Substitute for Return. Dealing with taxes can be frustrating, especially when the taxing authority files a substitute for a tax return in an amount higher than the taxpayer believes is correct.
But there is a hard way and a harder way to dealing with this. In a recent decision by the Montana Tax Appeal Board (“MTAB”), the taxpayer chose the harder way. Instead of putting on a logical and reasonable case for the gain on sale of real property, which is no doubt time consuming and difficult, the taxpayer got angry, hung up on the Zoom appeal call, and subsequently lost the case.
In Pike v. Montana Department of Revenue[1], an out of state taxpayer sold Montana real property. The Montana Department of Revenue sent notices requesting information showing that his gain on sale had been reported for Montana income taxation. When the taxpayer didn’t comply, the Montana Department of Revenue estimated the tax and the taxpayer appealed.
The taxpayer alleged that his property records had been destroyed in a fire, that the property had been sold years ago, had been substantially improved and therefore had a high basis, and that his escrow company should have handled reporting to the taxing authorities.
Hang up. What the taxpayer did not do is provide any evidence of his cost basis in the property, even an estimate as to the amount of the purchase and improvements to the property or attempt to recreate the amount taxpayer had spent. Instead, as MTAB described, “The Board reminded Mr. Pike he has the burden to prove the DOR made a mistake in calculating his 2015 taxes, at which time Mr. Pike said he would like to stop the hearing and disconnected from the zoom/telephonic hearing.”[2]
Practice Point. Rather than get angry and hanging up on the tax appeal, it is incumbent that the taxpayer take a deep breath and prepare the case in a reasonable manner. MTAB gave good advice as to what the taxpayer should have done. “By minimally documenting expenses and communicating this information with the DOR, Taxpayer could have reduced the tax by establishing a basis that included his costs for the land. DOR testified they would have accepted almost any evidence of these expenses, but none was provided by Mr. Pike after several requests.”[3]
As the saying goes: Don’t get mad, get even. And don’t hang up on the Montana Tax Appeal Board during the middle of a hearing. That is a sure fire way to lose. Get even by providing in a reasonable and orderly manner the information needed to win the case.
Taxpayers with disagreements about taxes may contact Jared Le Fevre to discuss appeal options and how to build the case to reduce taxpayer liability.
About the Author. 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, 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] Case No: PT-2020-44, 2021 WL 2186168
[2] 2021 WL 2186168, at *3
[3] 2021 WL 2186168, at *6