Notice of Final Assessment Must Be Served to Both Taxpayer and Representative
The 35-day Period for Filing an Appeal Does Not Start Until Both the Taxpayer and the Taxpayer's Representative Are Served with the Final Assessment
In two cases decided at the Tax Tribunal involving sales tax audits of convenience stores based on upside down audit techniques and a two month sample, the Court of Appeals rendered a decision on the "subject matter jurisdiction" of the Tax Tribunal. In both cases the Tax Tribunal ruled that the audit techniques were invalid. However, the Department of Treasury appealed because the Petitions in both cases were filed late. The taxpayer in both cases executed a Power of Attorney asking the Department of Treasury to send notices to their CPA. Treasury did not, as is their policy. The failure of the CPA to receive the Final Assessment caused the Petition to be filed late.
In SMK LLC v. Department of Treasury, Michigan Court of Appeals, No. 306639, October 30, 2012, the Court of Appeals has held that the Michigan Tax Tribunal had proper jurisdiction to determine a taxpayer's appeal of a sales tax assessment because the applicable 35-day period for filing an appeal did not commence until both the taxpayer and the taxpayer's representative were served with the final assessment. The taxpayer had filed a request with the Department of Treasury to send copies of all letters and notices to its official representative. However, a copy of the assessment was not sent to the representative until 10 months after it was submitted to the taxpayer. Though MCL 205.28 requires that notice be given to the taxpayer, the court found that MCL 205.8 imposes a parallel notice requirement when the taxpayer has a valid written request on file for the department to send copies to a representative. Therefore, the 35-day filing period did not begin to accrue until both the taxpayer and its representative were served.
In Fradco, Inc. v. Department of Treasury, Michigan Court of Appeals, No. 306617, October 30, 2012, a case decided concurrently with SMK LLC v. Department of Treasury, No. 306639, the Court of Appeals held that the Michigan Tax Tribunal had proper jurisdiction to determine a taxpayer's appeal of a sales tax assessment because the applicable 35-day period for filing an appeal did not commence until both the taxpayer and the taxpayer's representative were served with the final assessment. The taxpayer had filed a request with the Department of Treasury to send copies of all letters and notices to its official representative. Though MCL 205.28 requires that notice be given to the taxpayer, the court found that MCL 205.8 imposes a parallel notice requirement when the taxpayer has a valid written request on file for the Department of Treasury to send copies to a representative. Though the Department of Treasury claimed that it issued a notice of the issuance of a Final Assessment to the representative, this letter was not a final assessment within the meaning of MCL 205.8.
Ed Kisscorni handled both cases at the Tax Tribunal and succeeded in obtaining a favorable decision for the taxpayer in both cases. Upside down auditing using indirect audit procedures based on an inadequate sample are invalid. Joe Tomczyk testified as an expert on audit procedures. Jim Novis handled the jurisdictional despite, based on "late" appeals, which was caused by the Final Assessments not having been provided to the Powers of Attorney, the CPAs handling the sales tax audits that generated the assessments. The Tax Tribunal applied MCL 205.8 and tried both cases based on the merits.
Both of the taxpayers involved, small convenience store businesses, employed very capable outside accountants who maintained complete and accurate books and records. The Department ignored these records and commenced an audit on the presumption that as cash businesses, the records were inaccurate. The Department reviewed only purchases and extrapolated grossly overstated sales amounts that ignored shrinkage and inventories. The Tax Tribunal found this "audit" method to be erroneous ruling the Department had not carried its burden of proof and cancelled the assessments. The Department appealed to the Court of Appeals solely on the jurisdiction issue asking the Court of Appeals to allow it to collect assessments that the Tax Tribunal found to be without substantive merit.
These two decisions of the Court of Appeals are PUBLISHED decisions granting a complete taxpayer victory on the MCL 205.8 Power of Attorney issue.
Michigan Department of Treasury Revises their Power of Attorney Form
This past summer, the Department of Treasury issued on their website a revised Power of Attorney Form 151. [POA Form 151 (ver. 7-2012)] The new Form 151 has boilerplate language at Part 4 which attempts to disclaim away the Department's obligation under MCL 205.8. The Department apparently anticipated the Court of Appeals decision. The change to the Form 151 was done with no notice to CPAs, the state Bar or other impacted groups despite regular Business Tax Advisory Group (BTAG) meetings. However, at last week's meeting, the Department informally advised that CPAs, attorneys and others representing taxpayers before the Department of Treasury can do so by having the taxpayer send a letter to the Department asking the representative to represent them and to receive all notices, bills, assessments and other communications.