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| That is one weird mug. |
By Elizabeth Kruska
In the spirit of maple-sugaring season, I’m going to boil this way, way down. Then I might have some pancakes, because they’re basically just a syrup delivery system, and syrup is delicious and magical. I tend to prefer Grade B, which I think now is called Very Dark. Whatever it’s called now, it tastes very, very good.
Here’s what happened. The Vermont Department of Taxes tried to collect on some old tax debts from a handful of taxpayers who didn’t file tax returns. The Tax Man* is allowed to do this, because the Commissioner of the Department of Taxes is charged with the duty of collecting taxes.
So, three separate taxpayers didn’t file returns over various years in the early 2000s. The Tax Department sent notice, and the taxpayers didn’t do anything in response to that notice. The Tax Department then went to court to enforce those defaults as collection actions.
The trial court looked at the cases and said, “Wait, hold the phone. Thanks for stopping by, Tax Department, but you can’t even do this.” The trial court went on to rule that the Department’s notices of deficiencies were invalid because they were issued more than three years after the defendants’ tax returns were originally due. The trial court dismissed the action.
The Tax Department appeals and SCOV reverses.
Let the boiling-down begin. Vermont’s tax law is meant to conform to the Internal Revenue Code. Which, by the way, I’m still waiting for the day the feds can fit the Internal Revenue Code onto a postcard, like they’ve been promising for most of my life. I suppose they have, and it just depends on how you define “postcard.”
Basically, if a taxpayer files a return that is deficient in some way, the Tax Department has three years to send notice of deficiency to the taxpayer. This is what some of us might call an “audit.” No, the Tax Department doesn’t call, or come to your house. They send you a letter that says, “Hey Buddy, remember those taxes you filed several years ago? We just decided they’re deficient and you’ve got 60 days to make it right.” I got one of these from the IRS last year. Turns out we forgot to file a particular form in 2014 or 2015. We filed that form, which made it right (and took away a penalty as a result of information on that form), and everyone moved on. This happens all the time—people make mistakes and they get fixed. But the Taxman only has three years to send notice of a deficiency if a return with an error was filed.
Now, if someone just doesn’t file a return and they’re supposed to, there’s no limitation on when the Tax Department can send notice. This is where the trial court got a little tied up. The trial court ruled that since the Tax Department hadn’t sent notice within three years to these particular delinquent taxpayers, that they were barred from doing so.
There’s a procedure set forth by statute for challenging tax assessments. There is even one entitled “Remedy exclusive; Determination final.” QED. If a taxpayer receives a notice of assessment, their remedy is to follow the statutory method of correcting the assessment. This is set up specifically to avoid litigation. However, if litigation becomes necessary, it would be based on a collections action where the Tax Department uses the court system as a means to ensure collection of a debt as assessed.
The statute of limitations on a collections action is six years, and these cases were filed well within that time period.
SCOV says all this is consistent with the non-postcard-sized federal tax code, and that it’s necessary to look at the entire statutory scheme to determine the intent of the legislature. Would the legislature really have meant to create a situation where everyone is supposed to file, but if someone doesn’t and doesn’t get caught for three years they’re off scot-free? That’s not how any of this works.
So, this one gets reversed.
*My feelings on George Harrison as “secretly the best Beatle” are well-documented in other parts of this blog. That he wrote “Taxman” is purely a bonus for today’s post.
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