Horn v. Dept. of Rev. ( 2014 )

IN THE OREGON TAX COURT
MAGISTRATE DIVISION
Income Tax
SARA DIANE HORN, )
)
Plaintiff, ) TC-MD 140079D
)
v. )
)
DEPARTMENT OF REVENUE, )
State of Oregon, )
)
Defendant. ) FINAL DECISION
This Final Decision incorporates without change the court’s Decision entered on
September 22, 2014. The court did not receive a request for an award of costs and disbursements
within 14 days after its Decision was entered. See TCR-MD 19.
Plaintiff appeals Defendant’s notices of proposed adjustment dated April 27, 2012, April
10, 2013, and April 18, 2013, disallowing Plaintiff’s claimed working family child care credit
(working family credit) and child and dependent care credit (child care credit) claimed for tax
years 2011 and 2012. Defendant filed a motion to dismiss Plaintiff’s 2011 appeal, stating that
Plaintiff did not file a timely objection to its notices or timely appeal to the Magistrate Division.
A trial was held in the Oregon Tax Courtroom on August 4, 2014, in Salem, Oregon.
Dale Kennedy, attorney, appeared on Plaintiff’s behalf. Maureen Brown (Brown) and Robin
Donaldson (Donaldson) testified on behalf of Plaintiff by telephone. Tony Inovejas (Inovejas),
tax auditor, appeared and testified on behalf of Defendant.
Plaintiff’s Exhibits 2 through 4, 10 through 11, and 15 through 20 were admitted without
objection. Defendant’s Exhibits A and B were admitted without objection.
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FINAL DECISION TC-MD 140079D 1
Plaintiff filed a Motion to Allow Telephone Testimony on July 25, 2014. After
reviewing Tax Court Rule 59 and considering Defendant’s agreement to Plaintiff’s request, the
court granted Plaintiff’s Motion to Allow Telephone Testimony.
I. STATEMENT OF FACTS
Plaintiff testified that in 2011 and 2012 she paid cash to Brown, Donaldson, and Heidi
Ho Christian Preschool and Kindergarten (Heidi Ho Preschool) to provide care for her three
children while she was employed. Plaintiff submitted receipts that were signed by Brown,
Donaldson, and unidentified individuals from Heidi Ho Preschool. (Ptf’s Exs 4 and 20.)
Brown testified that she provided child care services for Plaintiff’s children in 2011. She
testified that she was a licensed child care provider. Brown testified that she did not have a
relationship with Plaintiff before providing child care services for Plaintiff. She testified that she
signed the following receipts:
Date Amount
June 3, 2011 $500
June 17, 2011 $600
July 1, 2011 $600
July 15, 2011 $540
July 29, 2011 $600
August 12, 2011 $600
August 26, 2011 $600
September 2, 2011 $300
(Ptf’s Ex 4 at 1, 4-5.) Brown testified that Plaintiff “always” paid her in cash, and she verified
that Plaintiff paid her for child care services on the dates she signed the receipts.
Donaldson testified that she provided child care services for Plaintiff during 2011 and
2012. She testified that she was a registered child care provider and did not have a relationship
with Plaintiff before providing child care services for Plaintiff’s children. Donaldson testified
that Plaintiff paid her in cash. She testified that she signed the following receipts:
FINAL DECISION TC-MD 140079D 2
Date Amount
Tax year 2011:
September 26, 2011 $1,000
October 20, 2011 $1,000
November 30, 2011 $1,000
December 30, 2011 $1,200
Tax year 2012:
January 31, 2012 $1,200
February 24, 2012 $1,200
April 2, 2012 $1,200
May 1, 2012 $1,200
June 1, 2012 $1,200
(Ptf’s Exs 4 at 5; 20.) Donaldson testified that she issued the receipts contemporaneously with
the receipt of cash. She testified that her 2011 Form W-10 showed that Plaintiff paid her $4,200
in cash for child care. (Ptf’s Ex 3.) Donaldson testified that her 2012 Form W-10 showed that
Plaintiff paid her $7,730 in cash for child care. (Def’s Ex B.) She testified that for tax year 2012
she marked down all of the payments she received from Plaintiff in a “Parent Payment Record”
and that she had issued receipts to Plaintiff for all of those payments except the payments
received after June 1, 2012. (Ptf’s Ex 13 at 2; Def’s Ex A.) Donaldson testified that Plaintiff
continued to pay her “cash on account” totaling $1,730 after she stopped providing child care
services for Plaintiff. (See id.)
