John K. Fitch v. Commissioner of Revenue (May 2, 2012)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD



JOHN K. FITCH			v.		COMMISSIONER OF REVENUE


Docket No. C310208  			     Promulgated:  
   				   				May 2, 2012
			   				
 					
	This is an appeal filed under the formal procedure pursuant to G.L. c. 62C, § 39 from the refusal of the appellee, the Commissioner of Revenue ("Commissioner" or "appellee"), to abate penalties assessed for late-filed meals tax returns and late payment of meals taxes for the monthly tax periods ending January 31, 2008 through and including the period ending December 31, 2009 ("2008-2009 tax periods at issue").
	Chairman Hammond heard this appeal.  He was joined by Commissioners Scharaffa, Rose, Mulhern and Chmielinski in the decision for the appellee.
These findings of fact and report are made pursuant to the appellant's request under G.L. c. 58A, § 13 and 831 CMR 1.32.  

	John K. Fitch, pro se, for the appellant.
 
David T. Mazzuchelli, Esq. for the appellee.

FINDINGS OF FACT AND REPORT
On the basis of the testimony and exhibits offered into evidence at the hearing of this appeal, the Appellate Tax Board ("Board") made the following findings of fact.
At all times relevant to the instant appeal, the appellant John K. Fitch ("appellant") owned and operated the Waverly Street Restaurant LLC (the "Restaurant") in Westford.  The appellant failed to file meals tax returns, and failed to remit the corresponding meals taxes that he was required to collect from customers of the Restaurant, in a timely manner for the 2008-2009 tax periods at issue, as well as for all subsequent tax periods through the tax period ending March 31, 2010.
As a result of the appellant's delinquent filing and payment history during 2008 and 2009, the Commissioner issued to the appellant a Notice of Failure to File dated March 22, 2010.  Sometime thereafter, the appellant became aware of an amnesty program which would allow the Commissioner to waive penalties under certain circumstances for, among other reasons, failure to timely file meals tax returns and timely pay meals tax (the "Amnesty Program").  
The parameters of the Amnesty Program were established by Section 43 of Chapter 166 of the Acts of 2009 ("Section 43"), which granted to the Commissioner both the authority to waive penalties and to establish the scope and specific qualification criteria for the Amnesty Program.  In accordance with her authority under Section 43, the Commissioner implemented the Amnesty Program by issuing Technical Information Release 10-5 ("TIR 10-5").  Under TIR 10-5, taxpayers to whom the Commissioner issued a "Tax Amnesty Notice" had a two-month period, from April 1, 2010 to June 1, 2010, to seek waiver of penalties for tax periods ending on or before December 31, 2009.  In addition to the requirement that taxpayers must be notified of their eligibility for the Amnesty Program, taxpayers were required to pay the full amount of tax and interest due for any period shown on the Tax Amnesty Notice by June 1, 2010.
The Commissioner did not issue a Tax Amnesty Notice to the appellant.  Nonetheless, the appellant electronically filed meals tax returns and made electronic payments of meals taxes for the 2008-2009 tax periods at issue with, according to his testimony, with the intent of being included in the Amnesty Program.  According to the appellant, he electronically filed his returns and made payment of an amount equal to the outstanding tax and interest amounts for the 2008-2009 tax periods at issue on June 1, 2010, the deadline for qualifying for the Tax Amnesty Program.  There is no indication in the record, however, that the appellant made the Commissioner aware on or before June 1, 2010, that he was applying for a waiver of penalties under the Amnesty Program or how he wished his payment to be applied. 
On July 28, 2010, the appellant filed a Form CA-6, Application for Abatement/Amended Return with the Commissioner, requesting that penalties for the 2008-2009 tax periods at issue be waived pursuant to the Amnesty Program.  By Notice of Abatement Determination dated August 19, 2010, the Commissioner notified the appellant that his abatement application had been denied, because "[p]ursuant to Massachusetts General Laws, Chapter 62C, Section 33, you have not shown reasonable cause in your failure to file a return or to pay a tax in a timely manner."  On October 19, 2010, the appellant seasonably filed his Petition with the Board.  On the basis of these facts, the Board found that it had jurisdiction to hear and decide this appeal.
