STATE OF WISCONSIN
TAX APPEALS COMMISSION
NEAL AND JENNIFER FRANZ, DOCKET NO. 18-I-163
Petitioners,
vs.
WISCONSIN DEPARTMENT OF REVENUE,
Respondent.
RULING & ORDER
LORNA HEMP BOLL, COMMISSIONER:
This case comes before the Commission for decision
on Respondent’s Motion for Summary Judgment. The Petitioners, Neal and
Jennifer Franz, Wisconsin Rapids, Wisconsin, appear pro se in this matter. The Respondent, the Wisconsin Department of
Revenue (“the Department”), is represented by Attorney Sheree Robertson. The
Department filed a brief along with a Stipulation of Facts signed by both
parties. For the reasons stated below, we find for the Department.
FACTS
1.
Petitioners
were residents of the State of Wisconsin for the entire year of 2014. (Stip. ¶
4.)
2.
On March 30,
2015, Petitioners jointly filed their 2014 Wisconsin income tax return with the
Department as full-time residents. (Stip. ¶ 6.)
3.
On their
jointly filed 2014 Wisconsin income tax return, Petitioners did not report as
taxable income the $40,638.19 pension/annuity income Mr. Franz had withdrawn in
2014. They also not report $50 of interest income and did not report $236 of
medical savings distributions. (Stip. ¶ 7.)
4.
When Mr.
Franz withdrew the $40,038.19 from his pension/annuity account, he was issued a
1099-R which shows that amount and which also shows that no Wisconsin state
income tax was withheld from the amount distributed. (Stip. ¶ 10.)
5.
The Department received a federal abstract from
the Internal Revenue Service (IRS) showing adjustments made to Petitioners’
2014 federal income tax return. (Stip. ¶ 8.)
6.
Petitioners did not notify the Wisconsin
Department of Revenue within 90 days after the IRS adjusted their 2014 federal
income tax return. (Stip. ¶ 8.)
7.
The federal abstract has not been submitted to
the Commission. (Commission file.)
8.
After the Department received the federal
abstract, it did a partial audit of Petitioners’ 2014 Wisconsin income tax
return and adjusted the Wisconsin taxable income to include the unreported
pension/annuity income of $40,638, the medical savings distributions of $236,
and interest income of $50. (Stip. ¶ 9.)
9.
The
pension/annuity distribution amount is supported by a 1099-R issued by the
Trust Company where the account was held. (Stip. ¶ 10, Ex. 4.)
10.
The
pension/annuity distribution was an early distribution. (Stip. ¶ 10.)
11.
On October
17, 2017, the Department issued a Notice of Office Audit Amount Due –
Individual Income Tax (“Notice”), adjusted Petitioners’ 2014 Wisconsin income
to include pension/annuity income received by Mr. Franz in 2014 in the amount
of $40,638.19, which had not been reported on Petitioners’ 2014 Wisconsin
income tax return. (Stip. ¶ 1, Ex. 1.)
12.
The Notice assessed
Petitioners additional individual income tax for tax period ending December 31,
2014, in a total amount of $4,851.14, which included tax, early withdrawal
penalty, and interest computed to December 18, 2017. (Stip. ¶ 1, Ex. 1.)
13.
Petitioners filed
a timely Petition for Redetermination, which the Department denied in a Notice
of Action dated May 15, 2016. (Stip. ¶¶ 2-3, Exs. 2 and 3).
14.
On July 12,
2018, Petitioners filed a timely Petition for Review with the Commission.
(Commission file.)
15.
On July 12,
2019, the Department filed a Motion for Summary Judgment. The Department has
also filed a Stipulation of Facts signed by both parties. (Commission file.)
The Department filed a brief in support of its Motion. Petitioners have filed
no response.
APPLICABLE LAW
A motion for summary judgment will be granted
if the pleadings, depositions, answers to interrogatories, and admissions on
file, together with the 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. Wis. Stat. § 802.08(2).
Under Wis. Stat. §
71.03(1),
Definition. In
this section, “gross income" means all income, from whatever source
derived and in whatever form realized, whether in money, property or
services, which is not exempt from Wisconsin income taxes. “Gross
income" includes, but is not limited to, the following items: compensation
for services, including salaries, wages and fees, commissions and similar
items; gross income derived from business; interest; rents; royalties;
dividends; alimony and separate maintenance payments; annuities; income from
life insurance and endowment contracts; pensions; income from discharge
of indebtedness; distributive shares of partnership gross income except
distributive shares of the income of publicly traded partnerships treated as
corporations under s. 71.22 (1k); distributive shares of limited liability
company gross income except distributive shares of the income of limited
liability companies treated as corporations under s. 71.22 (1k); income in
respect of a decedent; and income from an interest in an estate or trust.
“Gross income" from a business or farm consists of the total gross receipts
without reduction for cost of goods sold, expenses or any other amounts. The
gross rental amounts received from rental properties are included in gross
income without reduction for expenses or any other amounts. “Gross income"
from the sale of securities, property or other assets consists of the gross
selling price without reduction for the cost of the assets, expenses of sale or
any other amounts. “Gross income" from an annuity, retirement plan or
profit-sharing plan consists of the gross amount received without reduction
for the employee's contribution to the annuity or plan. (emphasis added)
Specifically, the
Wisconsin Administrative Code clarifies:
Wis. Admin. Code §
Tax 3.085(2) Residents. Employee annuity, pension, profit-sharing or
stock bonus plan distributions, including self-employed retirement plan
distributions, and distributions from qualified deferred compensation plans
under ss. 401 (k), 403 (b) and 457 of the internal revenue code received by
a person while a resident of Wisconsin shall be subject to the Wisconsin income
tax, regardless of whether any of these distributions may be attributable
to personal services performed outside of Wisconsin. (emphasis added)
DECISION
CONCLUSIONS OF LAW
1.
The Department’s adjustments to
include Petitioners’ unreported pension/annuity distribution, medical savings
distributions, and interest income as items of taxable Wisconsin income are
affirmed.
2.
The pension/annuity[1]
is described on the financial institution’s record as an early withdrawal, for
which an early withdrawal penalty applies. The Department’s adjustment to
include an early withdrawal penalty is affirmed.
3.
Other related penalties and
interest are affirmed.
ORDER
Based on the foregoing, it is the
order of this Commission that the Department’s Motion for Summary Judgment
is granted and Petitioners’ petition is dismissed.
Dated at Madison, Wisconsin, this 14th day of
January, 2020.
WISCONSIN TAX APPEALS COMMISSION
Elizabeth Kessler, Chair
Lorna Hemp Boll, Commissioner
David L. Coon, Commissioner
ATTACHMENT: NOTICE
OF APPEAL INFORMATION
[1] Petitioners refers to this as a “sale of stock” in their Petition for Redetermination. (Stip. Ex. 2.)