Schussel v. Commissioner of Revenue

NOTICE: All slip opinions and orders are subject to formal
revision and are superseded by the advance sheets and bound
volumes of the Official Reports. If you find a typographical
error or other formal error, please notify the Reporter of
Decisions, Supreme Judicial Court, John Adams Courthouse, 1
Pemberton Square, Suite 2500, Boston, MA, 02108-1750; (617) 557-
1030; SJCReporter@sjc.state.ma.us
SJC-11807
GEORGE SCHUSSEL & another1 vs. COMMISSIONER OF REVENUE.
Suffolk. March 3, 2015. - July 1, 2015.
Present: Gants, C.J., Spina, Cordy, Botsford, Duffly, Lenk, &
Hines, JJ.
Taxation, Appellate Tax Board: findings, Income tax, Gross
income, Income tax returns. Words, "Tax-related."
Appeal from a decision of the Appellate Tax Board.
After review by the Appeals Court, the Supreme Judicial
Court granted leave to obtain further appellate review.
Francis J. DiMento for the taxpayers.
John M. Stephan, Assistant Attorney General, for
Commissioner of Revenue.
LENK, J. Since the 1970s, George and Sandra Schussel2 have
owned property and business interests in Massachusetts, and have
had other close ties to the Commonwealth. The Schussels, who
1
Sandra Schussel.
2
Because they share a last name, we refer to George and
Sandra Schussel by their first names.
2
are married, filed no Massachusetts tax returns between 1989 and
2007. In 2007, George was convicted of Federal conspiracy and
tax evasion charges in the United States District Court for the
District of Massachusetts. The Commissioner of Revenue
(commissioner) then issued the Schussels a notice of failure to
file Massachusetts income tax returns for the years 1993, 1994,
and 1995. When the Schussels subsequently filed tax returns for
those years, the returns were determined by the commissioner to
be "false or fraudulent," or to have been filed "with a willful
attempt . . . to defeat or evade the tax." See G. L. c. 62C,
§ 28. Accordingly, the commissioner imposed a "double
assessment" against the Schussels. The Schussels submitted a
request for abatement of the double assessment, which the
commissioner denied.
The commissioner's decisions were upheld by the Appellate
Tax Board (board), and the Appeals Court affirmed. See Schussel
v. Commissioner of Revenue, 86 Mass. App. Ct. 419, 431 (2014).
We allowed the Schussels' petition for further appellate review.
Before us, the Schussels claim two errors. First, they contend
that they were not properly subject to a double assessment.
They note, in this context, that their tax returns were prepared
for them by an attorney, and that they attached a "rider" to
those returns, stating that the sums reported were the subject
of Federal criminal proceedings against George. The Schussels'
3
second claim is that they were entitled to relief from the
double assessment under an amnesty program established by the
commissioner in 2009, pursuant to St. 2008, c. 461 (2009 amnesty
program). Although the 2009 amnesty program does not apply to
"any taxpayer who . . . was the subject of a tax-related
criminal investigation or prosecution," St. 2008, c. 461, § 1,
the Schussels argue that this exception refers only to
investigations or prosecutions arising from State, not Federal,
tax offenses.
We affirm, concluding that the board's findings of fact are
supported by substantial evidence and that the Schussels' claim
that the 2009 amnesty program applies to them is not properly
before us.
1. Background. We summarize the facts essential to our
analysis, as found by the board, reserving disputed issues for
later discussion.
The Schussels settled in Lynnfield in 1971, purchasing a
home there. They subsequently acquired several additional
Massachusetts properties. In 1979, George founded a
Massachusetts corporation named Digital Consulting, Inc. (DCI),
which he then ran with Sandra's assistance. At around the same
time, the Schussels bought a residence in New Hampshire. They
retained family ties and social relationships in Massachusetts,
remained heavily involved with DCI, renewed their Massachusetts
4
driver's licenses, and registered the vehicles they used most
frequently in Massachusetts. From 1989 through 2007, the
Schussels did not file Massachusetts tax returns, either as
residents or as nonresidents.