The appellant produced printouts from the Department of Revenue's website showing that he made electronic payments on June 1, 2010, which together totaled $20,127.78, the amount of tax and interest owed for the 2008-2009 tax periods at issue as of the date of payment.  The Department of Revenue's automated system applied the appellant's June 1, 2010 payment first to all outstanding tax liabilities -- which included not only the 2008-2009 tax periods at issue but also the first three tax periods in 2010 - and then to interest.  As a result, there existed outstanding interest due for the 2008-2009 tax periods at issue after June 1, 2010.
The appellant claimed that the computer program by which he filed his late returns and paid the delinquent tax on June 1, 2010 did not afford him the opportunity to specify that his payments were to be applied towards the taxes and interest owed for the 2008-2009 tax periods at issue.  He also claimed that although Section 43, which authorized the Amnesty Program, and TIR 10-5, which implemented it, were both unconstitutional under his reading of Molesworth v. Commissioner, 408 Mass. 580 (1990), he was nevertheless entitled to a waiver of penalties under the Amnesty Program for the 2008-2009 tax periods at issue.  
The Board ruled that the appellant failed to meet his burden of showing that either Section 43 or TIR 10-5 was unconstitutional.  As described more fully in the Opinion which follows, there is nothing in Molesworth or elsewhere which supports the appellant's argument and, in any event, Molesworth is clearly distinguishable from the present appeal.  The Board therefore ruled that the appellant failed to meet his burden of proving a constitutional infirmity in the Amnesty Program authorized by the Legislature in Section 43 and implemented by the Commissioner in TIR 10-5.
The Board further found and ruled that the appellant did not qualify for the Amnesty Program because he was not issued a Tax Amnesty Notice and did not pay the full amount of tax and interest due for the 2008-2009 tax periods at issue on or before June 1, 2010.  The issuance of a Tax Amnesty Notice is an explicit requirement for eligibility for the Amnesty Program under TIR 10-5.  The evidence of record does not reveal the reason that the Commissioner did not issue a Tax Amnesty Notice to the appellant, although it could be inferred that the appellant's continued disregard for his filing and payment responsibilities for tax periods subsequent to the tax periods covered by the Amnesty Program led the Commissioner to conclude that the appellant was not suitable for inclusion in the Amnesty Program.  Regardless of the reason, no Tax Amnesty Notice was issued to the appellant and, therefore, he was not eligible for the Amnesty Program.
Further, the appellant did not comply with the requirement under TIR 10-5 that he pay the full amount of tax and interest shown as due on the Tax Amnesty Notice.  Even assuming the absence of the requirement that the delinquent tax and interest amounts must be shown on the Tax Amnesty Notice, the appellant still failed to pay the full amount of the tax and interest for the periods for which he is requesting a waiver of penalties.  Without notifying the Commissioner that he was attempting to pay the tax and interest due for the 2008-2009 tax periods at issue or that he was attempting, despite the lack of issuance of a Tax Amnesty Notice, to seek a waiver of penalties under the Amnesty Program, he filed meals tax returns and made a payment on June 1, 2010 electronically, apparently assuming that the Commissioner's computer program would apply his payment as he intended it to be applied.  The record reveals that he did not notify the Commissioner of his request for a waiver of penalties until his July 28, 2010 abatement application, well after the Amnesty Program was closed.  After application of the appellant's June 1, 2010 electronic payment, there remained an outstanding balance of interest due for the 2008-2009 tax periods at issue, thereby disqualifying the appellant from participation in the Amnesty Program.
Because no Tax Amnesty Notice was issued to the appellant and he failed to pay the full amount of the tax and interest for the 2008-2009 tax periods at issue, the appellant was not entitled to a waiver of penalties under the Amnesty Program.  Further, appellant offered no evidence on the issue of whether he had reasonable cause for his failure to timely file meals tax returns and pay the required meals tax.  Accordingly, because the appellant is not entitled to either a waiver of penalties under the Amnesty Program or an abatement of penalties under G.L. c. 62C, § 33(f), the Board issued a decision for the appellee in this appeal.  

