Carson v. Dept. of Rev.

CourtOregon Tax Court
DecidedOctober 9, 2018
DocketTC-MD 170296R
StatusUnpublished

This text of Carson v. Dept. of Rev. (Carson v. Dept. of Rev.) is published on Counsel Stack Legal Research, covering Oregon Tax Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Carson v. Dept. of Rev., (Or. Super. Ct. 2018).

Opinion

IN THE OREGON TAX COURT MAGISTRATE DIVISION Income Tax

JOHN A. CARSON, ) and MARLIS C. CARSON, ) ) Plaintiffs, ) TC-MD 170296R ) v. ) ) DEPARTMENT OF REVENUE, ) State of Oregon, ) ) Defendant. ) FINAL DECISION1

This matter came before the court on the parties’ cross-motions for summary judgment

regarding the 2010 tax year. Both parties filed briefs and responses. Oral argument was held in

the Oregon Tax Court on March 19, 2018. Carol Vogt Lavine appeared on behalf of Plaintiffs.

James C. Strong appeared on behalf of Defendant. The matter is now ready for a decision.

I. STATEMENT OF FACTS

Plaintiffs were domiciled in Oregon in 2009. For the 2010 and 2011 tax years, Plaintiffs

filed joint state income tax returns as full-year nonresidents of Oregon. The Internal Revenue

Service (IRS) audited Plaintiffs’ 2010 federal income tax return and determined that, based on

the sale of stock, a net long-term capital gain should be added to their federal adjusted gross

income and their miscellaneous itemized deductions should be eliminated. The IRS notified

Defendant of its determination. Thereafter, Plaintiffs filed an amended Idaho resident income

tax return reporting the capital gain as Idaho income. Plaintiffs did not file an amended return in

Oregon. Defendant mailed Plaintiffs a Notice of Deficiency, dated October 29, 2014, based on

1 This Final Decision incorporates without change the court’s Decision, entered September 21, 2018. The court did not receive a statement of costs and disbursements within 14 days after its Decision was entered. See Tax Court Rule–Magistrate Division (TCR–MD) 16 C(1).

FINAL DECISION TC-MD 170296R 1 the information from the IRS. (Am Compl Ex 1.) Plaintiffs filed a written objection to the

determination, asserting that Plaintiffs were Idaho residents in 2010. On April 7, 2015,

Defendant issued a Notice of Deficiency Assessment (2010 NODA), which denied Plaintiffs’

objection for the 2010 tax year. The 2010 NODA stated in part:

“You agreed with the IRS adjustment, but consider the capital gain not to be Oregon source income and nontaxable to you as a nonresident. You provided a copy of the IRS audit report, an unsigned amended return for 2010, * * * copies of a September 7, 2004 Stock Purchase Agreement and a Promissory Note dated January 1, 2010 that appears to initiate payment for the transfer of the stock referred to in the 2004 agreement but between different parties. You have not shown that the income indicated on the promissory note was not Oregon source income. * * * You state that the owners are no longer Oregon residents by the year 2010; therefore a capital gain in 2010 should not be considered Oregon income. The more important question is whether what was traded was Oregon source income and * * * that question is not clearly answered. It depends on whether the stock in question has Oregon situs, where the trusts were created and where they are administered, in addition to the separate issue of residency. * * * * * Though much of the documentation surrounding the trade that created the additional income included in the deficiency has not been provided, there is sufficient reason to believe that it is Oregon source income.”

(Am Compl Ex 3 at 2.)

The 2010 NODA provides additional specific information about the stock and sale which

are not essential to this decision. The 2010 NODA cites the following statutes as authority for

the assessment: Internal Revenue Code (IRC) 212, 67, 1222, 1001, 1201, 1202, 1212; Oregon

Revised Statutes2 (ORS) 316.027, 316.037, 316.048, 316.117, 316.127, 316.716, 314.402, and

316.695. (Id.)