In 2004, George was indicted in the United States District
Court for the District of Massachusetts on one count of
conspiracy and two counts of tax evasion. The conspiracy charge
concerned the years 1988 to 1998. One of the tax evasion
charges was based on George's Federal tax return for 1995.3 In
January, 2007, a jury returned guilty verdicts on all three
counts. George appealed, and the conviction was affirmed. See
United States v. Schussel, 291 Fed. Appx. 336 (1st Cir. 2008).
In May, 2007, the commissioner issued the Schussels a
notice of failure to file Massachusetts income tax returns for
the years 1993, 1994, and 1995. The Schussels subsequently
filed returns for those years. In those returns, they
classified themselves as nonresidents, and reported income
amounts that, at least for the year 1995, were identical to the
amounts deemed false in George's Federal criminal case. The
commissioner assessed the amounts of tax due based on the
Schussels' returns, and the Schussels paid the assessed amounts.
3
The other count of tax evasion concerned the tax return of
Digital Consulting, Inc., for the same year.
5
In August, 2007, relying on information that emerged in
George's prosecution, the commissioner assessed additional taxes
against the Schussels. The additional assessment increased the
amount of revenue attributed to the Schussels, classified the
Schussels as Massachusetts residents, and imposed a "double
assessment" pursuant to G. L. c. 62C, § 28.4
In February, 2009, the commissioner issued a tax amnesty
notice to the Schussels.5 The notice stated that the
commissioner would waive certain penalties and interest -- not
including the double assessment -- if the Schussels paid the
full amount due from them by the end of April, 2009. The
Schussels paid the balance demanded in the tax amnesty notice
and received the benefit described in it.
The Schussels submitted to the commissioner a request for
abatement of all of the additional taxes that had been imposed
on them in August, 2007. The commissioner denied the request.
The Schussels appealed to the board, arguing primarily that,
4
Before the Appellate Tax Board (board) and the Appeals
Court, the Schussels argued that the authority of the
Commissioner of Revenue (commissioner) to impose an additional
assessment on them was limited to a seven-year "look-back"
period by force of a written policy issued by the commissioner.
They do not pursue this argument before us.
5
The commissioner asserts that this notice was issued
inadvertently, and the board so found. As nothing of substance
turns on this finding, we do not take up the Schussels'
challenge to it.
6
during the tax years in question (1993 through 1995), they had
not been residents of Massachusetts. The board upheld the
commissioner's additional assessment, finding that the Schussels
were Massachusetts residents during the relevant years, that
they filed false tax returns "knowingly" and with an "intent to
evade taxes," and that they were not entitled to relief under
the 2009 amnesty program.
The Appeals Court affirmed, and we allowed the Schussels'
petition for further appellate review. In their appellate
proceedings, the Schussels have abandoned the claim that they
were nonresidents during the tax years at issue.
2. Standard of review. Appellate review of a decision of
the board is limited in scope. By legislative mandate, "[t]he
decision of the board shall be final as to findings of fact."
G. L. c. 58A, § 13. Nevertheless, a decision of the board, like
that of any administrative agency, see G. L. c. 30A,
§ 14 (7) (e), may be challenged on the ground that it is not
supported by "substantial evidence." See Capital One Bank v.
Commissioner of Revenue, 453 Mass. 1, 8, cert. denied, 557 U.S.
919 (2009), quoting Boston Professional Hockey Ass'n, Inc. v.
Commissioner of Revenue, 443 Mass. 276, 285 (2005).
"Substantial evidence is 'such evidence as a reasonable mind
might accept as adequate to support a conclusion.'" Boston Gas
Co. v. Assessors of Boston, 458 Mass. 715, 721 (2011), quoting
7
Tennessee Gas Pipeline Co. v. Assessors of Agawam, 428 Mass.
261, 262 (1998). See G. L. c. 30A, § 1 (6). Otherwise put, a
conclusion lacks a substantial evidentiary basis if "the
evidence points to no felt or appreciable probability of the
conclusion or points to an overwhelming probability of the
contrary." Boston Gas Co. v. Assessors of Boston, supra at 721-
722, quoting Tennessee Gas Pipeline Co. v. Assessors of Agawam,
supra.6
We conduct an independent analysis of the board's rulings
of law, according "some deference" to the board's "expertise in
interpreting the tax laws of the Commonwealth." See Capital One
Bank v. Commissioner of Revenue, supra; McCarthy v. Commissioner
of Revenue, 391 Mass. 630, 632 (1984), quoting French v.