OPINION
The appellant does not dispute that he failed to timely file meals tax returns and failed to remit the meals taxes required to be collected from the Restaurant customers.  The Commissioner, therefore, assessed penalties against the appellant pursuant to G.L. c. 62C, § 33(a) and (b).  The appellant also does not dispute that the penalties at issue were properly computed and that, absent the Amnesty Program, he would be liable for the payment of the penalties at issue.  The appellant's sole argument is that he is entitled to a waiver of penalties under the Amnesty Program.
As part of legislation entitled "An Act Establishing Fiscal Stability Measures For Fiscal Year 2010," Section 43 authorized the Commissioner to establish a tax amnesty program by which the Commissioner could abate certain penalties, including penalties for late-filed returns and late payment of tax liability "without the need for any showing by the taxpayer of reasonable cause."  Section 43(a) goes on to provide that the waiver of penalties applies if the taxpayer: 
files returns, makes payments as required by the commissioner or otherwise comes into compliance with the tax laws of the commonwealth as required by the commissioner pursuant to the tax amnesty program. The scope of the program, including the particular tax types and periods covered, including any limited look-back period for unified returns, shall be determined by the commissioner.

(Emphasis added).
The language of § 43(a) makes clear that the Legislature authorized the Commissioner to develop and implement a tax amnesty program but deferred the details, including the "scope" of the program, to the Commissioner's discretion.  Moreover, other paragraphs of Section 43 further underscore that the Legislature established the general parameters of the program, but granted to the Commissioner broad discretion in establishing the specific criteria for amnesty eligibility.  See, e.g., § 43(c) ("the commissioner may offer tax amnesty to those taxpayers who have either an unpaid self-assessed liability or who have been assessed a tax liability"); § 43(g) ("a taxpayer who is eligible for the amnesty program based upon the criteria established by the commissioner"). (Emphasis added).  
Under the authority of Section 43, the Commissioner promulgated TIR 10-5, which provided the scope of the program, including the details of what the Amnesty Program would cover and in what circumstances it would apply.  It is apparent that the Commissioner exercised her discretion by establishing a program that is much narrower in scope than the broad parameters outlined in Section 43.  For example, § 43(a) authorizes the Commissioner to waive "all penalties that could be assessed," while TIR 10-5 provides, as it title states, a "Limited Amnesty Program For Taxpayers With Existing Business Tax Liabilities."  In addition, although § 43(a) authorizes the Commissioner to require payment of all tax and interest "on or before June 30, 2010," TIR 10-5 requires that all tax and interest payments under the Amnesty Program must be made by June 1, 2010.
In accordance with its authority to determine the scope of the program and criteria for eligibility, the Commissioner also narrowed the class of taxpayers who could tax advantage of the Amnesty Program.  TIR 10-5 provides, in pertinent part, that:  
The Commissioner will notify taxpayers of their eligibility to participate in the Amnesty Program.  Only those taxpayers to whom a "Tax Amnesty Notice" has been issued will be eligible.

Under the Amnesty Program, if a taxpayer is notified by the Commissioner that the taxpayer is eligible and the taxpayer pays the full amount of tax and interest due for any period as shown on the "Tax Amnesty Notice," the Commissioner is authorized to waive all unpaid penalties.

. . . 

The Amnesty Program is open to taxpayers who:

Have been issued a "Tax Amnesty Notice;" . . . 


