David Iannuccillo v. Commissioner of Revenue (December 3, 2012)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD




DAVID IANNUCCILLO		      v.		COMMISSIONER OF REVENUE

Docket No. C310696		   			Promulgated:
		 						December 3, 2012


	This is an appeal filed under the formal procedure pursuant to G.L. c. 62C, § 39 from the refusal of the Commissioner of Revenue ("Commissioner" or "appellee") to abate personal income taxes and penalties assessed against David Iannuccillo ("appellant") for the tax year 2009 ("tax year at issue").
Commissioner Rose heard the appeal. Chairman Hammond and Commissioners Scharaffa and Mulhern joined him in a corrected decision for the appellant. The corrected decision, which abates penalties associated with the income tax assessment, is promulgated herewith.
	These findings of fact and report are made pursuant to a request by the appellant under G.L. c. 58A, § 13 and 831 CMR 1.32. 

David Iannuccillo, pro se, for the appellant.
Diane M. McCarron, Esq. for the appellee.

FINDINGS OF FACT AND REPORT
Based on testimony and exhibits offered into evidence at the hearing of this appeal, the Appellate Tax Board ("Board") made the following findings of fact. 
The appellant timely filed his 2009 Massachusetts Resident Income Tax Return, Form 1 ("Form 1") on May 11, 2010. The appellant reported income he had received from GreenWorks, a landscaping company, as well as $1,445.00 in tax owed. The appellant listed the income as "(w)ages, salaries, tips and other employee compensation" despite having been issued a Form 1099-MISC by GreenWorks that indicated the appellant's compensation was "[n]onemployee compensation." The appellant did not pay the tax reported due on Form 1. 
By a Notice of Assessment dated July 16, 2010, the Commissioner informed the appellant of his outstanding tax liability of $1,445.00, plus interest of $25.04 and penalties of $126.12, for a total amount due of $1,596.16. On September 11, 2010, the appellant filed an Application for Abatement, Form CA-6, requesting abatement in full of the tax, interest and penalties.  The appellant asserted that he had been an employee of GreenWorks during the tax year at issue and therefore GreenWorks should have withheld taxes from his compensation. The appellant further argued that having failed to fulfill its obligation to withhold taxes, GreenWorks, and not the appellant, was liable for the tax reported due on Form 1. 
On December 15, 2010, the Department of Revenue's Office of Appeals conducted a hearing relating to appellant's abatement application. On January 21, 2011, the Office of Appeals issued a determination letter affirming the appellant's liability for the tax due and finding that the appellant had not "substantiated reasonable cause for the abatement of penalties." Consistent with the determination letter, the Commissioner issued a Notice of Abatement Determination dated January 31, 2011, denying the appellant's abatement application. 
On March 31, 2011, the appellant timely filed a Petition Under Formal Procedure with the Board. On the basis of the foregoing facts, the Board found that it had jurisdiction to hear and decide this appeal. 
At the hearing of the appeal, the appellant appeared pro se  and offered his grandfather, Anthony Iannuccillo ("Mr. Iannuccillo"), as his sole witness.  Mr. Iannuccillo gave the following uncontroverted testimony regarding his legal and tax experience: he was a member of the Bar of the State of Maine since 1949; he was admitted to practice in the Tax Court of the United States and the Federal Circuit Court of Appeals for the First Circuit in Boston and had been involved in numerous tax matters in federal and state courts; and he worked as a tax attorney in the office of the Chief Counsel of the Internal Revenue Service for more than twenty-five years. Based on this extensive experience, the Board found Mr. Iannuccillo to be a tax expert competent in applicable tax matters.   
Mr. Iannuccillo further testified that he and the appellant discussed at length the work performed by the appellant for GreenWorks during the tax year at issue. Based on these discussions, Mr. Iannuccillo determined that the appellant had been an employee of GreenWorks at all relevant times and that state and federal taxing authorities would classify him as such. Mr. Iannuccillo testified that he advised the appellant to timely file his tax returns and include his income from GreenWorks as wages, pending a determination by the taxing authorities of his status as an employee. Mr. Iannuccillo also advised the appellant not to pay the tax shown as due, having concluded that GreenWorks improperly failed to withhold taxes from the appellant's wages, thereby shifting liability for the tax from the appellant to GreenWorks. The appellant followed Mr. Iannuccillo's counsel and filed his Form 1 for the tax year at issue as described above.
On the basis of all of the evidence, the Board found and ruled that the appellant was liable for the tax reported due on Form 1 for the tax year at issue. Therefore, the appellant was not entitled to an abatement of tax and related interest for the tax year at issue. However, the Board also found and ruled that, having consulted extensively with and acted in reliance on the counsel of Mr. Iannuccillo, the appellant was entitled to abatement of the penalties at issue in this appeal. Accordingly, the Board hereby issues a corrected decision for the appellant granting an abatement in the amount of $126.12 plus any attendant statutory additions.

