VERIZON CHALLENGES WHETHER A NOTICE OF 'PROPOSED' ASSESSMENT IS REALLY AN ASSESSMENT UNDER FLORIDA STATUTE OF LIMITATIONS
[Foreword: The original article published by our firm in March 2011 is available for download at then end of this article. The article immediately below is a new, layman term's article on the topic meant to educate as well as discuss the specifics of the Verizon case.]
ALERT!!! UPDATE: November 22, 2012 - Verizon filed a Notice of Appeal of Judge Lewis' decision the week of November 15, 2012. More information will be made available as soon as we have it.
On June 1, 2012, Judge Lewis Denied Verizon's Motion for Summary Judgement and Granted the state's Motion for Summary Judgement, effectively punting the issue to the 2nd DCA. I'll post an copy of the opinon as soon as I can get my hands on it.
[UPDATE March 2012: We have receieved word that there is an in chambers hearing scheduled April 24th to hear arguments for and against Verizon's motion for summary judgement.]
[UPDATE April 23, 2102 - The state's Cross Motion for Summary Judgement and Verizon's response are both available for download below.]
Almost everyone in the business world is at least familiar with the tax concept of a statute of limitations, which imposes a time limit on when a taxing authority can come after a taxpayer for allegedly underpaid taxes. For federal income tax purposes, the rule is usually 3 years from the date the return is due or filed, whichever is later, and certain circumstances can lengthen or "toll" the running of the statute of limitations. However, the concept of a time limit for a taxing authority to come after the taxpayer is firmly rooted in our taxing system. Taxpayers have a similar time limit to request a refund of overpaid taxes. This limitation imposed on both the taxpayer and the taxing authority is meant to balance the scales for fairness in our taxing system while providing a degree of closure.
Florida also has a statute of limitations imposed on both the Florida Department of Revenue ("FL DOR") and the taxpayer for disputed under or over paid taxes. Specifically, under § 95.091, Florida Statutes ("F.S."), the Florida Department of Revenue must "assess" a taxpayer within three years of when the tax return is due or when it is filed, whichever occurs later. [Note – a return must actually be filed for the statute of limitations to begin running] Several things can toll the 3 year limit including, § 213.23, F.S., which allows the taxpayer and the FL DOR to enter written agreements extending the statute of limitations. However, taking into account any extensions, if either the taxpayer or the FL DOR neglects to take the required steps before the statute of limitations runs out, then the negligent party is literally and legally "SOL," if you will pardon the pun.
This brings us to an interesting administrative policy procedure followed by the FL DOR that entails the issuance of a Form DR-831 "Notice of Proposed Assessment," which is at the heart of the Verizon case discussed below. During an Florida tax audit, when the FL DOR and the taxpayer cannot agree on a tax matter, the FL DOR will eventually issue a Notice of Proposed Assessment ("NOPA"), which informs the taxpayer of the specifics of what the FL DOR intends to impose on the taxpayer. The Notice of Proposed Assessment becomes a final assessment within 60 days of the date of the Notice. This 60 day time period gives the taxpayer and the FL DOR time to negotiate a settlement, but (often to the surprise of taxpayers) does not limit the FL DOR from increasing the proposed assessment if something else comes to light during the 60 day period. The Form DR-831, Notice of Proposed Assessment, is purely an administrative creation not based in statute, except under the broad authority granted to the FL DOR in administrating taxes. One could argue that the Notice of Proposed Assessment is really the last threat in the FL DOR's bag of tricks to convince the taxpayer to comply before an assessment is actually issued. But neither the taxpayer, nor the FL DOR, may begin a legal action concerning the matter until the NOPA becomes an actual 'assessment.'
Historically, the FL DOR issued the Notice of Proposed Assessment more than sixty days prior to the end of the 3 year statute of limitations period (plus any periods of time the statute of limitations period is tolled or extended). The reason obviously being that the FL DOR wanted to make sure the NOPA became a final assessment prior to the running of the statute of limitations. Other states, such as California, have very similar proposed assessment procedures and California issues the proposed assessment with enough leeway to become a final assessment before the statute of limitations period expires. In Florida, apparently there was no formal, written rule to issue the NOPA more than sixty day prior to the running of the statute of limitations and, somehow, the reason behind the concept was lost in time. At some point, the FL DOR began issuing the Notice of PROPOSED Assessment shortly before the running of the state of limitations, as if the NOPA were the final assessment. When this happens, there is a real risk that the FL DOR missed the statute of limitations period because the "proposed assessment" is arguably not an actual, legal assessment being issued within the required statute of limitations time period. In the words of the great legal scholar Homer Simpson, one could say the Florida Department of Revenue had a "DOOOOOH!" moment.