Assessors of Boston, 383 Mass. 481, 482 (1981). "[W]e are
precluded," however, "from 'consider[ing] any issue of law which
does not appear to have been raised in the proceedings before
the board.'" Commissioner of Revenue v. New England Power Co.,
411 Mass. 418, 425 (1991), citing G. L. c. 58A, § 13.
6
We have stated on occasion that the board's findings of
fact will stand if they are supported by "sufficient" evidence.
See, e.g., Boston Professional Hockey Ass'n, Inc. v.
Commissioner of Revenue, 443 Mass. 276, 285 (2005); General
Mills, Inc. v. Commissioner of Revenue, 440 Mass. 154, 161
(2003), cert. denied, 541 U.S. 973 (2004), quoting Olympia &
York State St. Co. v. Assessors of Boston, 428 Mass. 236, 240
(1998). In this context, "substantial evidence," as defined by
G. L. c. 30A, § 1 (6), is sufficient to support the board's
findings.
8
3. Imposition of double assessment. General Laws c. 62C,
§ 28, authorizes the commissioner to impose an assessment of
"not more than double" the amount of tax he or she determines to
be due in three situations: (a) where a person, after being
notified of deficiencies in his or her tax return, "refuses or
neglects within thirty days . . . to file a proper return";
(b) where a person "has filed a false or fraudulent return"; or
(c) where a person "has filed a return with a willful attempt in
any manner to defeat or evade the tax."
There is now no dispute that the Schussels' Massachusetts
tax returns for the years from 1993 to 1995, filed in response
to the commissioner's May, 2007, notice of failure to file, were
incorrect in at least two ways. First, the returns classified
the Schussels as nonresidents when they were, in fact,
residents. Second, the amounts of income reported in the
returns were lower than the amounts that the Schussels actually
earned. For instance, in their 1995 tax return, the Schussels
reported their total income as $1,057,361. This was essentially
the same amount of income reported to the Internal Revenue
Service (IRS) for that year. That report culminated in George's
conviction of Federal tax evasion. The IRS since has determined
9
that the Schussels' true income for 1995 was $3,341,868. The
Schussels do not contest that determination.7
Not every inaccurate tax return represents a "false or
fraudulent return" within the meaning of G. L. c. 62C, § 28. As
the board has said, "[f]raud cannot be shown by mere proof that
a party made an error of fact. Rather, the [commissioner] must
demonstrate 'an actual intent to deceive.'" Food Serv. Assocs.,
Inc. v. Commissioner of Revenue, 26 Mass. App. Tax Bd. Rep. 438,
444 (2001), quoting Metropolitan Life Ins. Co. v. Burno, 309
Mass. 7, 10 (1941), overruled on other grounds by Pahigian v.
Manufacturers' Life Ins. Co., 349 Mass. 78, 87 (1965).
Likewise, a "willful attempt to defeat or evade [taxation]," in
the board's words, "does not include negligence, carelessness,
misunderstanding or unintentional understatement of income."
Scagel v. Commissioner of Revenue, 13 Mass. App. Tax Bd. Rep.
38, 48 (1990), quoting United States v. Pechenik, 236 F.2d 844,
846 (3d Cir. 1956). Thus, a double assessment penalty may be
7
The Schussels contend that the amounts of income that they
earned in the relevant years were not "finally determined" when
they filed their Massachusetts returns. This argument appears
to be premised on the fact that the Internal Revenue Service
(IRS) adjusted its assessment of the Schussels' income in
January, 2009. But by the time the commissioner imposed a
double assessment on the Schussels, the Federal government
already had determined that the Schussels had substantially
underreported their income. Moreover, the IRS corrected its
assessment quickly enough that the new figures were submitted to
the board and considered in its decision.
10
imposed under G. L. c. 62C, § 28, only on taxpayers whose
conduct was knowing and intentional; negligence or carelessness
do not suffice.
