David W. Ganong v. Commissioner of Revenue (December 15, 2003)

 COMMONWEALTH OF MASSACHUSETTS
APPELLATE TAX BOARD


DAVID W. GANONG			v.	 COMMISSIONER OF REVENUE

Docket No. C265991				 Promulgated:
							 December 15, 2003
                      
	This is an appeal filed under the formal procedure pursuant to G.L. c. 62C, § 39, from the refusal of the Commissioner of Revenue to abate personal income taxes for the tax years ended December 31, 1998 and December 31, 1999.
	Commissioner Scharaffa heard the appeal and was joined in the decision for the appellee by former-Chairman Burns and Commissioners Egan and Rose.
	These findings of fact and report are made at the request of the appellant pursuant to G.L. c. 58A, § 13 and 831 CMR 1.32.

	David W. Ganong, pro se, for the appellant.
	Lutof George Awdeh, Esq., for the appellee.


	FINDINGS OF FACT AND REPORT

	For calendar years 1998 and 1999 ("the tax years at issue"), David W. Ganong ("the appellant") was a resident of the Commonwealth of Massachusetts, self-employed as a dentist.  Dr. Ganong filed Massachusetts resident personal income tax returns (Form 1) on which he reported zero gross income.  The appellant's contention was that the monies he received from insurance companies for dental work performed on third parties was "remuneration" not "compensation" and, therefore, was not "gross income" as defined by the Internal Revenue Code and incorporated into the Massachusetts tax statutes.  
Subsequent to the filing of the returns, the Commissioner of Revenue ("the appellee") conducted an audit of the appellant's 1998 and 1999 returns, and, on June 24, 2001, issued a Notice of Intention to Assess personal income tax for these years.  On or about September 13, 2001, a conference was held between the appellant and the Appellee.  Pursuant to the conference, the Appellee concluded that the proposed assessment was valid, and, subsequently, issued to the appellant a Notice of Assessment of additional personal income taxes for 1998 and 1999.  On August 14, 2002, the appellant filed an appeal with the Appellate Tax Board ("Board").
	On March 21, 2003, the Appellee filed and served Interrogatories to be answered by the appellant.  On April 20, 2003, the appellant filed and served cursory answers to the Interrogatories.  Subsequently, on April 24, 2003, approximately one month prior to the scheduled hearing date, the Appellee filed a Motion to Compel Responses to the Appellee's Interrogatories.  Specifically, the Appellee requested that the Board compel the appellant to answer more fully interrogatories #8 and #9, which asked the appellant to identify all sources of income for tax years 1998 and 1999.  The Appellee requested that the Motion be scheduled for a May 5, 2003 hearing.  
On May 5, 2003, argument was heard on the Motion.  By Order dated May 6, 2003, the Board allowed the Appellee's Motion and ordered the appellant to provide answers to the Appellee's interrogatories within seven days.  By letter dated May 12, 2003, the appellant notified the Board that he had received the May 6, 2003 Order and that he did "not accept" the Board's Order.  Dr. Ganong also stated in his letter that he would not be attending the hearing on the merits scheduled for 9:30 a.m. on May 20, 2003.  He indicated, instead, that he would be making a Submission Without Oral Argument pursuant to Rule 1.31 of the Appellate Tax Board Rules of Practice and Procedure.
	On May 20, 2003, the scheduled hearing date, in keeping with his letter of May 12, 2003, the appellant did not appear before the Board.  Also, as of that date, the appellant had not complied with the Board's May 6th Order compelling him to answer interrogatories and to produce documents.  Consequently, the Appellee made an oral motion to dismiss based on the appellant's failure to comply with the Board's Order.  For the reasons more fully explained in the following Opinion, the Board allowed the Appellee's oral Motion to Dismiss and entered a decision for the appellee.
On the day of hearing, at approximately 11:19 a.m., the Board received a document entitled "[p]etitioner's briefs pursuant to 1.30" which indicated that "[t]he Petitioner is applying 1.31: SUBMISSION WITHOUT ORAL ARGUMENT."
Shortly after the Board's dismissal of the appeal, the appellant filed a Motion to Expunge the Board's dismissal, arguing that such dismissal was inappropriate since he had not received a copy of the Appellee's motion to dismiss.	 For the reasons more fully explained in the following Opinion, the Board denied the appellant's motion.  Accordingly, the Board's decision was for the appellee. 

