STATE OF WISCONSIN
TAX APPEALS COMMISSION
ALFRED C. WILLIAMS III
130 W. Pleasant Avenue
Tomahawk, WI 54487
RUTH E. WILLIAMS
1917 12th Street
Fennimore, WI 53809,
WISCONSIN DEPARTMENT OF REVENUE
P.O. Box 8907
Madison, WI 53708,
|DOCKET NO. 00-I-209|
DECISION AND ORDER
THOMAS M. BOYKOFF, COMMISSIONER:
These cases were heard in Madison, Wisconsin, on April 20, 2001. Petitioner Ruth E. Williams ("Ms. Williams") appears pro se, as does petitioner Alfred C. Williams ("Mr. Williams"). Attorney Veronica Folstad represents the respondent Wisconsin Department of Revenue ("Department").
Having considered the entire record and the briefs of the parties, the Commission finds, concludes, and orders as follows:
FINDINGS OF FACT
1. Under date of February 21, 2000, the Department issued two income tax assessments to Ms. Williams. One, for $2,074.89, covered tax year 1993, and the other, for $6,047.34, covered tax years 1994 and 1995.
2. Under date of March 29, 2000, Ms. Williams filed a petition for redetermination of the assessments with the Department which, under date of August 28, 2000, the Department denied.
3. Ms. Williams then filed timely petitions for review with the Commission.
4. Also under date of February 21, 2000, the Department issued an income tax assessment to Mr. Williams for $2,647.59 for tax year 1993.(1)
5. Under date of March 19, 2000, Mr. Williams filed a petition for redetermination with the Department which, under date of August 28, 2000, the Department denied.
6. Mr. Williams then filed a timely petition for review with the Commission.
7. Ms. Williams and Mr. Williams were divorced from each other in 1993. Both parties were represented by attorneys. The court hearing was held on January 25, 1993, and the divorce was effective on that date, although the judge signed the judgment on April 12, 1993.
8. Among other things, the divorce judgment required Mr. Williams to pay Ms. Williams "$1,800 per month as family support payments for the support and maintenance of the minor children . . . and Ruth E. Williams for a period of three (3) years, at which time the matter shall be reviewed . . . . The family support payments shall terminate earlier upon the death of either party, or the remarriage of [Ms. Williams], or as otherwise provided by statute or case law." ("Findings of Fact, Conclusions of Law, and Judgment," Portage County Circuit Court, Branch 1, April 12, 1993, p. 7.)
9. As required, Mr. Williams made payments to Ms. Williams. He deducted these payments from his federal and Wisconsin income tax returns as alimony for each year under review.
10. Ms. Williams did not include the payments from Mr. Williams as income on her federal and Wisconsin income tax returns for 1994 and 1995(2) and did not pay income tax on them.
11. At the January 25, 1993 divorce hearing, the presiding judge and Ms. Williams' attorney told her that she must pay income tax on these payments. When H& R Block employees prepared her 1994 and 1995 income tax returns, they told Ms. Williams that the payments she received were income taxable to her. They would not prepare her income tax returns without including the payments as income unless Ms. Williams signed a waiver of any liability on their behalf in the event she was audited for this item. Ms. Williams signed waivers for her 1994 and 1995 income tax returns.
12. At the Commission's April 20, 2001 trial, Ms. Williams testified to the effect that she telephoned the Department's hotline and spoke with Department auditor/customer service representative Russell J. Niesen ("Mr. Niesen"); that she asked Mr. Niesen if she had to pay income tax on family maintenance/family support as stated in the divorce decree; that Mr. Niesen asked if the divorce decree used the terms "child support" or "alimony"; that she read the decree carefully and answered "no"; and that Mr. Niesen then told her she does not have to pay income tax on family maintenance or family support. (Transcript, p. 10.) Ms. Williams relied upon this advice in not filing an income tax return for 1993 and for not including payments from Mr. Williams in her 1994 and 1995 federal and Wisconsin income tax returns.(3)
13. Ms. Williams did not rely on the opinions of the judge or her attorney because she believed they were experts in law, not in tax. She also did not take the advice of H&R Block because she believed that what Mr. Niesen told her on behalf of the Department was correct.
14. A significant factor in Mr. Williams' willingness to make the large $1,800 per month payments was that they were structured to be deductible from his income. His attorney and accountant structured the economics of the divorce in this way with Ms. Williams' attorney and accountant.
15. Ms. Williams' 1994 and 1995 federal income tax returns were audited by the Internal Revenue Service ("IRS") in 1997. The IRS added Mr. Williams' payments to Ms. Williams' income for those years and assessed income tax, penalties, and interest. Ms. Williams brought the papers to her accountant and asked what to do. He told her to pay them, so she did.