The board found that the Schussels' filing of false returns
was "knowing," and that they made their filings with an "intent
to evade taxes."8 The board based these findings on essentially
the following factors. First, from 1989 through 2007, the
Schussels did not merely fail to classify themselves in their
returns as Massachusetts residents; rather, they did not file
any Massachusetts returns, either as residents or as
nonresidents, despite their substantial Massachusetts property
and business interests. Second, during the same period, the
Schussels also abstained from filing any tax returns in New
Hampshire (as to income from interest or dividends; New
Hampshire does not have a general income tax). Third, the
amounts of income stated in the Schussels' tax returns were the
same sums that, by that time, had resulted in George's
conviction of tax evasion in Federal court. The board also
stated repeatedly that, having heard the testimony of the
Schussels, the board did not find that testimony credible.
8
The board wrote also that the Schussels exhibited, "at a
minimum, reckless indifference to the obligation to file
accurate taxes." The board's decision as a whole leaves no
doubt that, notwithstanding this delicate phraseology, the board
found the Schussels' actions to have been knowing and
intentional, not merely reckless or indifferent.
11
The Schussels present two main arguments against the
board's finding that their false returns were filed knowingly
and intentionally.9 Neither argument persuades us that the
board's determinations were based on an error of law, or that
its findings are not supported by substantial evidence. See
Capital One Bank v. Commissioner of Revenue, 453 Mass. at 8,
quoting Boston Professional Hockey Ass'n, Inc. v. Commissioner
of Revenue, 443 Mass. at 285.
First, the Schussels point to a "rider" attached to each of
their three Massachusetts tax returns. Each rider stated as
follows:
"Taxpayer is currently a party to a criminal tax case
brought by the U.S. Attorney's office . . . . Items of
gross income determined pur[su]ant to said case are the
subject of a pending appeal regarding amount,
characterization and source. Income which is the subject
of said case/appeal has not been reported on this return
due to the uncertain[]ties described above."
The Schussels contend that this rider undermines the board's
conclusion that they knowingly and intentionally filed false
9
The Schussels also argue that it was not necessarily
fraudulent for them to have reused, in their Massachusetts tax
returns, the income figures that the IRS and the United States
District Court jury had found to be false. They suggest, in
essence, that the unreported income absent from their Federal
returns might not have been taxable in Massachusetts in any
event. We need not dwell on this argument, which was not made
below, is not supported by record evidence, and, even if
correct, would not alter our conclusion that the board's
findings were grounded in substantial evidence.
12
returns. This argument lacks merit, as the rider itself was
misleading.
George's Federal appeal arose from his conviction of
criminal offenses. The issues presented in the appeal were "(1)
whether documents turned over to the government from [George's]
attorney's files violate[d] the attorney-client privilege;
(2) whether the refusal of the trial court to give certain
requested jury instructions violated [George's] right to a fair
trial; and (3) whether sufficient evidence support[ed]
[George's] conviction for conspiracy." United States v.
Schussel, 291 Fed. Appx. 336, 337 (1st Cir. 2008). The appeal
thus did not contend that the figures reported by the Schussels
to the IRS represented their true levels of income. Nor was it
possible that an appeal from George's criminal conviction, given
its procedural posture, would culminate in an adjustment of the
Schussels' tax liability. In short, the pendency of George's
criminal appeal provided no good faith basis for the Schussels
to continue to report their income, in their Massachusetts tax
returns, using the false figures originally reported to the IRS.
Their suggestion to the contrary, set forth in their rider, was
itself a misrepresentation.
Next, the Schussels note that their tax returns were
prepared by a tax attorney. This fact, the Schussels argue,
"cuts against" a finding that they acted knowingly and
13
intentionally in filing the false returns. We recognize, as the
board previously has, that a taxpayer ordinarily should not be
determined to have filed false returns knowingly and
intentionally if he or she disclosed the relevant facts to an
accountant or an attorney, and relied in good faith on the
advice of that accountant or attorney. See Scagel v.
