Wisconsin Tax Appeals Commission Docket No. 01-I-96

STATE OF WISCONSIN

TAX APPEALS COMMISSION

GABRIEL F. DE RANGO ,

c/o Oshkosh Correctional Institution

P.O. Box 3310

Oshkosh, WI 54903,

Petitioner,

vs.

WISCONSIN DEPARTMENT OF REVENUE

P.O. Box 8907

Madison, WI 53708-8907,

Respondent.

DOCKET NOS. 01-I-96,
02-I-45 and 02-I-46

RULING AND ORDER

DON M. MILLIS, COMMISSION CHAIRPERSON:

These matters come before the Commission on respondent's motions for summary judgment.⁽¹⁾ Both parties have filed submissions with respect to respondent's motions. Petitioner represents himself. Respondent is represented by Attorney Robert C. Stellick, Jr.

Based on the submissions of the parties and the entire record in these matters, the Commission hereby finds, concludes, rules, and orders as follows:

UNDISPUTED MATERIAL FACTS

Docket No. 01-I-96

1. Under the date of June 6, 1997, petitioner filed amended Wisconsin income tax returns for the years 1993 through 1996 seeking refunds for each year. The amounts of the claimed refunds were: $1,211 for 1993, $1,159.79 for 1994, $1,350.06 for 1995, and $233 for 1996. The basis for the claimed refunds was petitioner's contention that Wisconsin's income tax does not apply to his pension income received from the federal Civil Service Retirement System ("CSRS").

2. Under the date of October 31, 1997, respondent denied the refund claims for 1993 through 1996. Under the date of November 11, 1997, petitioner filed a petition for redetermination objecting to respondent's denial of his refund claims. The petition for redetermination was denied by respondent on May 11, 2001.

3. Petitioner filed a timely petition for review with the Commission that was assigned Docket No. 01-I-96.

Docket Nos. 02-I-45 and 02-I-46

4. When petitioner filed his 1997 and 1998 Wisconsin income tax returns, he failed to report any of his CSRS pension income. These amounts were $18,272 in 1997 and $20,844 in 1998.

5. Under the date of July 13, 1998, respondent issued an income tax assessment against petitioner for 1997 in the amount of $1,378 in tax, plus $68.87 in interest. Under the date of August 23, 1999, respondent issued an income tax assessment against petitioner for 1998 in the amount of $1,367 in tax, plus $86.75 in interest. The basis of both assessments was respondent's contention that petitioner's CSRS pension income is subject to Wisconsin's income tax.

6. Petitioner filed petitions for redetermination with respondent objecting to each assessment. Respondent denied each petition for redetermination. Petitioner filed timely petitions for review with the Commission that were assigned Docket Nos. 02-I-45 and 02-I-46.

Facts Common to All Dockets

7. Petitioner's CSRS pension income at issue in these dockets is the same pension income that was at issue in a prior case before the Commission: Hafner, et al. v. Dep't of Revenue, Wis. Tax Rptr. (CCH) ¶400-395 (WTAC 1998), affirmed Wis. Tax Rptr. ¶400-455 (CCH) (Dane Co. Cir. Ct. 1999), affirmed 239 Wis. 2d 218 (Ct. App. 2000).

8. Petitioner had three periods of federal employment covered by the CSRS: (1) January 8, 1962 to October 22, 1965; (2) January 16, 1966 to December 5, 1969; and (3) May 24, 1976 to November 30, 1990. Hafner, Wis. Tax Rptr. (CCH) ¶400-395 at 7.

9. In 1976, petitioner withdrew his retirement deductions from the CSRS. Id. at 7-8.

10. During his last period of federal employment, petitioner redeposited these deductions. Id. at 8.

APPLICABLE WISCONSIN STATUTE

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 U.S. civil service retirement system, the U.S. military employee retirement system, the employee's retirement system of the city of Milwaukee, Milwaukee County employees' retirement system, sheriff's annuity and benefit fund of Milwaukee County, police officer's annuity and benefit fund of Milwaukee, fire fighter's annuity and benefit fund of Milwaukee, or the public employee 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, or was retired from any of the systems or funds as of December 31, 1963, but such exemption shall not exclude from gross income tax sheltered annuity benefits.

CONCLUSIONS OF LAW

1. There are no genuine issues of material facts, and these matters are appropriate for summary judgment as a matter of law.

2. Petitioner's CSRS pension income at issue is subject to Wisconsin's income tax because it was not paid on the account of a person who was a member of a qualifying system or fund as of December 31, 1963, as required by section 71.05(1)(a) of the Statutes.

3. Petitioner's position in these dockets is clearly frivolous, meriting a sanction of $250 per docket pursuant to section 73.01(4)(am) of the Statutes, for a total sanction of $750.

