Filing a Timely Appellate Tax Board Appeal: Recent ATB Decision Highlights a Trap for the Unwary

Prompt appeal of an adverse tax audit result to the Massachusetts Appellate Tax Board (“ATB”) is essential in order to preserve your rights as a taxpayer. The ATB has jurisdiction to hear state tax appeals pursuant to Massachusetts General Laws, Chapter 62C, Section 39. You must appeal within sixty (60) days after the Massachusetts Department of Revenue (“DOR”) has denied your abatement application. The ATB does not have jurisdiction and cannot preside over a late-filed appeal. Therefore, taxpayers and tax professionals need to understand when the sixty-day appeal window opens and closes.

The ATB recently dismissed an appeal for lack of jurisdiction because the taxpayers—a married couple living in Massachusetts—filed a late appeal. The taxpayers apparently thought that they filed their appeal on time, but were unaware that their opportunity to appeal had ended over a year beforehand. The ATB decision in Phillips v. Commissioner of Revenue (ATB 2015-113, published on March 20, 2015) is summarized and discussed below. The full text is available for download on the ATB website.

Facts

The ATB recited the following facts:

The taxpayers did not timely file their 2007 state income tax return. The DOR mailed a Notice of Failure to File on September 2, 2009—more than one year after the filing due date. The taxpayers did not respond.

On December 28, 2009, the Department of Revenue mailed a Notice of Assessment of personal income tax in the amount of $299,081.08.

The taxpayers filed a tax return (Massachusetts Form 1) on July 6, 2010—more than six months after they received the Notice of Assessment. The taxpayers requested a refund of $3,325 by virtue of tax-deductible business losses claimed on Schedule C.

On October 27, 2010, the DOR sent an information request to audit the 2007 tax return. The letter “request[ed] further information, including proof of any final determination by the Internal Revenue Service (“IRS”) and substantiation of the business expenses claimed as deductions on Schedule C” (page ATB 2015-114).

The taxpayers responded on December 22, 2010 with an Application for Abatement (Form CA-6). They included a one-page document from the IRS showing a refund on their federal income tax return (Form 1040), but they did not provide any supporting documentation to substantiate the business expenses they had claimed on Schedule C.

On March 27, 2012, the DOR issued a Notice of Abatement Determination denying the taxpayers’ application for abatement. The DOR’s letter to the taxpayers notified them that they could appeal the DOR’s adverse decision in one of two ways:

  • File an appeal to the ATB within the next sixty (60) days, OR
  • File a second Form CA-6 to the DOR with the requested supporting information within three years after the return was filed, pursuant to Massachusetts General Laws Chapter 62C, section 37. (The statute provides that a CA-6 may be filed either three years after the return has been filed, or two years after the tax has been assessed, or one year after the tax was paid, whichever is later.)

The taxpayers chose the latter route. They waited seven months—past the 60-day appeal deadline—and filed a second CA-6 on November 2, 2012. The second CA-6 also did not include financial records to substantiate the business losses claimed on Schedule C. The DOR again denied the abatement application in a Notice of Abatement Determination dated May 29, 2013.

The taxpayers filed an appeal with the ATB on July 26, 2013, just before the end of the sixty-day period following the second Notice of Abatement Determination.

ATB Decision

The ATB dismissed the appeal for lack of jurisdiction because the taxpayers filed the appeal too late. The taxpayers should have filed the appeal only during the 60-day period immediately after the first Notice of Abatement Determination. The 60-day period began on March 27, 2012 and ended on May 26, 2012.

As a general rule, each Form CA-6 is treated as a separate request. A taxpayer is not permitted to request abatement of the same tax twice unless one of the following four exceptions applies:

  • There are newly discovered facts,
  • The first CA-6 application is a return which shows an overpayment,
  • There is a second assessment, or
  •  There is a subsequent change in decisional law. (Page ATB 2015-119, citing cases.)

In the Phillips case, the exceptions did not apply. In particular, there were no “newly discovered facts.” The new CA-6 did not provide any additional information. Therefore, the DOR’s denial of the second CA-6 did not open a second 60-day window for the taxpayers to appeal. There was only one 60-day window to appeal. It ended in 2012, more than a year before the taxpayers filed their appeal in 2013.

Commentary

I sympathize with the taxpayers to a certain extent. They followed the DOR’s letter inviting them to provide information with a second CA-6. They apparently thought they filed a timely appeal within sixty days after the DOR denied their second CA-6. The ATB’s inability to hear the case “on the merits” may, therefore, seem unfair to the taxpayers.

The ATB considered the fairness question in a footnote (page ATB 2015-121). For future cases, the ATB promised to “review de novo the sufficiency of the substantiation of the second application” (Form CA-6) to determine whether the exception for “newly discovered facts” (quoted above) would open a second 60-day window for the taxpayers to file an appeal.

However, if the taxpayers did not present sufficient substantiation with the second Form CA-6, the taxpayers should not prevail on fairness grounds. On the contrary, the DOR has an interest in not devoting its scarce resources to review multiple abatement requests for the same tax assessment. Moreover, appeal rights are statutory. Where the statute does not provide the right to appeal in a particular situation, a fairness argument will not necessarily create that right to appeal—even if the DOR’s letter of instruction is ambiguous.

Conclusion

Our firm—M. Robinson & Company, P.C.—has substantial experience in filing abatement applications before the DOR and in litigating cases before the ATB. We make every effort to complete our work on time and to substantiate the taxpayers’ claims so that our clients will have an opportunity to prevail “on the merits.”

This article was jointly authored by Yale Yechiel N. Robinson and by Morris N. Robinson.

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