16. In 1999, when Ms. Williams received a letter from the Department requesting information about her 1993 to 1996 returns, she telephoned Mr. Niesen and asked if he remembered their prior conversation. He said he did not.(4) However, he suggested how she might try recovering the IRS penalty which she had paid. She followed his suggestion, and the penalty was refunded to her.
Is the Department estopped from collecting its assessments from Ms. Williams on the basis of the information she received from Mr. Niesen in December 1992 or on January 25, 1993?(5)
The sole issue before the Commission is whether the Department is estopped from collecting its assessments issued to Ms. Williams.
In Department of Revenue v. Moebius Printing Co., 89 Wis. 2d 610, 279 N.W.2d 213 (1979), the Wisconsin Supreme Court identified the factors which must be proven to find estoppel. The Court restated the following elements which must be proven to find estoppel against a non-government person (Id. at 634):
In Kohlenberg v. American Plumbing Supply Co., 82 Wis.2d 384, 396, 263 N.W.2d 496 (1978), we stated that the follow-ing factors must be present for this court to find estoppel in a case involving a non-governmental agency:
". . . The defense of equitable estoppel consists of action or non-action which, on the part of one against whom estoppel is asserted, induces reliance thereon by the other, either in action or non-action, which is to his detriment. Chicago & Northwestern Transportation Co. v. Thoreson Food Products, Inc., 71 Wis.2d 143, 153, 238 N.W.2d 69 (1976). It is elementary, however, that the reliance on the words or conduct of the other must be reasonable (Chicago & Northwestern Transportation Co. v. Thoreson Food Products, Inc., supra at 154) and justifiable (Matter of Alexander's Estate, 75 Wis.2d 168, 183-84, 248 N.W.2d 475 (1977))." (Emphasis added.)
The Court also recognized the holding in Libby, McNeil & Libby v. Dept. of Taxation, 260 Wis. 551, 559, that "the doctrine of estoppel is not applied as freely against governmental agencies as it is in the case of private persons." Moebius, 89 Wis. 2d at 638. The Court also stated that "where a party seeks to estop the Department of Revenue and the elements of estoppel are clearly present, the estoppel doctrine is applicable where it would be unconscionable to allow the state to revise an earlier position." Moebius, 89 Wis. 2d at 641.
Each element of the doctrine of estoppel is applied below to the case before the Commission.
1. Action or non-action. The action of the Department upon which Ms. Williams relied was the statement which Mr. Niesen made to her over the telephone. While we conclude that some version of the telephone discussion occurred, three concerns are raised by her testimony.
First, Ms. Williams was uncertain of when she spoke with Mr. Niesen. She initially testified that the date was January 25, 1993, after the court hearing on her divorce. (Transcript, pp. 9-10.) She later testified that "it probably was January 25th, the day of the divorce." (Emphasis added; Transcript, p. 66.) She also testified, in one of her exhibits, that "it was probably in December because it was dark, and it was very cold. . . . The date, the time, was not important to me." (Emphasis added; Transcript, p. 67.) She also testified that it may have been in December 1992. (Transcript, pp. 71-72.)
Second, Ms. Williams took no contemporaneous notes of the telephone conversation upon which she relies. She only had "a slip of paper [on which] I wrote his [Mr. Niesen's] name." (Transcript, pp. 67-68.)
Third, Ms. Williams related the discussion she had with Mr. Niesen several times. Each time, she quotes what he and she said, but each time the quotes are worded differently. (See, e.g., Transcript, p. 10, and Exhibit R, p. 2.) When asked about this, she testified "I can't say it's exactly verbatim. But this is . . . the basic idea of what was said." (Transcript, p. 123.)
2. The action induces reliance. Ms. Williams clearly relied upon the answer she received from the Department in 1992 or 1993. She did so by not including payments under a divorce judgment in her income subject to the Wisconsin income tax.
3. The reliance must be to the person's detriment. Ms. Williams' reliance on what she heard led to her failure to report payments from Mr. Williams on her income tax returns. This led to an assessment against her for the tax that was not paid on the payments, plus interest. With regard to the tax assessed, Ms. Williams' reliance was not to her detriment. As a result of Ms. Williams' reliance, she must now pay the tax that she owed in the first place. This does not constitute a detriment. Laabs v. Tax Comm., 218 Wis. 414, 422 (1935) ("To compel him to pay a tax which . . . the state was entitled to collect, does not seem to us to produce injustice or undue hardship."). Detriment in equitable estoppel cases typically occurs where the taxpayer fails to withhold or collect a tax based on action/inaction by the Department and then the Department assesses the taxpayer for the tax that was not withheld or collected. Thus, reliance on the Department's action/inaction that led to a failure to collect sales tax resulted in a detriment when the Department sought to collect sales tax from a retailer who had not collected sales tax from its customers. See, Department of Revenue v. Family Hospital, Inc., 105 Wis. 2d 250, 255 (1982); Moebius, 89 Wis. 2d at 637. In another case, detriment was the result because of reliance on action/inaction that led a corporation to not withhold tax on dividends that was subsequently sought by the Department. Libby, McNeill & Libby, 260 Wis. at 556.
