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STATE OF WISCONSIN

TAX APPEALS COMMISSION


MICHAEL A. AND KIM I. BASTIAN

8125 Warren Avenue

Wauwatosa, WI 53213,

Petitioners,

vs.

WISCONSIN DEPARTMENT OF REVENUE

P.O. Box 8907

Madison, WI 53708-8907,

Respondent.

DOCKET NO. 04-I-160

DECISION AND ORDER


DIANE E. NORMAN, COMMISSIONER:

This matter came before the Commission for a hearing on July 19, 2005. Petitioners, Michael A. and Kim I. Bastian ("petitioners"), appeared in person and were represented by Attorney Don G. DiDio. Respondent, Wisconsin Department of Revenue ("Department"), was represented by Attorney Michael J. Buchanan. The parties presented testimony, evidence, and briefs in this matter.

Having considered the entire record before it, the Commission finds, concludes, and orders as follows:

FACTS

1. For the years 1997, 1998, 1999, and 2000 ("the period under review"), petitioners were residents of the State of Wisconsin.

2. During the period under review, petitioner Michael A. Bastian was the sole proprietor of a commercial janitorial service. Petitioner Kim I. Bastian was not employed outside of the home except for the last year of the period under review, 2000, when she worked part-time at a dental office and earned $3,498 in wages.

3. Petitioners lived in their home in Wauwatosa[1] during the period under review with their three dependent children.

4. Mr. Bastian's parents live next door to petitioners. Mr. Bastian's parents aided petitioners financially during the period under review. There are no records to show the amount of the financial help given by the parents. Mr. Bastian's parents testified that they gave petitioners financial help during the period under review, but, except for one example, could not give specific amounts of that financial aid. The one specific example of financial aid was vague and unreliable. Mr. Bastian's father testified that he gave a one-time cash payment of $17,000 to petitioners, but could not recall the date of the payment except to say that it occurred during the period under review.

5. When the Department began an audit of petitioners' income tax returns for the period under review, a Department field auditor requested to meet with petitioners. The auditor also requested that petitioners bring their records for the period under review to meet with her. Mr. Bastian met with the field auditor, but only brought bank account statements for the year 1999.

6. The Department field auditor mailed a cost-of-living expense form to petitioners on two occasions for petitioners to complete, but petitioners never returned the form to the field auditor.


7. Because petitioners did not provide any additional information to the Department field auditor, she estimated petitioners' income for the period under review using the cash expenditure method of income reconstruction. She used petitioners' 1999 checking account statements to determine annual income and applied this income to all 4 years of the period under review. For this method of income reconstruction, the field auditor assumed entertainment expenses for a family with 3 children and assumed that they paid their own health insurance. The field auditor did not have any 1099 forms from any of Mr. Bastian's clients for this income reconstruction.

8. Under the date of July 12, 2002, the Department issued an income tax assessment against petitioners for the period under review in the amount of $13,562.69 of income tax, interest of $4,813.83, and 25% penalty of $3,390.67, for a total of $21,767.19.

9. On September 10, 2002, petitioners filed a timely petition for redetermination with the Department objecting to the assessment.

10. Mr. Bastian met with a Department resolution officer on two occasions. Mr. Bastian admitted to the resolution officer that he did not keep records for his business and that he occasionally used cash to conduct business. The resolution officer recomputed petitioners' living expenses based upon information from Mr. Bastian, and Mr. Bastian agreed to these changes. The changes in the living expenses reflected that petitioners did not pay for health insurance.

11. Under the date of April 19, 2004, the Department issued a Notice of Action letter denying the petition for redetermination. As a result of the adjustments made by the resolution officer, this notice reflected a downward adjustment in the amount owed for the period under review of income tax of $13,503.80, interest of $7,656.71, and 25% penalty of $3,375.95, for a total of $24,536.46.

12. Petitioner filed a timely petition for review with the Commission on June 21, 2004.

13. At the hearing held on July 19, 2005, petitioners failed to offer any facts, books, records, or other documentary evidence to show in what respect the Department erred in its determination of additional income taxes.

CONCLUSION OF LAW AND OPINION

Assessments made by the Department are presumed to be correct, and the burden is upon the petitioner to prove by clear and satisfactory evidence in what respects the Department erred in its determination. Wis. Stat. 77.59(1); Edwin J. Puissant, Jr. v. Dep't of Revenue, Wis. Tax Rptr. (CCH) ¶ 202-401 (WTAC 1984). Tax exemptions, deductions, and privileges are matters of legislative grace and will be strictly construed against the taxpayer. Fall River Canning Co. v. Dep't of Taxation, 3 Wis. 2d 632, 637, 89 N.W.2d 203 (1958).

Petitioners have not presented any evidence or legal argument challenging the Department's assessment. Indeed, petitioners' entire defense at hearing was their assertion that they received funds from Mr. Bastian's parents for their living expenses. This assertion, with only vague testimony and no documentation to substantiate it and no authority demonstrating that it represents a valid legal defense, is insufficient to rebut the presumption of correctness attendant to the Department's assessments. Because petitioners have not shown any facts or authority that would entitle them to the relief they seek from this Commission, we are compelled to uphold the Department's assessment in this matter.

ORDER

The Department's action on petitioners' petition for redetermination is affirmed.

Dated at Madison, Wisconsin, this 12th day of January, 2006.

WISCONSIN TAX APPEALS COMMISSION

Jennifer E. Nashold, Chairperson

Diane E. Norman, Commissioner

David C. Swanson, Commissioner

ATTACHMENT: NOTICE OF APPEAL INFORMATION;

February 15, 2006 Petition for rehearing denied pursuant to Wis. Stat. s.227.49(3)


[1] Petitioners purchased their home approximately 20 years ago in Wauwatosa, Wisconsin, for $65,000. Its current value is about $200,000.