STATE OF WISCONSIN
TAX APPEALS COMMISSION
ROBERT RUFFIN AND SELINA GONZALES,
WISCONSIN DEPARTMENT OF REVENUE,
|DOCKET NO. 10-I-056
DECISION AND ORDER
ROGER W. LEGRAND, COMMISSIONER:
This matter comes before the Commission on a Motion for Summary Judgment filed by Respondent's representative, Attorney Axel F. Candelaria Rivera of the Wisconsin Department of Revenue (the "Department.") Petitioners, Robert Ruffin and Selina Gonzales, were represented by Mr. Larry C. Smith, who holds himself out as a tax accountant/paralegal. This matter was originally scheduled for trial on December 16, 2010. All parties were present for trial on that date; however, the Commission adjourned the trial to allow Respondent's representative adequate time to evaluate a number of manila envelopes containing evidence in the form of receipts which Petitioners produced for the first time at the trial. The Commission allowed Petitioners to provide additional evidence until January 7, 2011. After that date, the Respondent filed a Motion for Summary Judgment and both parties filed briefs. Petitioners captioned their brief as a Motion to Quash the Summary Judgment. Based upon all filings of the parties, the Commission finds and orders.
A. Jurisdictional Facts
1. On March 2, 2009, the Department sent a letter to Petitioners notifying them that the Internal Revenue Service ("IRS") had disallowed certain Schedule C expenses for the calendar taxable year 2005. Specifically, the IRS disallowed: (a) $104,856 in car and truck expenses, (b) $88,747 in depreciation and IRC § 179 expenses, (c) $8,762 in travel expenses, and (d) $4,911 in meals and entertainment expenses. (Micah J. Holt Affidavit, "Holt Aff.," Par. 2, Exh. 1.)
2. In the same letter, the Department asked the Petitioners to substantiate their 2004 claims of: (a) $60,694 in car and truck expenses, and (b) $24,405 in depreciation and § 179 expenses. (Holt Aff., Par. 3, Exh. 1.)
3. A Notice of Amount Due was issued to Petitioners by the Department on September 8, 2009, since they failed to respond to the March 2, 2009 letter. (Holt Aff., Par. 4, Exh. 2.)
4. On November 5, 2009, the Department received the Petitioners' Petition for Redetermination. The Petition for Redetermination stated in relevant part, "See attached supporting document with this fax." However, the Petition for Redetermination contained no documentation substantiating the disallowed 2004 and 2005 Scheduled C expenses. (Holt Aff., Par. 5, Exh. 3.)
5. A letter was issued to Petitioners by the Department dated November 20, 2009, asking Petitioners again to substantiate the disallowed 2004 and 2005 Schedule C expenses. (Holt Aff., Par. 6, Exh. 4.)
6. On January 21, 2010, a Notice of Action was issued to the Petitioners by the Department denying the Petitioners' Petition for Redetermination. (Holt Aff., Par. 7, Exh. 5.)
7. A handwritten Petition for Review was filed by Petitioners on March 22, 2011 and stated, in part, that the Petitioners "will send explanation shortly." However, neither the Commission nor the Department received such explanation or substantiation with respect to the disallowed 2004 and 2005 Schedule C expenses. (Holt Aff., Par. 8, Exh. 6.)
8. On April 9, 2010, the Respondent's Resolution Unit sent another letter to Petitioners requesting they substantiate the disallowed 2004 and 2005 Schedule C expenses. Page two (2) of that letter states, in part, "It's been over one year since the initial audit letter was sent. To date, the [D]epartment has not received any of the requested documentation or specific objections to the adjustments per the November 5, 2009 notice." (Holt Aff., Par. 9, Exh. 7.)
B. Additional Facts
9. On December 16, 2010, the date this matter was scheduled for trial, the Petitioners initially provided to the Department, four (4) stuffed manila envelopes containing receipts and other documentation (hereinafter "documentation.") Upon review, it appeared the documentation was somewhat organized by date in that each envelope had documentation covering a three-to-four-month period. In addition, the documentation in each envelope was fairly consistent. For instance, the documentation had similar combinations of gas receipts, truck maintenance charges, and other document types that substantiated some of the disallowed expenses. There was other documentation irrelevant to the expenses in question for 2004, such as receipts from other years, copies of tax returns, and correspondence from the IRS. (Holt Aff., Par. 11.)
