it seeks to offset. The doctrine of equitable recoupment would be vitiated in both letter and spirit if petitioner were denied the right of offset under these facts.
Respondent also argues that petitioner's claims for refund are invalid because § 71.75(5) prohibits a refund of self-assessed taxes.(4) That is a statutory issue not before us in considering equitable relief. Even if it were, respondent's assertion lacks factual support in the record. Further, the parties have already stipulated to the stale refund claims we may consider in deciding if equitable recoupment can be applied, and have even stipulated to the result if petitioner prevails on the equitable recoupment issue.(5)
Respondent further argues that equitable recoupment "does not honor the refund statute nor does it prevent an unjust enrichment of the State."(6) We disagree. The refund statute is superfluous to the application of equitable recoupment, except in determining if the claim is time-barred, which the parties have stipulated as a prerequisite for considering the doctrine in the first place. Moreover, unjust enrichment of the State will occur unless each of the years 1981 and 1983, for which respondent assessed additional tax, is "examined in all its aspects, and judgmentrendered which does justice in view of the one transaction as a whole." Id., at 353 (citation omitted). This is especially so because respondent has also imposed interest on the assessed taxes it claims are not subject to equitable recoupment.
Finally, respondent argues that equitable relief is improper when the final refund is determined by a settlement agreement. We find no legal
basis for this assertion. The parties stipulated that, although respondent was "amending its assessment,"(7) the equitable recoupment issue would be briefed and submitted to the Commission. The stipulation does not change the fact that respondent initiated the original assessment that gave rise to this appeal. There would be only partial justice in the entire audit transaction if respondent were allowed to be enriched by the additional tax, plus interest, assessed for 1981 and 1983, in spite of petitioner's having valid but time-barred equitable offsets for those years.
The respondent's action on petitioner's petition for redetermination is modified in accordance with the Conclusion of Law and the stipulation of the parties set forth in Findings of Fact 20 and 21.
Dated at Madison, Wisconsin, this 12th day of November, 1999.
WISCONSIN TAX APPEALS COMMISSION
Mark E. Musolf, Chairperson
Don M. Millis, Commissioner
Thomas M. Boykoff, Commissioner
ATTACHMENT: "NOTICE OF APPEAL INFORMATION"