Plaintiff testified that her gross income included her wages and $465 per month she
received for child support. She testified that she had sufficient available cash to pay the claimed
child care expenses. Plaintiff submitted a HAPO Community Credit Union “Statement
Summary” for each month from January 2011through December 2012. (Ptf’s Exs 18-19.) She
testified that those statements reported the dates she withdrew cash to cover her child care
expenses. Plaintiff testified that she did not have access to her child support bank statements
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FINAL DECISION TC-MD 140079D 3
because “they only go one year back.” She testified that she preferred to pay in cash because it
was easier and the payments were “handled right away.”
Inovejas testified that the department filed a motion to dismiss Plaintiff’s appeal for the
2011 tax year because Plaintiff’s objection to Defendant’s notice of proposed adjustment dated
April 27, 2012, was not timely and her appeal to the Magistrate Division was not timely.
Plaintiff testified that Defendant issued a document request to Plaintiff dated February 16, 2012,
requesting substantiation for the 2011 tax year child care expenses she had claimed. Inovejas
testified that the request dated February 16, 2012, stated that Plaintiff had 30 days to submit to
Defendant the requested documentation. Plaintiff testified that, on March 5, 2012, she faxed
receipts to Defendant showing she had paid cash for child care services in tax year 2011. She
testified that she did not receive a fax confirmation receipt. Inovejas testified that “the
department did not receive any documents” from Plaintiff within the 30-day period. He testified
that Defendant sent Plaintiff its Notice of Proposed Adjustment and/or Distribution dated April
27, 2012 (Tax Year 2011 Notice), denying Plaintiff’s claimed child care credit for the 2011 tax
year. Inovejas testified that Defendant received no objection from Plaintiff within 30 days after
the Tax Year 2011 Notice was issued. Plaintiff testified that after receiving the Tax Year 2011
Notice she spoke with someone from “the department” “[b]etween May 21- 25, 2012,” who told
her that she needed to submit a letter of explanation, receipts, bank statements and other
documents showing that she paid for child care services in tax year 2011. (See Ptf’s Ex 15 at 2.)
She testified that she wrote a letter of explanation on June 1, 2012, and that she sent the letter of
explanation and “all child care receipts and requested documentations” by certified mail to
Defendant on June 4, 2012, but did not have a mailing receipt. (Ptf’s Ex 15 at 2.)
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FINAL DECISION TC-MD 140079D 4
Plaintiff testified that she filed tax year 2011 amended federal and state income tax
returns because she “accidently claimed child support as alimony” and “forgot to include a
dependent” on her original 2011 tax returns. Inovejas testified that after receiving Plaintiff’s
2011 amended return, the department sent Plaintiff a Notice of Proposed Adjustment and/or
Distribution dated April 18, 2013, stating:
“We have reviewed your amended Oregon income tax return and adjustments are
necessary. ORS 305.265.
“Your Oregon child care credit and working family child care credit have been
adjusted or denied because you did not provide valid proof of payment of child care
expenses. (ORS 316.078, ORS 315.262, ORS 314.425.)
*****
“You cannot dispute issues already heard, court ordered judgments, or issues you did not
appeal in time. * * *.”
(Ptf’s Ex 10 at 2-3.)
Inovejas testified that for the tax year 2012 Defendant sent Plaintiff a Notice of Proposed
Adjustment and/or Distribution dated April 10, 2013, denying Plaintiff’s claimed child care
credit and working family credit.
Plaintiff testified that after receiving Defendant’s notices she faxed a request for a
conference to the department on May 8, 2013. Inovejas testified that Plaintiff did not provide
adequate substantiation during the conference for tax year 2012, stating that Plaintiff did not
provide the conference officer with bank statements proving she had paid for child care.
Inovejas testified that “the department applies more scrutiny” when taxpayers pay cash for
claimed child care expenses. Inovejas testified that the conference officer asserted Plaintiff’s
appeal of tax year 2011 was “closed” and did not review Plaintiff’s documents. Plaintiff testified
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FINAL DECISION TC-MD 140079D 5
that her appeal rights became “fresh” for the 2011 tax year when Defendant accepted her
amended return.