OPINION
Tax Liability
Massachusetts residents are taxed, with certain limitations not here relevant, on all of their income from whatever source derived. G.L. c. 62, § 2.  In the present appeal, there is no dispute regarding the taxability of the income earned by the appellant during the tax year at issue or the amount of tax. Rather, the dispute centers on who is liable for the tax, the appellant or GreenWorks, his putative employer.
The crux of the appellant's argument lies in his construction of G.L. c. 62B ("Chapter 62B") which, in pertinent part, provides for employers' withholding of taxes on wages and specifies consequences for failing to adhere to withholding requirements. Pursuant to Chapter 62B, every employer must deduct and withhold tax on wages in accordance with tables prepared by the Commissioner. G.L. c. 62B, § 2. An employer that fails to withhold or pay such taxes "shall be personally and individually liable therefore to the commonwealth." G.L. c. 62B, § 6. The appellant argued that Chapter 62B relieves an employee of any obligation to pay income tax when an employer fails to meet applicable withholding and payment obligations. The Board found the appellant's argument unpersuasive.
 	A fundamental tenet of income taxation is that income is taxed to the person who earns it. See Commissioner v. Culbertson, 337 U.S. 733, 739-40 (1949). Thus, a taxpayer is obligated to pay taxes on income received. See Church v. Commissioner of Internal Revenue, 810 F.2d 19, 19 (2d Cir. 1987). Chapter 62B does not disturb these principles.
As a threshold matter, no part of Chapter 62B states that an employer is exclusively liable for taxes that have not been withheld or paid. Nor does the statute in any way alter or limit an employee's liability for taxes owed. In fact, Chapter 62B implicitly acknowledges concurrent employee liability, providing that if an employer fails to withhold taxes as required, "and thereafter the tax . . . is paid, the tax . . . shall not be collected from the employer." G.L. c. 62B, § 5.  
In Technical Information Release ("TIR") 09-2, the Department of Revenue announced a voluntary initiative for employers that had failed to meet withholding requirements, including those that had "misclassified workers that should have been classified as employees. . . ." Having discussed the consequences of failing to comply with withholding obligations under Chapter 62B and procedures for making voluntary disclosure, the TIR provides that "[t]o the extent that the Department receives payments from an employer with respect to wages paid to an individual employee, the Department will not seek to collect unpaid tax from the employee with respect to those wages." Id. This policy reflects the Commissioner's interpretation of Chapter 62B as not affecting an employee's liability for income tax absent actual payment of the tax by the employer.
Finally, in the context of federal law, which is substantially similar to withholding under Massachusetts law, an employer is liable for failing to withhold taxes, but such failure does not relieve a taxpayer of his or her income tax liability. See, e.g., Church, 810 F.2d at 19. In Church, the court held that the failure of the taxpayer's employer to withhold income taxes did not affect the taxpayer's obligation to pay taxes on her income. Id. 
The appellant argued that Church has been superseded by subsequent precedent, citing U.S. v. Galletti, 541 U.S. 114 (2004), Pediatric Affiliates v. U.S., 230 Fed. Appx. 167 (3rd Cir. N.J. 2007) and U.S. v. Farr, 536 F.3d 1174 (10th Cir. Okla. 2008). While each of these cases affirmed the basic principle that employers are liable for withholding taxes, not one addressed the issue of whether an employer's failure to meet withholding requirements in any way affects an employee's personal income tax liability. Consequently, the Board found the appellant's argument unavailing.
	In sum, the Board found and ruled that while Chapter 62B imposes liability on employers for failing to comply with withholding obligations, this liability has no effect on an employee's liability to pay income tax on income earned. Consequently, the Board found and ruled that the appellant was liable for the income tax at issue in this appeal. 