Our firm wrote an article on this technical administrative mistake in March 2011 in the CPA Today Magazine pointing out that when the FL DOR issues the Notice of Proposed Assessment less than sixty days prior to the running of the statute of limitations period, the FL DOR has legally lost the ability to assess the tax payer for any period not still open. Based on Florida's normal audit process of reviewing three years of tax records at once, it may be that only the farthest back in time tax year falls outside the reach of being taxed. However, when the audit involves a big company or there are a lot of technical, disputed tax matters at play, the taxpayer and FL DOR often agree to extend the statute of limitations under § 213.23, F.S., such that all three tax years in question have their statute of limitations period running out on the same date. When this happens and the FL DOR issues a Notice of Proposed Assessment less than sixty days prior to the end of the statute of limitation period, then the FL DOR may have technically missed the ability to assess the taxpayer for any of the allegedly unpaid taxes. This brings us to the Verizon case, which is the first taxpayer to make it into a Florida court challenging that the Notice of Proposed Assessment is NOT a final assessment within the meaning of § 95.091, F.S.
Our firm has multiple clients for which we have asserted this argument. However, on June 8, 2011, Verizon Business Purchasing, LLC ("Verizon") became the first Florida taxpayer to formally file suit against the Florida Department of Revenue on this issue, challenging the validity of an assessment of more than $3.1 million dollars of allegedly unpaid Florida Sales and Use Tax. See, Verizon Business Purchasing, LLC v. Florida Department of Revenue, Case No. 2001 CA 1498, (FL 2d DCA, Jun. 8, 2011). The underlying details of the alleged tax liability are not at issue in the case. The issue boils down to the simple argument that the Notice of Proposed Assessment is not a (Final) Assessment under § 95.091, F.S., and, therefore, the failure of the FL DOR file a final assessment before the running of the statute of limitations period bars the FL DOR from any attempts to claim the tax is now due. It is our position that a Notice of PROPOSED Assessment, by its very terms, is merely an intent, plan, or proposal of an assessment at some future date (60 days) and not the critical 'assessment' of which the statute speak.
On February 15, 2012, Verizon filed a very well crafted Motion for Summary Judgement requesting the trial court to rule in Verizon's favor as a matter of law. In the Motion for Summary Judgement, Verizon throws everything but the kitchen sink at the FL DOR and leaves little room for doubt that the plain statutory meaning of Florida's requirement that an assessment must be filed before the § 95.091, F.S., statute of limitations period runs out and that Florida's Form DR-831 Notice of PROPOSED Assessment does not meet this requirement. Both the AMENDED COMPLAINT and MOTION FOR SUMMARY JUDGEMENT are downloadable in PDF format below.
If your company or a client's company has been facing a tax dispute with the Florida Department of Revenue and a Notice of Proposed Assessment has already been issued (whether it has become final or not), then you should immediately check the date of the NOPA to determine if it was issue less than 60 days prior to the end of the statute of limitations period. If so, then you have a strong argument that some or all of the taxes the FL DOR alleges you owe are barred under the statute of limitations. Call our offices today to for a free initial consultation to discuss how you can challenge the Florida Department of Revenue on this issue.
AUTHORITY
§ 213.23, Florida Statutes
§ 95.091, Florida Statutes
COURT DOCUMENTS
Verizon Business Purchasing, LLC v. Florida Department of Revenue, Case No. 2011 CA 1498, (Fla. 2d Cir. Ct., Jun. 8, 2011) [Download the AMENDED COMPLAINT HERE] [Download the MOTION FOR SUMMARY JUDGEMENT HERE] [Download the CROSS MOTION FOR SUMMARY JUDGEMENT HERE] [Download the RESPONSE TO THE CROSS MOTION FOR SUMMARY JUDGEMENT HERE]
RELEVANT ARTICLES/CASES
FLORIDA SALES TAX AUDITS – When is an Assessment an Assessment, CPA Today Magazine, March/April 2011, by Joseph C. Moffa, CPA, Esq. and Gerald J. Donnini II
About the author: Mr. Sutton is a Florida licensed CPA and Attorney and a shareholder in the law firm the Law Offices of Moffa, Sutton, & Donnini, P.A. Mr. Sutton's primary practice is Florida tax controversy. Mr. Sutton worked for in the State and Local Tax department of one of the Big Five accounting firms for a number of years and has been an adjunct professor of law at Stetson University College of Law since 2002 teaching State and Local Tax, Accounting for Lawyers, and Federal Income Tax I. You can read more about Mr. Sutton in his firm bio.
© 2012 James H Sutton Jr