RULING

In Hafner, the Commission held that petitioner's CSRS pension income was not exempt from the Wisconsin income tax:

. . . Under section 71.05(1)(a), in order to qualify for this exemption, a taxpayer must, at a minimum, receive retirement payments that are paid on the account of a person who was a member of the system or fund as of December 31, 1963. The Commission's decision in Groschel, WIS. TAX RPTR. (CCH) ¶400-235, is on point.
In Groschel, the taxpayer was a member of Milwaukee Public School Teachers' Annuity and Retirement Fund ("MRF"), a qualifying fund under section 71.05(1)(a), from 1957 through 1967. Id. at 30,774. In 1967, Mr. Groschel left employment with the Milwaukee Public Schools and went to work in another school district in employment that was covered by the STRS. In 1968, Mr. Groschel withdrew all of his contributions to the MRF and forfeited any rights to accumulations based on his service from 1958 to 1967. Id. at 30,774-30,775. Prior to his retirement in 1990, Mr. Groschel purchased his years of forfeited creditable service.
The Commission concluded that in addition to being a member of a qualifying system on December 31, 1963, section 71.05(1)(a) exempts only those payments that are paid on the account the member had on December 31, 1963. Id. at 30,776. Purchasing forfeited years of creditable service does not reinstate a member's account as of December 31, 1963. Id.
The same is true for Mr. DeRango. When he withdrew his contributions, he voided any right to benefits under the CSRS. By repurchasing his previously withdrawn contributions, all Mr. DeRango received was seven years and eight months of creditable service. He did not reinstate his account as of December 31, 1963.
Mr. DeRango argues that respondent's position ignores qualifying pre-1963 federal service based on approximately two years of active military service during the Korean Conflict. Evidence submitted by both parties shows that Mr. DeRango's CSRS lump-sum distribution was not based on this military service. The only system before the Commission with regard to Mr. DeRango is the CSRS. Therefore, service that might be creditable under another pension system is not relevant to the Commission.
In an apparent effort to distinguish this case from earlier Commission decisions cited above, both Mrs. Hafner and Mr. DeRango argue that even if they withdrew their CSRS deposits, their years of service remained on account and they never had to repurchase years of service. Even if petitioners' contention is true, there is no material distinction between this case and the Commission's decision in Connor. Mr. Connor was in the same position as the taxpayer in Schmidt v. Employe Trust Funds Board. Connor, WIS. TAX RPTR. (CCH) ¶400-176, at 30,574. The Supreme Court in Schmidt determined, much as petitioners contend here, that while Mr. Schmidt withdrew his deposits, his years of service remained on his record. Schmidt, 153 Wis. 2d at 46. Notwithstanding this fact, the Commission held that Mr. Connor's repurchase of credit did not mean his benefit payments were paid on an account of a member of a qualifying system as of December 31, 1963. The same result must apply in the current case.
Therefore, the Commission concludes that the Hafners and Mr. DeRango are not entitled to a refund for the years at issue for the reason that the payments to Mrs. Hafner and Mr. DeRango are exempt under the terms of section 71.05(1)(a).

Hafner, Wis. Tax Rptr. (CCH) ¶400-395 at 12-13 (emphasis in original).

This holding by the Commission was affirmed by the Court of Appeals:
Indeed . . . we consider the commission's interpretation to be not only the most reasonable, but quite possibly the only reasonable interpretation of Wis. Stat. § 71.05(1)(a).

Hafner, 239 Wis. 2d at 226 (emphasis in original).

Petitioner has been provided an extended amount of time to demonstrate to the Commission that its prior decision is in error. He has failed to do so. In fact, the Commission concludes that in light of the prior decisions of the Commission, the Dane County Circuit Court, and the Court of Appeals with respect to the very same CSRS pension income,⁽²⁾ petitioner's prosecution of each of these appeals is frivolous. Therefore, the Commission will assess $250 per docket pursuant to section 73.01(4)(am).

ORDERS

1. Respondent's motions for summary judgment are granted, and its action on the petition for redetermination in each of the above-captioned dockets is affirmed.

2. Petitioner is assessed an additional amount of $750 pursuant to section 73.01(4)(am) of the Statutes.

Dated at Madison, Wisconsin, this 2nd day of September, 2003.

WISCONSIN TAX APPEALS COMMISSION

Don M. Millis, Commission Chairperson

Thomas M. Boykoff, Commissioner

ATTACHMENT: "NOTICE OF APPEAL INFORMATION"

October 23, 2003 Petition for rehearing denied pursuant to s. 227.49(3)

¹ With respect to Docket No. 01-I-96, respondent denominated its motion as a motion to dismiss. Because respondent included matters outside the pleadings, we construe the motion as a motion for summary judgment. Wis. Stat. § 802.06(2)(b).

² In fact, two of the years at issue in Docket No. 01-I-96, 1994 and 1995, were at issue in the prior case involving petitioner.