II. ANALYSIS
Three issues are before the court: (1) whether Plaintiff’s right to appeal Defendant’s
denial of her claimed 2011 child care expenses expired before she filed her amended 2011
income tax return; (2) whether Defendant is estopped from denying Plaintiff’s requested tax year
2011 income tax refund; and (3) whether Plaintiff should be allowed to claim a working family
child credit and a child care credit for tax year 2012.
A. Plaintiff’s 2011 amended return
The first issue is whether Plaintiff’s right to appeal Defendant’s denial of her claimed
child care expenses expired before she filed her amended 2011 income tax return. Defendant
issued Plaintiff its Notice of Proposed Adjustment and/or Distribution for tax year 2011 on
April 27, 2012. Under applicable law, Plaintiff could file a written objection or request a
conference with Defendant within 30 days of the date the notice was issued, as provided in ORS
305.270(4)(b),1 or Plaintiff could wait until the date the notice became final, and appeal to this
court within 90 days of that date, as provided in ORS 305.280(2). By statute, Defendant’s notice
became final 30 days after it was issued unless Plaintiff requested a conference or submitted a
written objection within that time period. See ORS 305.270(5)(b). Plaintiff submitted no
evidence that she requested a conference or filed a written objection between April 27, 2012, and
May 27, 2012. (Cf. Ptf’s Ex 15 at 2 (stating Plaintiff wrote “letter of explanation” June 1, 2012,
and mailed letter and documentation June 4, 2012).) After May 27, 2012, Plaintiff had 90 days
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1
The court’s references to the Oregon Revised Statutes (ORS) are to 2011.
FINAL DECISION TC-MD 140079D 6
to appeal to this court. Plaintiff mailed her Complaint to this court on March 17, 2014, a date
substantially beyond the allowable 90 days.
Plaintiff argues that her appeal rights became “fresh” when Defendant accepted her
amended 2011 return. This court has previously held that an amended return does not reopen a
taxpayer’s appeal rights for matters that a taxpayer was previously requested to document. See
Juarez v. Department of Revenue (Juarez), TC-MD No 060680C, WL 283127 (Jan 4, 2007). In
Juarez, Defendant issued the plaintiff a notice of deficiency to which the plaintiff failed to timely
appeal within 90 days. Id. at *1. Long after his appeal rights had expired, the plaintiff filed an
amended return and appealed to the tax court, wishing to address the notice of deficiency. Id.
The court held that because the plaintiff failed to appeal within the time allowed, the appeal must
be dismissed. Id. at *2.
The case before the court is similar to Juarez. Plaintiff testified that after receiving
Defendant’s Notice of Proposed Adjustment and/or Distribution dated April 27, 2012, she spoke
with a Department of Revenue representative between May 21 and 25, 2012, who told her to
submit a written explanation, receipts, and bank statements. Inovejas testified that Defendant did
not receive a written objection or conference request from Plaintiff within 30 days of the date of
the Notice, and Plaintiff submitted no evidence showing that she filed a written objection or
made a conference request within the allowable 30 days. Plaintiff testified that she submitted a
letter of explanation by certified mail on June 4, 2012, a date after the allowable 30-day time
period. Plaintiff did not appeal to this court until March 17, 2014. Like Juarez, Plaintiff’s
appeal rights expired before she filed a written objection or conference request with Defendant
and an appeal with this court. Plaintiff’s 2011 amended return did not provide her with an
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FINAL DECISION TC-MD 140079D 7
opportunity to appeal Defendant’s denial of her claimed child care expenses because her
opportunity to make that appeal expired before she filed her amended return.
B. Estoppel
The second issue before the court is whether Defendant is estopped from denying
Plaintiff’s 2011 income tax refund request based on Defendant’s denial of her claimed child care
expenses. Plaintiff alleged that Defendant is estopped from denying her working family credit
and child care credit for 2011 because she was misled by Defendant.
