STATE OF WISCONSIN
TAX APPEALS COMMISSION
P.O. Box 371007
Milwaukee, WI 53237-1007
WISCONSIN DEPARTMENT OF REVENUE
P.O. Box 8933
Madison, WI 53708
|DOCKET NOS. 98-I-26, and 98-I-27
DECISION AND ORDER
This matter was heard by the Commission at a trial on May 20, 1999. Petitioner, Crazy Jim (his legal name), was represented at the trial by Attorney Douglas H. Frazer of Frazer, Schapiro & Rich, S.C. of Milwaukee, Wisconsin. Subsequently, Attorney Frazer's July 14, 1999 motion to withdraw as petitioner's counsel was granted by the Commission on July 23, 1999. Since then, petitioner has appeared pro se. Respondent, Wisconsin Depart-ment of Revenue ("Department"), is represented by Attorney Veronica Folstad. The Department has submitted a brief. After being granted several extensions of time to file a brief, petitioner has not filed one.
Having considered the entire record, both parties' arguments during the trial, and the Department's additional arguments in its brief, the Commission finds, concludes, and orders as follows:
FINDINGS OF FACT
1. Under date of November 4, 1996, the Department issued an income tax assessment to petitioner for $12,450.13 (tax, interest, and penalty) covering tax year 1984 ("1984 assessment"). This assessment was based on information contained in an Internal Revenue Service ("IRS") adjustment for that year. The Department's primary adjustment added $52,640 of taxable dividends to petitioner's taxable income.
2. Under date of November 18, 1996, the Department issued an income tax assessment to petitioner for $8,734.13 (tax, interest, and late filing fee), covering 1994 ("1994 assessment").
3. Under date of January 2, 1997, petitioner filed a petition for redetermination with the Department, objecting to both assessments.
4. Under date of December 15, 1997, the Department issued a separate denial of each petition for redetermination.
5. Petitioner filed a timely appeal of both denials with this commission.
Facts Pertaining to Petitioner's Disputed 1984 Domicile
6. Petitioner filed a timely 1984 Wisconsin resident income tax return. Filed with that tax return was a Form W-2 issued to petitioner, showing his employer as Action Auto Sales in Milwaukee, Wisconsin, showing petitioner's address as 5940 S. 27th St. in Milwaukee, and listing $3,500 wages paid. Under date of April 9, 1985, petitioner also filed a 1984 federal income tax Form 1040A, showing his home address as 2940 S. 27th St. in Milwaukee, and reporting the $3,500 as income.
7. Under date of April 22, 1996, petitioner filed an amended 1984 Wisconsin income tax return. On that return, he showed his home address as 6010 S. 27th St. in Milwaukee, and claimed he was a resident of Nevada in 1984. The Department rejected this claim of 1994 Nevada domicile for lack of substantiation.
8. Petitioner rented and furnished a Nevada apartment under a written lease from December 1 to 30, 1983 and continued to rent it on a month-to-month basis during 1984. He had "phone wagering accounts" (i.e., checking accounts) at five Las Vegas casinos in 1984. Petitioner also obtained a Nevada driver's license. He did not vote in either Nevada or Wisconsin in 1984.
9. In December 1983, an intruder came into petitioner's apartment and shot him in the stomach. After surgery in a Nevada hospital, petitioner returned to Milwaukee to convalesce. Because items were left inside petitioner during his Nevada surgery, he underwent emergency surgery in West Allis, Wisconsin, and convalesced in Milwaukee for an unspecified time in 1984.
10. On August 11 and November 8, 1984, respectively, petitioner received traffic citations in Greenfield and Fond du Lac, Wisconsin.
11. On May 28 and June 11, 1996, petitioner and the Department signed an "Agreement To Limit Taxpayer's Prior Year's [sic] Filing Requirements For Individual Income Tax" ("Agreement"). Numbered paragraphs 2. and 5. read as follows:
2. ... the Department shall not require Taxpayer to file Wisconsin income tax returns prior to the 1992 calendar tax year.
* * *
5. The Department reserves the right to audit Taxpayer's books and records for the purpose of verifying the factual representations made. Provided that the facts established on audit are not different from the facts disclosed by Taxpayer as part of this agreement, the Department will be precluded from assessing any tax, penalty or interest on the Taxpayer's income derived from Wisconsin in any period prior to the 1992 tax year.
Petitioner asserts that the Agreement precludes the Department from issuing its assessment covering tax year 1984.