OPINION
	Pursuant to Rule 31 of the Board's Rules of Practice and Procedure, 831 CMR 1.31, "an appeal in which no issue of fact is raised . . . may be submitted to the Board for decision by either or both parties, on briefs without oral argument, but the Board may, in its discretion, require appearance for argument."  Upon receipt of the Board's Order compelling the appellant to answer interrogatories concerning the source of the appellant's income for tax years 1998 and 1999, the appellant sent to the Board a letter indicating that he would not comply with the Board's Order regarding discovery and that he would not appear at the scheduled hearing, preferring instead to make a "Submission without Oral Argument pursuant to Rule 1.31."
	On the scheduled hearing date, with the appellant still not having complied with the Board's Order dated May 6, 2003, the Appellee made an oral motion to dismiss for noncompliance.  The Board allowed the Appellee's motion.
Where, as here, a taxpayer files its appeal under the formal procedure (see G.L. c. 58A, § 7), either party may interrogate the adverse party to discover facts and documents to be used at hearing.  Discovery in Board proceedings is governed by "sections sixty-one to seventy, inclusive, of chapter two hundred and thirty-one."  G.L. c.  58A, § 8A.  See also 831 CMR 1.25.  "If a party interrogated fails to answer interrogatories, or to amend [] an answer or part of an answer as ordered, the court may make and enter such order, judgment or decree as justice requires."  G.L. c. 231, § 64.
"In the matter of 'discovery' much must be left to the judgment and discretion of the Appellate Tax Board."  Board of Assessors of Provincetown v. Vara Sorrentino Realty Trust, 369 Mass. 692, 694 (1976).  See also Olympia & York State Street Co. v. Board of Assessors of Boston, 428 Mass. 236, 244 (1998).  It is well settled that the penalty to be imposed for failure to answer interrogatories properly is to be determined by the sound discretion of the trial judge.  Gill v. Stretton, 298 Mass. 342, 344 (1937); Henry L. Sawyer Co. v. Boyajian, 296 Mass. 215, 21 (1936); Nickerson v. Glines, 220 Mass. 333 (1915); 229 Main Street Limited Partnership v. Assessors of Natick, 2001 ATB Adv. Sh. 251 (March 30, 2001).
	In Gill, the taxpayer was ordered to answer the defendant's interrogatories within a set period of time. Gill v. Stretton, 298 Mass. at 343.  The plaintiff, however, failed to comply with the court's order and, consequently, was "nonsuited."  Id.  On appeal, the Supreme Judicial Court ruled that "[i]t was the duty of the plaintiff . . . to comply with [the court's] order . . . . Refusal by the plaintiff to obey that order was trifling with the process of justice."  Id.  The Court ultimately found that "'the entry of a nonsuit is the appropriate means of dealing with a refusal to comply with such an order as this.'"  Id.  
	In 229 Main Street Limited Partnership, the taxpayer, like the appellant in the present appeal, failed to comply with the Board's Order to more fully answer interrogatories.  Id. at 258-259.  Consequently, the Assessors filed, and the Board allowed, a Motion to Dismiss for failure to comply.  Id. at 259.  Relying upon the Court's decision in Gill, and noting the taxpayer's blatant disregard of the Board's Order, the Board allowed the Assessors Motion to Dismiss.  Id. at 263. 
In the present appeal, the appellant provided cursory responses to the Appellee's interrogatories and failed to answer the Appellee's request for production of documents.  Accordingly, the Appellee filed a Motion to have the Board compel the taxpayer to more adequately answer the interrogatories and produce documents.  On May 6, 2003, the Board allowed the Appellee's Motion and ordered the appellant to comply within seven days.  As of May 20, 2003, the scheduled hearing date, approximately two weeks from the Board's Order, the appellant still had not complied and had in fact, notified the Board that he did not "accept" the Board's Order. 
As a result of the appellant's blatant disregard for the Board's Order, and his failure to present a reasonable excuse for his failure to comply, the Board, after hearing, granted the appellee's Motion to Dismiss.  The Board found and ruled that the appellant's ongoing recalcitrance and his blatant disregard for and defiance of the Board's Order warranted dismissal of the appeal. 
When the plaintiff declined to comply with the direction of the court . . . it was the duty of the court to proceed further.  If the court does not possess the power to enforce its just order  . . ., it would be impotent in the face of a recalcitrant party.  The making of an order without authority to enforce it would be a vain ceremony.  The entry of a nonsuit is the appropriate means of dealing with a refusal to comply with such an order as this.