In the area of taxation, estoppel is granted in rare instances when the following three
elements have been proven: (1) the defendant’s conduct misled the plaintiff; (2) the plaintiff had
a good faith reliance on the conduct; and (3) the plaintiff was injured by its reliance on the
defendant’s conduct. Sayles v. Dept. of Rev., 13 OTR 324, 328 (1995). With respect to the first
element, “taxpayers can claim estoppel against governmental taxing authorities only ‘when there
is proof positive that the collector has misinformed the individual taxpayer.’ ” Webb v. Dept. of
Rev. (Webb I), 18 OTR 381, 384 (2005) (quoting Johnson v. Tax Commission, 248 Or 460, 463,
435 P2d 302 (1967)). This court has concluded that “proof positive” is a “stringent proof
requirement.” Id. Taxpayers have prevailed where there was proof of “incorrect or misleading
documents sent by taxing authorities to the taxpayer[,]” or proof positive of a taxing authority’s
“misleading course of conduct.” Id. However, there are few cases in which an Oregon court has
considered oral communication to constitute a part of “proof positive.” See, e.g., Pilgrim Turkey
Packers v. Dept. of Rev., 261 Or 305, 310, 493 P2d 1372 (1972) (finding proof positive of
misleading conduct in ambiguous form alone, but holding taxpayer’s estoppel claim was made
“even stronger” by evidence of oral misinformation).
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FINAL DECISION TC-MD 140079D 8
In deciding whether Defendant is estopped from denying Plaintiff’s 2011 refund request,
the court first reviews the action Defendant took with respect to Plaintiff. To meet the standard
of proof positive taxpayers must supply detailed evidence of Defendant’s conduct:
“Taxpayers who rely on oral communications alone must provide more, such as
detailed memoranda that are written contemporaneously with the communications
and that corroborate the taxpayer’s recollection of them. Even if a taxpayer
cannot offer such memoranda, she is more likely to show ‘proof positive’ that the
government misled her if she describes the communications in great detail,
including the nature, date, and time of each conversation; the names and
relationships to the parties of all those who took part in each conversation; those
persons’ knowledge of taxpayer’s situation and of the relevant law; and the exact
statements made as well as their form and intended meaning.”
Webb v. Dept. of Rev. (Webb II), 19 OTR 20, 26 (2006).
To show she was injured by Defendant’s conduct, Plaintiff must prove that Defendant
misled her during the time she had to file an objection to Defendant or an appeal to the tax court.
Plaintiff created a timeline that listed the conversations she had with Defendant. (See Ptf’s Ex
15.) She testified that she created the timeline based on notes and memoranda she produced
while discussing her issues with Defendant. Plaintiff provided some of the names of the
individuals she spoke with and brief descriptions of what those individuals told her. There is no
evidence contained in the timeline showing that Plaintiff was misled during the applicable 30-
and 90- day periods arising from Defendant’s Tax Year 2011 Notice, dated April 27, 2012.
From April 27, 2012, through August 25, 2012, Plaintiff’s timeline indicates that she made
multiple phone calls to Defendant and was instructed to file a letter of explanation and submit
applicable documentation. Unfortunately, Plaintiff took no action in response to Defendant’s
verbal advice until June 4, 2012—a week after her appeal rights expired. Even though Plaintiff
testified that she had subsequent telephone conversations with Defendant’s representatives, those
conversations occurred after her opportunity to appeal directly to Defendant lapsed.
FINAL DECISION TC-MD 140079D 9
Plaintiff offered no evidence showing that she was misled. During Plaintiff’s one
reported contact with a Department of Revenue representative within the applicable 30-day
period, Plaintiff was instructed to submit a written explanation with accompanying
documentation. That instruction was consistent with the Tax Year 2011 Notice. Plaintiff did not
testify or document a conversation in which she was told to disregard her appeal deadline. There
is no evidence that Plaintiff was misled by Defendant. There is no evidence that supports
Plaintiff’s claim that Defendant is estopped from denying her 2011 income tax refund request for
claimed child care expenses.
Plaintiff’s rights to challenge Defendant’s denial of her 2011 claimed child care expenses
expired when she failed to timely file a written objection or conference request, or to timely
appeal to this court. Defendant’s motion to dismiss Plaintiff’s appeal for the 2011 tax year is
granted.
C. Working family credit and child care credit
Oregon allows a qualifying taxpayer to claim a refundable credit to partially offset the
taxpayer’s child care costs incurred while a taxpayer is working or attending school. ORS
315.262; OAR 150-315.262(3)(b)(C).2 This credit is commonly referred to as the working
family credit. The statute provides in relevant part:
“A qualified taxpayer shall be allowed a credit against the taxes otherwise due
under ORS chapter 316 equal to the applicable percentage of the qualified taxpayer’s
child care expenses (rounded to the nearest $50).”
ORS 315.262(3).