Facts Pertaining to the Disputed 1994 Assessment
12. On petitioner's 1994 Wisconsin income tax return(1), he reported a $97,000 capital gain from the sale of Wisconsin real property located at 108 West Layton, Milwaukee ("property"), and calculated his income tax due as $6,601. No tax payment accompanied the tax return.
13. Under date of November 18, 1996, the Department issued an assessment for the $6,601, plus interest and a late filing fee, all totaling $8,734.13 ("1994 assessment"). Petitioner appealed the assessment on the grounds that he signed the income tax return under duress and that he did not obtain actual or constructive receipt of the $97,000.
14. On December 29, 1994, petitioner appeared in the United States District Court for the Eastern District of Wisconsin. He pled guilty and was adjudged guilty on one count of conspiracy to defraud the United States by impeding the functions of the Internal Revenue Service ("IRS") to determine petitioner's federal income tax due for tax years 1987 through 1990.
15. On April 5, 1995, that court sentenced petitioner to five months imprisonment followed by three years of supervised release, the first five months of which were to be served by home confinement with electronic monitoring. Petitioner was also directed to cooperate fully with the IRS in amending his 1984 and 1985 income tax returns and in filing all outstanding delinquent returns beginning with 1986. This had to be done by April 30, 1996 to avoid incarceration.
16. Petitioner claimed that he didn't have sufficient time or the necessary records to prepare the amended and original income tax returns, so he accepted and signed the returns prepared by the IRS so he would not be incarcerated. He characterized this as signing under "duress".
17. Petitioner further claimed that he received no money from the sale of the Layton Street property and that he had spent, without reimbursement, between $70,000 and $80,000 to improve the property. No documents or other testimony were offered to substantiate these claims.
CONCLUSIONS OF LAW
1. Petitioner did not meet his burden of proof to show that for tax year 1984 he was not a Wisconsin resident. He was a Wisconsin resident in 1984.
2. Petitioner failed to meet his burden of proof to overcome the presumptive correctness of the Department's assessment for tax year 1994.
3. Petitioner did not sign his 1994 income tax return under duress.
Assessment for 1984: Residence
A person's residence is central in determining how much, if any, Wisconsin income tax he or she must pay. Wisconsin Statute § 71.02(1) imposes Wisconsin income tax "on all net incomes ... and must be paid by every natural person residing within the state...." It also imposes Wisconsin's income tax on "every nonresident natural person" on certain income generated in this state.
The standard for determining a person's residence (or domicile)(2) for income tax purposes is found in Baker v. Dept. of Taxation, 246 Wis. 611, 617-618 (1944) as follows:
The determination of a person's domicile or of his choice of domicile involves the adjudication of questions of fact which must be settled by recourse not only to an analysis of the intention to establish a new domicile, but, more significantly, by weighing his overt acts which bear upon his carrying out of that intention so as to ascertain whether or not he had actually abandoned his old domicile. There must be more than an intention to acquire a new or different legal domicile. Until the old domicile has been actually abandoned and an intended new home has been actually and permanently occupied and established elsewhere, the latter cannot be considered the new domicile. ... [Citations omitted]
In the case before us, petitioner expressed that his intention was to change his residence from Wisconsin to Nevada for tax year 1984. His "overt acts which bear upon his carrying out of that intention" must now be examined. Baker, supra.
Factors weighing in favor of petitioner's abandoning his Wisconsin residence and establishing a Nevada residence include his moving to Las Vegas; renting and furnishing an apartment for an unspecified period under a month-to-month lease; not maintaining a home or apartment in Milwaukee in 1984; having five wagering accounts in Las Vegas casinos; and obtaining a Nevada driver's license.
Factors supporting the Department's finding that petitioner retained his Wisconsin residence include his filing a 1984 resident Wisconsin income tax return, including a W-2 form with that return showing a Wisconsin address, work and income; convalescing in Milwaukee after surgery in Nevada in December 1983; and a lengthy recuperation in Wisconsin after follow-up surgery in West Allis, Wisconsin, in 1984.
Petitioner's testimony contained ambiguities as to which years certain testimony and exhibits pertain. For example, it is not clear if petitioner had active checking accounts in Nevada banks in 1984. These ambiguities may be attributed to petitioner's admitted problems with his memory, or they may be selective ambiguities.
Petitioner did not explain why he filed a timely 1984 Wisconsin resident income tax return with a W-2 form evidencing Wisconsin work, wages, and residence. This poses the most troubling contradiction to his assertion of change of Nevada residency.
