I am contacted by Montana taxpayers who have had audit adjustments made to their Montana state income tax by the Montana Department of Revenue. Often, the contact comes after the deadline by which to challenge adjustments to Montana income tax the standard way has passed. But all is not lost for the taxpayer. A taxpayer has a number of possible options to challenge an assessment of Montana income tax if it is too late to challenge the typical way.
Typical Montana income tax assessment appeal process.
Following the completion of an audit and an adjustment to income tax, the Montana Department of Revenue will send a Notice of Assessment (NOA) to the taxpayer. The taxpayer may then appeal to the Montana Department of Revenue Office of Dispute Resolution within 30 days from the date of the NOA.[1] If the taxpayer does not appeal within 30 days, according to Montana Administrative Rule, “Failure to respond within the 30 days shall be deemed an admission that the debt stated in the NOA is due and owing.”[2]
However, the taxpayer who misses the 30-day appeal deadline continues to have appeal options for after the 30 day deadline. These options include:
- Request audit reconsideration. In similar circumstances, the IRS could grant an audit reconsideration of the additional tax if the taxpayer did not appear for the audit or has additional information to present.[3] I am not aware of any statute or Montana Administrative Rule that requires the Montana Department of Revenue to reconsider an audit, but audit reconsideration is often a discretionary action and the Department of Revenue may chose to exercise its discretion to grant it. Often the Montana Department of Revenue follows federal law in an area.
- Reasonable cause found in Montana Administrative Rule 42.2.512. ARM 42.2.512(3) permits the taxpayer to show reasonable cause for failure to respond to a deficiency notice. However, in a recent decision from the Montana Tax Appeal Board (MTAB), Johnson v. Department of Revenue (Case No: IT-2019-7, January 16, 2020), MTAB did not find reasonable cause for failing to timely appeal without more of an explanation.
- Application for revision. Under § 15-30-2608, MCA, “ [T]he taxpayer may revise the same return until the liability for that tax year is finally determined.” The taxpayer may argue that missing a 30-day notice does not constitute a “final determination.” Final determination arguably requires a determination on the merits by the MTAB or Court or the running of the statute of limitations for a tax refund. The MTAB case of Melvin n v. Department of Revenue (Case No. IT-2015-1) supports the position that the taxpayer may continue to revise a return within the statute of limitations.
- Refund claim. Under § 15-30-2609(2)(a), MCA, the taxpayer can pay the tax and file a refund claim. While the refund claim has the benefit of opening up an appeal for the taxpayer who has not timely filed an appeal, this is a “pay to play” situation. The taxpayer must make the payment in order to claim the refund.
Jared M. Le Fevre is a Partner in the Tax, Trusts and Estates Practice Group of Crowley Fleck PLLP. Mr. Le Fevre represents taxpayers before the IRS, IRS Independent Office of Appeals, Tax Court, Federal District Court and state tax agencies throughout Montana, Wyoming, North Dakota, Idaho, and Utah. Mr. Le Fevre is involved in federal and state and local tax audits, appeals, and tax resolution throughout these western states. Mr. Le Fevre also advises clients on the tax effects of business and real estate transactions.
[1] Admin. Rul. Mont. § 42.2.510(1) and (2).
[2] Admin. Rul. Mont. § 42.2.510(3).
[3] IRM 4.13.1.1 et seq.