In addition to the working family credit, ORS 316.078 provides for a nonrefundable
credit for certain employment-related expenses, including child care, paid by a taxpayer for the
2
Oregon Administrative Rule (OAR)
FINAL DECISION TC-MD 140079D 10
care of a dependent child or children. That credit is commonly referred to by the short title
“child care credit.” The child care credit is specifically tied to Internal Revenue Code (IRC)
section 21. The child care credit is “equal to a percentage of employment-related expenses
allowable pursuant to section 21 of the Internal Revenue Code * * *.” ORS 316.078(1). Oregon
Administrative Rule 150-316.078(1), provides, in part, “When calculating the Oregon child care
credit, taxpayers must use the same employment related expenses used for calculating the federal
credit, subject to the same limitations and eligibility requirements outlined in the IRC Section
21.” See ORS 305.100 (giving rule-making authority to Department of Revenue). Internal
Revenue Code section 21(a)(1) provides a credit for a “percentage of the employment-related
expenses * * * paid by such individual during the taxable year.” Treasury Regulation section
1.21-1(c) (2007) provides, in part, “Expenses are employment-related expenses only if they are
for the purpose of enabling the taxpayer to be gainfully employed. The expenses must be for the
care of a qualifying individual or household services performed during periods in which the
taxpayer is gainfully employed or is in active search of gainful employment.”
Plaintiff claimed a working family credit and a child care credit. To receive either or
both credits, a taxpayer must pay for child care. ORS 315.262(3); ORS 316.078(1). After
requesting substantiation for the child care expenses paid by Plaintiff and receiving no
documents that met its substantiation requirements, Defendant denied Plaintiff’s claimed credits.
Plaintiff appeals Defendant’s denial.
The third issue before the court is whether Plaintiff is entitled to claim a working family
and child care credit based on the amount of child care expenses she paid for the 2012 tax year.
“In all proceedings before the judge or a magistrate of the tax court and upon appeal therefrom, a
preponderance of the evidence shall suffice to sustain the burden of proof. The burden of proof
FINAL DECISION TC-MD 140079D 11
shall fall upon the party seeking affirmative relief. * * *.” ORS 305.427. Plaintiff must establish
her claim “by a preponderance of the evidence, or the more convincing or greater weight of
evidence.” Schaefer v. Department of Revenue, TC No 4530, WL 914208 at *2 (July 12, 2001)
(citing Feves v. Dept. of Revenue, 4 OTR 302 (1971)); see Thompson v. Department of Revenue,
TC-MD 130483D (Mar 21, 2014) (stating fully-completed receipts are persuasive evidence of
cash payments for child care expenses and testimony is evaluated in context of receipts).
Plaintiff’s evidence was her own testimony, copies of receipts, witness testimony, and
related documentation, including the child care provider’s identification and certification form
(federal form W-10) and “Parent Payment Record.” Donaldson testified that Plaintiff paid her
$7,730 in cash for child care. Plaintiff submitted completed and signed receipts from Donaldson
showing that Plaintiff paid Donaldson $6,000 for child care during tax year 2012. Donaldson
testified that she received an additional $1,730 in cash for payments made “on account” because
Plaintiff paid Donaldson over a period of time for child care services occurring after June 1,
2012. Donaldson’s “Parent Payment Record” and her federal form W-10 support her testimony.
(Def’s Exs A-B.) Plaintiff and Donaldson were credible witnesses. Plaintiff met her burden of
proof for tax year 2012.
III. CONCLUSION
After careful consideration of the testimony and evidence, the court concludes that
Plaintiff paid $7,730 for child care expenses in tax year 2012. Now, therefore,
IT IS THE DECISION OF THIS COURT that Defendant’s motion to dismiss Plaintiff’s
2011 tax year appeal is granted.
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FINAL DECISION TC-MD 140079D 12
IT IS FURTHER DECIDED that Plaintiff is entitled to claim $7,730 for child care
expenses in tax year 2012.
Dated this day of October 2014.
JILL A. TANNER
PRESIDING MAGISTRATE
If you want to appeal this Final Decision, file a Complaint in the Regular
Division of the Oregon Tax Court, by mailing to: 1163 State Street, Salem, OR
97301-2563; or by hand delivery to: Fourth Floor, 1241 State Street, Salem, OR.
Your Complaint must be submitted within 60 days after the date of the Final
Decision or this Final Decision cannot be changed.
This document was signed by Presiding Magistrate Jill A. Tanner on October 9,
2014. The court filed and entered this document on October 9, 2014.
FINAL DECISION TC-MD 140079D 13