10. In the process of reviewing the four (4) stuffed manila envelopes, the Petitioners provided the Department with a fifth (5th) stuffed manila envelope purporting to substantiate some of the disallowed 2004 Schedule C expenses. The Department found receipts to substantiate some of the disallowed expenses, but also found many irrelevant documents such as correspondence from the IRS, tax returns, schedules, and other document types. (Holt Aff., Par. 12.)
11. On January 7, 2011, the Petitioners submitted additional documentation via electronic mail. (Holt Aff., Par. 13.)
12. Upon review of the total submitted documentation, the Department calculated the total allowable car and truck expenses for 2004 to be $45,500. The Petitioners initially claimed $60,694. Respondent has disallowed $15,194 of the originally reported car and truck expenses. (Holt Aff., Par. 14.)
13. Upon review of the total submitted documentation, the Petitioners did not substantiate what they claimed in depreciation and IRC § 179 expenses. The Petitioners initially claimed $24,405. Respondent has disallowed $24,405. (Holt Aff., Par. 15.)
14. The manila envelopes and additional documentation sent to the Department on January 7, 2011 also produced some substantiation for car and truck expenses for the year 2005.
15. Upon review of the total submitted documentation, the Department calculated the total allowable car and truck expenses for 2005 to be $48,009. The Petitioners initially claimed $104,856. Respondent has disallowed $56,847 of the originally reported car and truck expenses. (Holt Aff., Par. 18.)
16. Upon review of the total submitted documentation, the Petitioners did not substantiate what they claimed in depreciation and IRC § 179 expenses. The Petitioners initially claimed $88,747. Respondent has disallowed $88,747. (Holt Aff., Par. 19.)
17. Upon review of the total submitted documentation, the Petitioners did not substantiate what they claimed in travel expenses. The Petitioners initially claimed $8,762. Respondent is disallowing $8,762. (Holt Aff., Par. 20.)
18. Upon review of the total submitted documentation, the Department calculated that the total allowable meals and entertainment expenses to be $123. The Petitioners initially claimed $4,911. Respondent has disallowed $4,788. (Holt Aff., Par. 21.)
19. The Department also found that not all of the documentation provided by the Petitioners was accepted as substantiating the disallowed 2004 and 2005 Schedule C expenses. Twice the Petitioners submitted (on December 16, 2010, and on January 7, 2011) receipts for years other than 2004 and 2005, receipts that were not legible, receipts and invoices documenting expenses other than the ones under review, unverifiable documentation, and federal tax returns and schedules. (Holt Aff., Par. 22.)
20. In summary, the disallowed Schedule C expenses for 2004 and 2005 are as set forth below:
|2004 Schedule C
|Car and Truck
IRC § 179
|2005 Schedule C
|Car and Truck
IRC § 179
(Holt Aff., Par. 23.)
21. After making all necessary adjustments, the Petitioners' revised computation and summary of additional income, tax, interest & penalty is $24,665.84, with interest at twelve percent (12%) and underpayment interest calculated to March 15, 2011. (Holt Aff., Par. 24, Exh. 8.)
This is a substantiation case. After an audit was completed by the IRS, the Department disallowed several Schedule C expenses of Petitioners for the tax years 2004 and 2005. (Exh. 1.) This resulted in a tax due for the two years of $33,107.44. (Exh. 2.) The Department asked Petitioners to substantiate their vehicle expenses and IRC § 179 expense in a letter dated November 20, 2009. (Exh. 4.) No substantiation was produced. On January 21, 2010, the Department denied a Petition for Redetermination.
The Petitioners then appealed the case to the Commission. The case was set for trial, but Petitioners did not produce any documentation until the day of trial when they produced several manila envelopes full of receipts which they purported was substantiation for the car and truck, including depreciation expenses. (Affidavit of Attorney Axel F. Candelaria, "Candelaria Aff.") The Commission adjourned the trial and Micah Holt, Auditor, and Attorney Axel F. Candelaria, both from the Department, spent the trial date sorting through the material produced by Petitioners. (Candelaria Aff.) Additional documentation was produced by the Petitioners on January 7, 2011.
