STATE OF WISCONSIN
TAX APPEALS COMMISSION
ALAN AND CAROL HANSIS
W12109 County Road GG
Hancock, WI 54943,
WISCONSIN DEPARTMENT OF REVENUE
P.O. Box 8907
Madison, WI 53708,
|00-I-182 and 00-I-183
DECISION AND ORDER
DON M. MILLIS, COMMISSIONER:
This matter comes before the Commission on stipulated facts. Both parties have submitted briefs in support of their position. Petitioners represent themselves. Attorney Robert C. Stellick, Jr., represents respondent.
FINDINGS OF FACT
The Commission adopts the following facts based on the facts and exhibits stipulated by the parties:
Mr. Hansis' Service History
1. Petitioner Alan Hansis became a member of the Milwaukee Teachers Retirement System ("MTRS") in 1961.
2. Mr. Hansis requested withdrawal of, and was subsequently paid, his entire monetary contributions to the MTRS in 1966. The withdrawal application signed by Mr. Hansis stated that payments by the MTRS "shall constitute a full and complete discharge and release of all right, interest or claim on my part to state deposit accumulations which accrued while a member of said FUND."
3. Mr. Hansis became a member of the State Teachers Retirement System ("STRS") in 1966.
4. In 1995, Mr. Hansis purchased 6 years of forfeited MTRS service.
5. In 1998, pursuant to the Wisconsin Court of Appeals decision in Benson v. Gates, 188 Wis. 2d 389 (Ct. App. 1994), the Department of Employe Trust Funds ("DETF") added the 6 years of forfeited MTRS service to Mr. Hansis' total creditable service.
Mrs. Hansis' Service History
6. Petitioner Carol Hansis first became a member of the MTRS in 1960.
7. Mrs. Hansis requested withdrawal of, and was subsequently paid, her entire monetary contributions to the MTRS in 1965. The withdrawal application signed by Mrs. Hansis stated that payments by the MTRS "shall constitute a full and complete discharge and release of all right, interest or claim on my part to state deposit accumulations which accrued while a member of said FUND."
8. Mrs. Hansis joined the Wisconsin Retirement System ("WRS") as a school psychologist in 1972.
9. In 1998, DETF added 2 years of forfeited MTRS service to Mrs. Hansis' total creditable service pursuant to the Benson decision, supra.
10. On their 1998 Wisconsin income tax return, petitioners subtracted $71,425 from their federal adjusted gross income. This amount represented the sum of retirement benefits paid to Mr. Hansis ($50,448) and Mrs. Hansis ($20,977) by the WRS in 1998.
11. Respondent issued a refund based on petitioners' 1998 return.
12. Under the date of July 1, 1999, petitioners filed amended Wisconsin income tax returns for 1995, 1996, and 1997, subtracting retirement benefits paid by the WRS to Mr. Hansis in the amounts of $11,957, $41,484, and $44,967, respectively.
13. Respondent issued refunds based on the amended returns for 1995 and 1996, but not 1997.
14. Under the date of January 10, 2000, respondent issued an assessment reversing the refunds issued for 1995, 1996, and 1998, and denying a refund for 1997.
15. Petitioners filed a timely petition for redetermination that was denied by respondent. Petitioners each filed a timely petition for review with the Commission.
71.05 Income computation.
(1) EXEMPT AND EXCLUDABLE INCOME. There shall be exempt from taxation under this subchapter the following:
(a) Retirement systems. All payments received from . . . the public employe trust fund as successor to the Milwaukee public school teachers' annuity and retirement fund and to the Wisconsin state teachers retirement system, which are paid on the account of any person who was a member of the paying or predecessor system or fund as of December 31, 1963, but such exemption shall not exclude from gross income tax sheltered annuity benefits. [Emphasis supplied.]
CONCLUSION OF LAW
The retirement benefits paid to petitioners are not exempt from the Wisconsin income tax because they were not paid on the accounts of persons who were members of an eligible retirement system as of December 31, 1963.
This case is governed by two prior Commission decisions: Connor v. Dep't of Revenue, 1995 Wisc. Tax LEXIS 41 (WTAC 1995), and Groschel v. Dep't of Revenue, 1996 Wisc. Tax LEXIS 34 (WTAC 1996). In Groschel, the taxpayer was a member of an eligible retirement system on December 31, 1963, but subsequent to that date the taxpayer withdrew his contributions to his retirement system. Groschel, at 2. Before the taxpayer in Groschel retired, he repurchased his forfeited years of creditable service. Id. at 3.
The Commission concluded that, while the taxpayer had been a member of an eligible retirement system on December 31, 1963, the benefits for which he sought the tax exemption were not paid on the taxpayer's account that existed on December 31, 1963. Id. at 7. Upon withdrawal of the taxpayer's funds, the account no longer contained any assets upon which retirement benefits could be based, a fact confirmed by the taxpayer's repurchase of forfeited service. Because nothing remained in the taxpayer's account, the benefits he received were not "paid on the account of any person who was a member of [an eligible fund] as of December 31, 1963."
Likewise in this case, each petitioner withdrew all of the assets that remained in each of their accounts subsequent to December 31, 1963. There was nothing remaining in the accounts to which petitioners had a right.
In both Groschel and Connor, the taxpayer repurchased years of forfeited service. Groschel, at 2; Connor, at 4. In these cases, the Commission held that the mere repurchase of forfeited service did not make the taxpayer a member of an eligible system as of December 31, 1963 (Connor, at 11) and did not reinstate a member's credit in his retirement depository (Groschel, at 7). In the instant case, the repurchase of petitioners' forfeited credit does not mean that petitioners' retirement benefits were paid on the account of a member as of December 31, 1963.