TIR 10-5 could not be more explicit in establishing that the issuance of a Tax Amnesty Notice is a necessary precondition to eligibility for the Tax Amnesty Program.  The appellant attempts to avoid the clear language of TIR 10-5 by arguing, based on constitutional principles he finds in Molesworth, that the Legislature could not delegate eligibility criteria to the Commissioner and the Commissioner could not exclude him from the Amnesty Program.  First, there is no mention of either the state or federal Constitution in Molesworth; the court simply held that the Commissioner had no statutory authority to impose interest and penalties in the circumstances of that appeal.  Id. at 582.  Further, there is no suggestion in Molesworth or any other authority of which the Board is aware that supports the appellant's argument; rather, relevant case law establishes that the Legislature has the authority to delegate to the Commissioner the discretion to define the scope of the Amnesty Program.  See, e.g., Macys East, Inc. v. Commissioner of Revenue, 441 Mass. 797, 806 (2004) (recognizing that the Legislature has delegated to the commissioner the responsibility of administering, interpreting, and enforcing the state tax laws).
Moreover, the appellant was delinquent in filing tax returns and paying taxes held in trust for the Commonwealth, even after the 2008-2009 tax periods at issue.  The Commissioner's decision that appellant was not eligible for a tax amnesty program designed to facilitate collection of certain taxes could hardly be read to implicate a fundamental constitutional right.  The Board found and ruled that the Commissioner's limitation of the Amnesty Program did not amount to an abuse of discretion or an unconstitutional infringement on any protected right of the appellant.
Notwithstanding the lack of a Tax Amnesty Notice, the appellant maintains that he is entitled to inclusion in the Amnesty Program because he paid the full amount of tax and interest for the periods covered by the Amnesty Program.  The appellant maintained that Molesworth prohibited the Commissioner from applying his June 1, 2010 payment to all outstanding taxes -- including periods after the 2008-2009 tax periods at issue -- and obligated the Commissioner to apply the appellant's payment in a manner consistent with his unstated intentions.
In contrast to the taxpayer in Molesworth, however, the appellant gave no direction whatsoever to the Commissioner concerning the application of his payment. See id. at 581.  The appellant cannot reasonably expect the Commissioner's computer program to understand that he intended to pay only the tax and interest due for the 2008-2009 tax periods at issue when he has other delinquent tax payments due and fails to notify the Commissioner, in any way, of his wishes concerning the payment.  Accordingly, Molesworth is clearly distinguishable from the present appeal.
Because no Tax Amnesty Notice was issued to the appellant and he failed to pay the full amount of the tax and interest for the 2008-2009 tax periods at issue, the appellant was not entitled to waiver of penalties under the Amnesty Program.  Therefore, the appellant's only available recourse for abatement of penalties is G.L. c. 62C, § 33(f), which provides that penalties may be abated if the appellant's failure to timely file returns and pay the required taxes was due to "reasonable cause and not due to willful neglect."   The determination of reasonable cause requires factual findings as to the reasons for the taxpayer's failure to file returns and pay taxes timely.  See M&T Charters, Inc. v. Commissioner of Revenue, 404 Mass. 137, 144 (1989).  "At a minimum, the taxpayer must show that he exercised the degree of care that an ordinary taxpayer in his position would have exercised." Id. at 665.  Here, the appellant offered no evidence of reasonable cause for his failure to timely file returns and remit the required taxes. The appellant thus failed to meet his burden of proving that the penalties at issue should have been abated pursuant to § 33(f).
Accordingly, because the appellant is not entitled to either a waiver of penalties under the Amnesty Program or an abatement of penalties under G.L. c. 62C, § 33(f), the Board issued a decision for the appellee in this appeal.

					     THE APPELLATE TAX BOARD


                            By: __________________________________
     Thomas W. Hammond, Jr., Chairman
A true copy,

Attest: _______________________________
        Clerk of the Board

ATB 2012-617