On April 8, 2015, Defendant subsequently issued a Notice of Deficiency Assessment for

the 2011 tax year (2011 NODA) on the basis that Plaintiffs were Oregon residents during that

year. (See Am Compl Ex 4.) Plaintiffs requested a conference in protest of the 2011 tax year.

2 References to the Oregon Revised Statutes (ORS) are to 2009.

FINAL DECISION TC-MD 170296R 2 Plaintiffs and Defendant held a conference on December 15, 2015, for both tax years. During

the conference, the only issue discussed was Plaintiffs’ domicile. After the conference,

Defendant issued its Conference Decision Letter, denying Plaintiffs’ petition on the grounds that

Plaintiffs were domiciled in Oregon. (See Am Compl Ex 5.)

Plaintiffs filed two complaints in the Magistrate Division of the Oregon Tax Court; first

in 2015, TC-MD 150355N (Control), then in 2016, TC-MD 160203N. Both complaints

addressed only the issue of Plaintiffs’ domicile. In Defendant’s Answer to Plaintiffs’ 2015

complaint regarding the 2010 tax year, it stated that it “disagrees that residency was the only

issue in the determination as to whether the income adjustment made by the IRS was taxable to

Oregon. It was not shown during audit that the additional income was not also Oregon source

income.”

The two complaints were tried together before Magistrate Boomer on June 8, 2016. In

Defendant’s opening statement, auditor Nancy Berwick (Berwick) stated “2010 is really two

issues: it’s the expense added based on an IRS audit that ended with a written objection that was

denied — that’s what got appealed to court — and then there was a separate adjustment made

when I concluded that they were indeed Oregon residents and all of their income should be

considered Oregon income as well. So there’s two adjustments.” (Def. Motion at 4.) On

November 18, 2016, the court issued its Final Decision, holding that the Plaintiffs were

domiciled in Idaho during both 2010 and 2011. Carson v. Dept. of Rev., TC-MD 150355N, WL

6820789 (Or Tax M Div, Nov 18, 2016). The court did not address the issue of whether the sale

of Plaintiffs’ stock represented Oregon sourced income.

Based on Defendant’s interpretation of the court’s decision, Defendant mailed Plaintiffs a

Notice of Adjustment on January 11, 2017, showing that after final judgment, Plaintiffs would

FINAL DECISION TC-MD 170296R 3 still owe $52,915 in tax for the 2010 tax year. (Def Motion at 9, Motion Ex E.) Plaintiffs’ right

to appeal the Magistrate’s decision to the Regular Division expired on January 17, 2017. The

Magistrate Division entered its judgment on January 24, 2017. Plaintiffs mailed a letter to

Defendant on January 31, 2017, asserting that because Plaintiffs prevailed at trial, they did not

owe the assessment. After Defendant began collection proceedings, Plaintiffs paid the full

assessment under protest and requested Magistrate Boomer to “supplement” her decision to

consider the situs issue. On June 1, 2017, Magistrate Boomer mailed a letter to both the

Defendant and Plaintiffs stating:

“The only relief requested by Plaintiffs was a determination that Plaintiffs were domiciled in Idaho rather than Oregon. Defendant’s Answer for the 2010 tax year appeal referenced an issue of whether some of Plaintiffs’ income had an Oregon source. However, that issue was not pursued at trial. Rather the sole issue at trial was Plaintiffs’ domicile for the 2010 and 2011 tax years. * * * * * You have asked the court to reopen this case to consider an issue that was not addressed at trial. There is no authority under the applicable statutes or rules to provide that form of relief. * * * The court may not reopen this case to consider a new issue and enter a supplemental decision.”

(Def Motion, Ex F at 1-2.)

Plaintiffs subsequently filed an untimely appeal to the Regular Division on July 17, 2017

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Carson v. Dept. of Rev., Counsel Stack Legal Research, https://law.counselstack.com/opinion/carson-v-dept-of-rev-ortc-2018.