Penalties
General Laws c. 62C, § 33(f) provides that "[i]f it is shown that any failure to . . . pay a tax in a timely manner is due to reasonable cause and not due to willful neglect, any penalty . . . may be . . . abated by the commissioner, in whole or in part." The Commissioner argued that the appellant failed to establish reasonable cause for his failure to timely pay the tax at issue because he "was aware of his income tax liability and . . . willfully neglected to pay the tax." (emphasis added). The Commissioner's argument, however, ignores the core of the appellant's case - that the tax liability existed, but was borne by GreenWorks, not the appellant. While the Board found this argument unpersuasive, the facts of this appeal support abatement of the contested penalties.
In Administrative Procedure 633 ("AP-633"), the Commissioner provides guidelines for the waiver and abatement of penalties. AP-633 states that the Department of Revenue will presume reasonable cause for a delay in payment by a taxpayer when the delay results from any of seven factors, including when "[t]he taxpayer was incorrectly advised by a tax professional competent in applicable tax matters after furnishing such advisor all necessary and relevant information." 
The Board has also construed the "reasonable cause" standard in more that one instance. In Samia v. Commissioner of Revenue, Mass. ATB Findings of Facts and Reports 1993-127, the Board considered the imposition of penalties when taxpayers received erroneous advice from a tax attorney they had consulted about a financial transaction. In reaching its conclusion that the taxpayers were entitled to abatement of the penalties at issue, the Board found that "the appellants made, or in good faith attempted to make, full disclosure of all relevant information to their tax attorney regarding the tax matter in issue . . . the appellants' tax attorney was a competent tax expert . . . [and] the tax attorney's advice was on the specific tax matter at issue."  Id. at 93-76. Thus, the Board found that "the appellants reasonably relied upon their tax attorney's opinion . . ." Id. Similarly, in Q Holdings Corp. v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 1996-412, the Board found that there was reasonable cause for a taxpayer's failure to file when the taxpayer relied upon the erroneous advice of a "nationally recognized certified public accounting firm doing substantial business in Massachusetts." Id. at 96-418. 
In the present appeal, the Board found that after lengthy consultation, Mr. Iannuccillo, an attorney with decades of federal and state tax experience, advised the appellant that as an employee of GreenWorks, he was relieved of his 2009 income tax liability because GreenWorks improperly failed to withhold taxes. The appellant, relying on Mr. Iannuccillo's counsel, filed Form 1 for the tax year at issue reporting income and tax due. Although the appellant's failure to pay the tax was without foundation in law, the appellant met the standards for abatement of penalties as set forth by the Board and in AP-633. More specifically, the appellant made full disclosure of all relevant information to Mr. Iannuccillo, whom the Board found to be a tax expert competent in applicable tax matters. The appellant then relied on and acted in conformance with Mr. Iannuccillo's advice with respect to the specific tax matter at issue. Under these circumstances, the Board found and ruled that there was reasonable cause for the appellant's failure to timely pay the tax due and that such failure did not result from willful neglect. Therefore, the Board hereby issues a corrected decision granting the appellant abatement of the penalties and any attendant statutory additions at issue in this appeal. 

					     THE APPELLATE TAX BOARD



				      By: _________________________________
					     Thomas W. Hammond, Jr., Chairman



A true copy
	
Attest: __________________________
            Clerk of the Board

 The Commissioner assessed penalties because the appellant had failed to timely pay the tax due.
 The Board assumed, for the sake of argument, that an employer/employee relationship existed between the appellant and GreenWorks. 

ATB 2012-1180