Petitioners argue that the Commission's holdings in Connor and Groschel are inconsistent with the Wisconsin Supreme Court's decision in Schmidt v. Wisconsin Employe Trust Funds Board, 153 Wis. 2d 35 (1990), and the Court of Appeals' decision in Benson v. Gates. With regard to the Schmidt decision, we cannot better address this argument than by quoting from our Connor decision:
In 1965, the Legislature created the formula group, members of which could receive benefits under a defined benefit plan. Ch. 250, Laws of 1965, § 5; § 42.244-245, Stats. (1965-66). This plan based annuities, in part, on a formula that utilized: (1) years of creditable service, (2) final average compensation, (3) a formula factor, and (4) a measure of social security benefits. § 42.245(2)(b)2.a., Stats. (1965-66). This change, for the first time, introduced to the STRS the concept of "years of creditable service." § 42.245(1), Stats. (1965-66).
All persons who became members of the STRS after November 30, 1965 were required to be members of the formula group. § 42.244(1)(d), Stats. (1965-66). Members of the combined group(1) of the STRS prior to that date had the option of electing to join the formula group. § 42.244(1)(a) and (c), Stats. (1965-66). In order to accommodate the con-version of combined group members into the formula group, the statute had to allow for the conversion of years of service prior to the effective date of the formula group into years of creditable service. Thus, § 42.245(1)(a), Stats. (1965-66), provided that the "creditable service of each member any time prior to July 1, 1966, shall be the number of years of service as a teacher in Wisconsin teaching (including prior service) . . . ." However, § 42.245(1)(c), Stats. (1965-66), provided that "[c]reditable service for Wisconsin teaching prior to the effective date of this paragraph shall be reduced by the one-half of any period included therein with respect to which the required deposits of a member have been withdrawn . . . "
The plaintiff in the Schmidt case was a teacher and member of the STRS from 1957 until 1963, when he left public employment and withdrew his member's deposit. Schmidt, 153 Wis. 2d at 37-38. In the course of his withdrawal, the plaintiff signed a waiver of his rights to the state deposit accumulation much the same as Mr. Connor had. Id. at 38. The plaintiff returned to public employment in 1964, and, after the enactment of Chapter 250 of the Laws of 1965, he opted to join the formula group. Id. at 38-39.
The Wisconsin Supreme Court held that, while the plaintiff had waived his right to money which accumulated in his retirement fund through state deposits, the plain language of § 42.245(1)(a) and (c), Stats., grants creditable service to the plaintiff, notwithstanding the withdrawal of his members accumulation. Id. at 46, 49.
In Connor, we pointed out that the enactment of section 42.245 of the 1965-66 Statutes merely granted to the taxpayer credit under the formula group for his prior service in the STRS. Connor, at 14. It did not reinstate his credit in the STRS depository. In fact, the Supreme Court in Schmidt held that the statute did not reinstate any right to state money the taxpayer forfeited when he withdrew his accumulation. Schmidt, 153 Wis. 2d at 49.
Here, each petitioner was able to receive a benefit based on section 38.24(7a) of the 1965-66 Statutes, which has been construed to have the same effect as section 42.245. The enactment of this statute did not reinstate their forfeited retirement accumulations. Thus, the Commission's decisions in Connor and Groschel are not inconsistent with the holding in Schmidt.
The Benson decision is likewise of no assistance to petitioners. Benson merely dealt with the statute of limitations for persons challenging the denial of their creditable service granted under section 42.245. Prior to Benson, DETF determined that the statute of limitations for claiming the benefits granted by section 42.245 was when the beneficiary first has notice that DETF has failed to grant such credit. The Court of Appeals held that the statute of limitations commences on the date DETF calculates and pays retirement benefits to the beneficiary. Benson, 188 Wis. 2d at 405. As in Connor, the Benson holding does not affect the taxability of petitioners' retirement benefits.
Finally, petitioners rely on two of respondent's Tax Bulletins to buttress their position. In Tax Bulletins 76 and 98, respondent took the position that retirement benefits would be exempt if paid to persons who withdrew their retirement accumulations from the STRS prior to January 1, 1964 and later became members of the STRS. (In Tax Bulletin 118, respondent revoked these tax releases following the Commission's decisions in Connor and Groschel.)
The mere fact that respondent incorrectly construed the law does not assist petitioners. Rather, in order for respondent to be bound by the faulty advice it provided, three elements must be shown: (1) action/non-action by respondent (2) that induces reasonable reliance by the taxpayer (3) to the taxpayer's detriment. Department of Revenue v. Moebius Printing Co., 89 Wis. 2d 610, 634 (1979). The second element is clearly not available in this case. The advice in both releases referred to members of the STRS who withdrew their retirement accumulations prior to January 1, 1964. Neither petitioner was a member of the STRS when they withdrew their retirement accumulations, and each withdrawal was after January 1, 1964.
Respondent's action on the petition for redetermination is affirmed.
Dated at Madison, Wisconsin, this 14th day of June, 2001.
WISCONSIN TAX APPEALS COMMISSION
Mark E. Musolf, Chairperson
Don M. Millis, Commissioner
Thomas M. Boykoff, Commissioner
ATTACHMENT: "NOTICE OF APPEAL INFORMATION"