From these documents, the Department substantiated and allowed $93,632 out of $292,375 expenses claimed for the years 2004 and 2005. This left $198,743 of disallowed expenses. The revised calculation of Petitioners' additional taxes, interest and penalties for the years 2004 and 2005 totaled $24,865.84 as of March 15, 2011. (Exh. 8.) After making these adjustments, Respondent moved for summary judgment. Petitioners moved to quash the summary judgment asking for more time to file additional receipts.
Under Wis. Stat. § 802.08(2), a summary judgment shall be granted if the pleadings, depositions, answers, answers to interrogatories, and admissions on file together with affidavits show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. When a motion for summary judgment is made, the adverse party must set forth specific facts by affidavits or otherwise to show there is a genuine issue for trial. If the adverse party does not respond, summary judgment shall be entered against such party. Wis. Stat. § 802.08(3).
This case was originally set for trial on December 16, 2010. The issues at trial were to have been substantiation of Schedule C car and truck expenses and depreciation expenses for tax years 2004 and 2005, and substantiation of travel expenses, and meal and entertainment expenses for the tax year 2005. Prior to trial, the Commission issued a Scheduling Order Memorandum which ordered the parties to exchange their exhibits and witness lists by November 16, 2010. The Scheduling Order Memorandum specifically stated, "Exhibits not exchanged or designated and witnesses not disclosed in accordance with this order will not be admitted into evidence . . . except by leave of the Commission for good cause shown." In this case, Petitioners brought several manila envelopes full of receipts to the trial. Instead of excluding them as a violation of the Scheduling Order Memorandum, the Commission adjourned the trial and the Department's representative evaluated the receipts with respect to whether they provided substantiation for the various deductions claimed by Petitioners on their 2004 and 2005 tax returns. In addition, Petitioners were given until January 7, 2011, to provide more evidence to the Department and in fact they did so by electronic mail. (Candelaria Aff.) All of this evidence was evaluated by the Department which revised the Computation and Summary of Additional Income Tax, Interest and Penalty to the sum of $24,685.84. (Candelaria Aff.) After this, the Department filed for summary judgment. Petitioners moved to quash the motion claiming that they wanted more time to gather more evidence.
The Commission denies the motion to quash and grants Respondent's Motion for Summary Judgment. Petitioners have had from March 2, 2009 to January 7, 2011 to provide substantiation evidence. After the Petitioners filed their Petition for Review on March 22, 2010, the Respondent asked for substantiation in its Answer. (Exhibit 9.) In a Status Conference Memorandum and Order dated July 19, 2010, and in a Scheduling Conference Memorandum and Order dated October 15, 2010, the Commission ordered that substantiation be provided. Despite these requests and orders, Petitioners failed to provide any substantiation evidence until the day of trial. Although Petitioners did not provide good cause for not complying with the Scheduling Order Memorandum, the Commission accepted the evidence and set a final date of January 7, 2011, for the Petitioners to provide any further evidence. This was more than enough time to produce substantiation evidence. The Department evaluated what evidence the Petitioners produced and issued a revised computation and summary of additional income tax interest and penalties of $24,665.84, which is less than the original assessment of $33,107.44. The summary judgment motion was based on this revised assessment.
Assessments by the Department are presumed to be correct, and the burden is on the Petitioners to prove by clear and satisfactory evidence in what respects the Department erred in its determination. Edwin J. Puissant, Jr. v. Wis. Dep't of Revenue, Wis. Tax Rptr. (CCH) ¶ 202-401 (WTAC 1984). The Petitioners have failed to provide any evidence to contradict the revised Department assessment. There being no genuine issue of any material fact, the Commission grants the Department's Motion of Summary Judgment.
Dated at Madison, Wisconsin, this 7th day of September, 2011.
WISCONSIN TAX APPEALS COMMISSION
Lorna Hemp Boll, Chair
Roger W. Le Grand, Commissioner
Thomas J. McAdams, Commissioner
ATTACHMENT: "NOTICE OF APPEAL INFORMATION"