On August 11 and November 8, 1984, petitioner received traffic citations in Greenfield and Fond du Lac, Wisconsin. Petitioner's testimony explaining these citations was confusing and ambiguous. All that is clear is that petitioner was in Wisconsin on those August and November 1984 dates.
For these reasons, we conclude that petitioner has not substantiated his assertion that he had abandoned his Wisconsin residence and was a Nevada resident in 1984.
The 1996 Agreement
Petitioner and the Department entered into an Agreement in June 1996. A portion reads "the Department shall not require Taxpayer to file Wisconsin income tax returns prior to the 1992 calendar tax year." Petitioner claims that this language precludes the Department from issuing its 1984 assessment. However, the Department did not require petitioner to file a 1984 return. Petitioner voluntarily filed his original 1984 Wisconsin return in 1985 and his amended 1984 Wisconsin return in 1996. The Department's assessment for tax year 1984 did not violate the Agreement.
The 1994 Assessment: Capital Gain
Courts commonly recognize that when a Department assessment is disputed, the assessment is presumed to be correct, and the burden of proof is on the taxpayer to show the assessment's error. Woller v. Department of Taxation, 35 Wis. 2d 227 (1976); Department of Taxation v. O.H. Kindt Mfg. Co., 13 Wis. 2d 258 (1961).
In petitioner's 1994 Wisconsin income tax return, he listed as Wisconsin income a $97,000 capital gain from the sale of property located at 108 West Layton, Milwaukee. He calculated the tax as $6,601 but did not remit it with the tax return.
The Department's 1994 assessment merely billed petitioner for the admitted $6,601 tax due, plus statutory interest and a late filing fee. Petitioner now denies that he owes the tax, interest, and fee.
Petitioner argues that he did not own the property when it was sold and that he received no money from the sale. Recorded deeds or other documents might have proven petitioner's testimony. However, petitioner offered no documents or corroborating evidence to show who owned the property in 1994 and, thus, did not substantiate his testimony.
Petitioner also testified that he signed the 1994 income tax return in 1996 under duress. On April 5, 1995, as part of a plea bargain, the United States District Court for the Eastern District of Wisconsin ordered petitioner to cooperate fully with the IRS in filing outstanding delinquent income tax returns, including the one for 1994. Petitioner testified that he had no documentation for that tax year, nor did he have the time to prepare the tax return. For that reason, he saw his alternatives as (A) to sign the tax return the IRS had prepared with the information it had or (B) imprisonment. So, he claims, he signed the tax return "under duress".
The Commission rejects this argument. If the terms of this plea bargain were voidable by reason of duress, then no plea bargain could be enforceable. At that time, petitioner was represented by legal counsel, who could have acted to get a postponement or meet with the IRS and present whatever evidence petitioner may have had. The Commission holds that the argument of "duress" is unreasonable under the circumstances and rejects it.
Petitioner also asserts that he did not receive any portion of the $97,000 reported on the tax return. He presented no documentary evidence or knowledgeable people to testify to the transaction to substantiate his assertion. The Commission rejects it.
This Commission notes the peculiar nature of this case, in that petitioner now denies information contained on two income tax returns which he voluntarily signed and submitted. Above each signature line was a statement that the taxpayer declared, "Under penalties of law," that the return and attachments "are true, correct, and complete to the best of ... [his] knowledge and belief." Petitioner has not proven errors in those submissions, nor has he met his burden of proof to overcome the presumptive correctness of the Department's assessments based on them.
The Department's actions on petitioner's two petitions for redetermination are affirmed.
Dated at Madison, Wisconsin, this 21st day of June, 2000.
WISCONSIN TAX APPEALS COMMISSION
Mark E. Musolf, Chairperson
Don M. Millis, Commissioner
Thomas M. Boykoff, Commissioner
ATTACHMENT: "NOTICE OF APPEAL INFORMATION"
1 The tax return in the record is not signed by petitioner or dated. Attached to it, however, is petitioner's 1994 federal income tax return, which is signed and dated March 29, 1996. The state tax return may have been signed, dated, and filed at that time. In addition, from petitioner's testimony, it appears to have been filed with the amended state return filed for 1984 and the tax returns filed from 1986 through 1990.
2 In Estate of Daniels, 53 Wis. 2d 611, 614 (1972), the Supreme Court suggests that "residence" and "domicile" may represent two different concepts. However, § 71.02(1) uses the terms interchangeably. Cf. Marion George, personal representative of the estate of Konstantine George, and Marion George v. Wisconsin Department of Revenue, Case No. 97-CV-1645 (Dane Co. Cir. Ct. 1997).