Horn v. Dept. of Rev.

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.

///

///

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

///

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.)

///

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

///

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

///

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

///

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).

///

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.

///

///

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