Commissioner of Revenue, 13 Mass. App. Tax Bd. Rep. at 48. See
also United States v. Boyle, 469 U.S. 241, 251 (1985) ("When an
accountant or attorney advises a taxpayer on a matter of tax
law . . . it is reasonable for the taxpayer to rely on that
advice"); McMurray v. Commissioner of Internal Revenue, 985 F.2d
36, 43 (1st Cir. 1993) ("Reasonable reliance on expert opinion,
asserted in good faith, can shield a taxpayer" from penalties
for failure to pay tax).
In the present case, however, the record contains no
indication that the Schussels provided their attorney with such
a full and accurate disclosure of relevant information
concerning either their ties to Massachusetts or their actual
income. In these circumstances, the fact that the tax returns
were prepared by an attorney has little, if any, significance
for the question whether the Schussels filed their false returns
knowingly and intentionally. Cf. Smaland Beach Ass'n, Inc. v.
Genova, 461 Mass. 214, 222 (2012), citing G.S. Enters., Inc. v.
Falmouth Marine, Inc., 410 Mass. 262, 275 (1991) (advice-of-
14
counsel defense to suit requires "a showing that the clients
made a full and honest disclosure of material facts to the
attorney and that they followed the attorney's advice");
Commonwealth v. Ballou, 283 Mass. 304, 314 (1933) (approving of
jury instructions, in trial for fraud and corrupt conduct,
stating that, "the fact that the defendants consulted counsel
would have a bearing on their good faith, but they must show
that they made a full and frank disclosure to those whose advice
they sought").
The short of the matter is that the factors identified by
the board, as described supra, coupled with the board's
assessment of the Schussels' credibility, amounted to "such
evidence as a reasonable mind might accept as adequate" to
support the determination that the Schussels knowingly and
intentionally filed false tax returns. See Boston Gas Co. v.
Assessors of Boston, 458 Mass. 715, 721 (2011), quoting
Tennessee Gas Pipeline Co. v. Assessors of Agawam, 428 Mass.
261, 262 (1998).
4. Amnesty program. In St. 2008, c. 461, the Legislature
instructed the commissioner to establish a two-month tax amnesty
program. The program described by the Legislature was to grant
taxpayers relief from penalties for unfiled returns, improper
returns, and failures to make full and timely tax payments. See
St. 2008, c. 461, § 1. Taxpayers would gain the privilege of
15
amnesty by filing proper returns, making proper payments, and
"otherwise com[ing] into compliance with the tax laws of the
[C]ommonwealth" by a deadline to be established by the
commissioner. See id. The Legislature stated, however, that
"[t]he commissioner's authority to waive penalties . . . shall
not apply to any taxpayer who, before the start date of the
amnesty program . . . was the subject of a tax-related criminal
investigation or prosecution." Id.
The commissioner complied, administering the 2009 amnesty
program during March and April of that year. See Technical
Information Release 09–3 (Feb. 19, 2009), 5 Official MassTax
Guide, at PWS-260 (Thomson Reuters 2015). As directed, the
commissioner announced that amnesty would not be granted to "any
taxpayer who, prior to March 1, 2009, was the subject of a tax-
related criminal investigation or prosecution." Id. part
III.A.2, at PWS-261.
The 2009 amnesty program resulted, as mentioned, in the
Schussels being relieved of certain penalties, but not of the
double assessment imposed on them. The Schussels claim that
they were entitled to amnesty from that penalty as well. They
argue, to this end, that a criminal investigation or prosecution
excludes a taxpayer from the 2009 amnesty program only if it
concerns "Massachusetts taxes imposed pursuant to Massachusetts
statutes."
16
Because this argument "does not appear to have been raised
in the proceedings before the board," it is not properly before
us. See G. L. c. 58A, § 13. We note, nevertheless, that it
would not affect the outcome. Assuming, without deciding, that
the term "tax" in the context of the 2009 amnesty program refers
to Massachusetts taxes only, a Federal prosecution for
underreporting Federal income taxes would nevertheless be "tax-
related," given that income tax liability in Massachusetts is
calculated on the basis of Federal tax liability. See G. L.
c. 62, §§ 2, 6F.
Decision of the Appellate
Tax Board affirmed.