The only possible hardship is that Ms. Williams will now have to pay interest to the Department on her use of the funds, and this interest may be more than what she might have reasonably expected during the years she had use of the funds. We cannot conclude that Ms. Williams will experience a detriment by paying the interest assessed, because Ms. Williams has not offered evidence that the interest she will pay is "wholly unrelated to the fair value of the use of the money." See, Laabs, 218 Wis. at 422-23.
4. The reliance must be reasonable. At the final divorce court proceeding, Ms. Williams was told by the judge and by her attorney that the amounts Mr. Williams would pay her were taxable. Her attorney and accountant had structured the economic aspects of the divorce so that the large payments by Mr. Williams were taxable to Ms. Williams and deductible by Mr. Williams. At the divorce proceeding, Ms. Williams discussed the final divorce judgment with her attorney, who told her the payments she would receive would be taxable.(6) In addition, she testified that she heard that "advice given over the [Department's] hotline is not always 100% true." (Transcript, p.
59.) In the face of this information, her reliance was not reasonable.
Ms. Williams testified that when she telephoned the Department and spoke with Mr. Niesen, she did not recall whether she told him that she received contrary conclusions from her attorney and the divorce court judge. Her explanation was that attorneys are experts in law, not in tax, while the Department's personnel are experts in tax.(7) In light of the opinions she received which contradicted Mr. Niesen's statement, and in light of her testimony that the Department's hotline is not always correct, her reliance on Mr. Niesen's statements is unreasonable.
Ms. Williams, however, clearly recalled what Mr. Niesen told her when she related it to H&R Block personnel, who disagreed. She went so far as to sign a document absolving H&R Block from any potential liability if this issue were audited and decided against her.
Ms. Williams' tenacious reliance on what she heard from Mr. Niesen is not reasonable. With contradictory opinions from a divorce court judge, her own attorney, and H&R Block personnel (presumably experts in tax), a reasonable person would at least have sought clarification from Mr. Niesen. Assuming that her recollection is correct, Ms. Williams appeared to intentionally ignore serious doubts about the correctness of this advice.
We conclude with the following words of Ms. Williams: "it is not impossible to make a mistake. We are all human." (Transcript, p. 59.) Ms. Williams is human and, in our opinion, has made a mistake. The record does not support Ms. Williams' defense of equitable estoppel.
Because of our conclusion that the general estoppel doctrine is not a valid defense in this case, we do not examine the facts here before the Commission against the higher standard of proving estoppel against the state.
1. The Department's actions on Ms. Williams' petitions for redetermination are affirmed.
2. The Department's action on Mr. Williams' petition for redetermination is reversed.
Dated at Madison, Wisconsin, this 29th day of November, 2001.
WISCONSIN TAX APPEALS COMMISSION
Don M. Millis, Acting Chairperson
Thomas M. Boykoff, Commissioner
ATTACHMENT: "NOTICE OF APPEAL INFORMATION"
1 The assessment for 1993 was issued as an assessment in the alternative under Wis. Stat. § 71.74(9), along with the 1993 assessment to Ms. Williams. Only one of these two assessments will be determined to be payable. Nothing in the record indicates that Mr. Williams was sent an assessment in the alternative by the Department covering tax years 1994 and 1995.
3 Ms. Williams did not take any contemporaneous notes of the discussion, other than writing down Mr. Niesen's name. The record contains contradictions on the date of this telephone conversation. Ms. Williams stated that her telephone call to Mr. Niesen could have been made in December 1992 or on January 25, 1993. (Transcript, p. 67, and Attachment L, p. 1 to Ms. Williams' petitions for review.) However, we conclude that the discussion took place as generally described.
6 On cross-examination, Ms. Williams was evasive and vague. She also testified that she forgot many things, such as when she employed her lawyer and whether she discussed the specifics of his negotiations with him. She testified, however, that her attorney knew of her economic circumstances and told her the payments are taxable. The Commissioner who conducted the trial in this case believes that Ms. Williams' evasive testimony and selective recollection weakened her credibility.
7 It is perhaps ironic that the Commissioners who decide this case are lawyers with extensive knowledge of tax law. We also note that when two experts in income tax law (Mr. Niesen and H&R Block personnel) disagreed, Ms. Williams followed the opinion that benefited her, without seeking clarification or verification from Mr. Niesen.