Nickerson v. Glines, 220 Mass. 333, 336 (1915).

	Upon receipt of the Board's dismissal, the appellant filed a Motion to Expunge on the grounds that he had not been notified of the Appellee's Motion to Dismiss.  The Board denied the appellant's motion to expunge the dismissal.
"[I]f any party fails to appear at the time set for hearing, the Board may proceed ex parte."  831 CMR 1.19(7).  In the present appeal, the appellant failed to appear before the Board on the scheduled hearing date.  As a result of the appellant's continued failure to comply with the Board's previous Order, the Board allowed the Appellee's oral motion, pursuant to 831 CMR 1.16(1), and entered a decision for the appellee. 
The Board was within its authority to act on an oral motion made by the Appellee on the scheduled hearing date for which the appellant chose not to appear.  See 831 CMR 1.163(1).  Further, the substantive claim underlying the appellant's appeal was without legal merit.  The appellant's claim that the monies he received for dental services provided were not gross income, is wholly without legal support. 
Section 61 of the Internal Revenue Code defines "gross income" as "all income from whatever source derived, including . . .compensation for services . . . ."  The appellant argued that the monies he received were "remuneration" not "compensation" and, therefore, did not fall within the statutory definition of gross income subject to Massachusetts income tax.
The Board has on several occasions in the recent past ruled on a similar argument.  In Joseph R. Olson v. Commissioner of Revenue, 2003 ATB Adv. Sh. 492 (September 5, 2003)("Olson II"), the taxpayer argued that wages reported on Form W-2, for services provided by the appellant as an employee, did not qualify as gross income.  The Board, quoting an earlier decision, found that the taxpayer's argument was "frivoulous," and that the "wages reflected on the appellant's W-2 Forms are "definitionally 'compensation for services,' and well within the statutory ambit of 'income' and 'gross income.'"  Id. at 499-500 (quoting Olson V. Commissioner of Revenue, 26 Mass. App. Tax Bd. Rep. 477, 478 (2001))("Olson I").  
In Anthony J. Rossi v. Commissioner of Revenue, the taxpayer argued that the "remuneration" he received for services provided to the Commonwealth, as his employer, were not "gross income' and, therefore, were not subject to tax.  Rossi, 2003 ATB Adv. Sh. 473, 476-477 (August 28, 2003).  The Board, however, noted that "the phrase 'gross income' is intended to be comprehensive:  it encompasses all income from whatever source . . . .  There is no ambiguity and no room for semantic maneuvers."  Id. at 478.
In the present appeal, although the appellant did not receive wages from an employer, as he was a self-employed dentist, he did receive income from insurance companies for dental services provided to third parties.  Accordingly, the Board found that these monies were "compensation for services provided" and, therefore, within the definition of "gross income" subject to tax.
On the basis of the foregoing, the Board allowed the Appellee Motion to Dismiss for failure to comply with the Board's previous Order, and denied the appellant's Motion to Expunge the dismissal.  Accordingly, the Board upheld the Appellee's assessment in this appeal and issued a decision for the appellee.

						APPELLATE TAX BOARD

					By:						____
					    Frank J. Scharaffa, Member	

 Section 70 of chapter 231 was repealed by statute 1975, c. 377, § 91.  In effect, discovery procedures are governed by c. 231, §§ 61-69. 

ATB 2003-617