ATTORNEY FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
HEIDI BIEBERICH ADAIR KAREN M. FREEMAN-WILSON
BEERS MALLERS BACKS & SALIN ATTORNEY GENERAL OF INDIANA
Indianapolis, IN Indianapolis, IN
DAVID A. ARTHUR
DEPUTY ATTORNEY GENERAL
IN THE INDIANA TAX COURT _____________________________________________________________________
SALIN BANCSHARES, INC., ) ) Petitioner, ) ) v. ) Cause No. 02T10-9807-TA-76 ) INDIANA DEPARTMENT OF REVENUE, ) ) Respondent. )_____________________________________________________________________
II. Whether the Departments assessment of Salin for deficient FIT payments more
than three years after the due date for the tax was untimely, in
violation of Ind. Code Ann. § 6-8.1-5-2 (West 2000).
(b) The taxpayer shall file the notice in the form required by
the department within one hundred twenty (120) days after the alteration or modification
is made by the taxpayer or finally determined, whichever occurs first.
(c) The taxpayer shall pay an additional tax or penalty due under
this article upon notice or demand from the department.
Salin asserts that it was never obligated to notify the Department of the
terms of the closing agreement. Specifically, Salin contends that it was
not aware that it altered or modified its federal income tax returns for
the years 1991 through 1993. (Petr Br. at 4.) According to
Salin, a federal tax audit for the 1991 tax year took place and
the closing agreement resulted from this audit; however, no amended tax return for
the year 1991 was filed. Id. Thus, Salin maintains that section
6-5.5-6-6 refers to alterations or modifications of the actual tax return form and
does not include a change to a taxpayers tax liability for a given
tax year, where the change stems from a closing agreement and does not
involve amending a tax return. Salin reasons that No authority exists to
indicate that a closing agreement with the IRS is tantamount to altering or
modifying a federal income tax return. Therefore, Salin was under no obligation
to notify the [Department] of anything having to do with the IRS.
The Department challenges Salins position. In its brief, the Department asserts:
It does not matter that the federal changes were made as the result of a closing letter rather than on an actual federal return form. The Indiana statute is broad in its reach. It requires notification whenever there is a change to or of a federal return and not merely when a change is recorded on a federal return. . . . Thus, the argument that there is no duty to report just because the change was memorialized in a closing letter fails on the face of the statutes.
(Respt Br. at 3-4.)
The Court may only construe and interpret a statute if it is unclear and ambiguous. Shoup Buses, Inc. v. Indiana Dept of State Revenue, 635 N.E.2d 1165, 1167 (Ind. Tax Ct. 1994). In construing a statute, the Courts function is to give effect to the legislatures intent in enacting the statutory provision in dispute. Mynsberge, 716 N.E.2d at 632. Generally, the best evidence of this intent is found in the language chosen by the legislature. See id. Words in a statute are given their plain, ordinary and usual meaning unless the legislative intent reveals a contrary purpose. Maurer v. Indiana Dept of State Revenue, 607 N.E.2d 985, 987 (Ind. Tax Ct. 1993). However, the Court may also consider legislative intent as ascertained from an act or statutory scheme as a whole. Mynsberge, 716 N.E.2d at 633.
Arguably, section 6-5.5-6-6 is ambiguous. Both Salins and the Departments interpretations at first blush seem plausible. Therefore, the Court endeavors to determine the legislatures intent in enacting the provision. To begin, the Court notes that the altered or modified return that is the subject of the statute refers to an actual federal tax return form and not the tax liability calculated using the return. A tax return is an income-tax form on which a person or entity reports income, deductions, and exemptions, and on which tax liability is calculated. Blacks Law Dictionary 1475 (7th ed. 1999). The question is whether the alteration or modification of the return must be made exclusively on the return itself or on an amended return, as opposed to a closing agreement entered into with the federal government.
Salins interpretation of section 6-5.5-6-6 is overly restrictive and is inconsistent with legislative intent. Admittedly, section 6-5.5-6-6 is not a model of precision and the Department has promulgated no regulations clarifying its terms. See footnote However, the General Assembly clearly intended to place a duty upon taxpayers to notify the Department of any alteration or modification to their federal income tax returns. As noted by the Department, the language chosen by the legislature is broad in scope. It does not limit the alterations or modifications to only those actually applied to a taxpayers income tax return or to those marked on an amended return. The alterations or modifications that must be reported include any change in the amount of tax, regardless of the source of the change. Ind. Code § 6-5.5-6-6. The source of the change, as in the present case, can be an agreement with the IRS to modify ones tax liability without actually modifying ones return. The closing agreement increased Salins federal income tax liability for 1991, which effectively altered or modified its federal income tax return for that year.
An examination of the FIT statutes further supports the Courts conclusion. As explained supra, a taxpayers FIT liability is dependant upon its federal adjusted gross income tax liability. Moreover, taxpayers are required to file annual FIT returns, see Ind. Code Ann. § 6-5.5-6-1 (West 2000), and to pay their FIT liabilities at the time fixed for filing these returns, without assessment or notice and demand from the department, see Ind. Code Ann. § 6-5.5-6-4 (West 2000). Thus, the Department relies upon taxpayers to timely report their FIT liabilities and to accurately base their calculations upon their federal adjusted gross income tax liabilities. Considered in conjunction with the broad language used in section 6-5.5-6-6, the Court concludes that the legislature intended for taxpayers to notify the Department of changes to their federal income tax liabilities, regardless of whether alterations or modifications are made on a tax return itself or in a manner that effectively alters or modifies the tax return. In conclusion, Salin was obligated to and failed to notify the Department of its 1995 closing agreement with the IRS.
(Respt Br. at 4-5.)
To support its position that the notice required by section 6-5.5-6-6 is an amended return, the Department cites this Courts opinion in UACC Midwest, Inc. v. Indiana Department of State Revenue, 629 N.E.2d 1295 (Ind. Tax Ct. 1994). In UACC Midwest, the Department claimed that the Court lacked subject matter jurisdiction to hear the taxpayers claim, because the taxpayer failed to request refunds under Ind. Code § 6-8.1-9-1 using the form prescribed by the Department. The Department had in fact prescribed Form 615 for refund requests but had not made use of the form mandatory. The Court observed that neither section 6-8.1-9-1 nor the Departments regulations required that a specific form be filed to claim a refund. UACC Midwest, 629 N.E.2d at 1298. As noted by the Court, the only information required to claim a refund was the reason for and the amount of the requested refund. Id. (citations omitted). The taxpayer in UACC Midwest had filed amended returns on Form IT-20X, along with explanatory statements attached thereto, within three years of the due dates of the gross income tax returns at issue. The Court concluded that these amended returns, together with the explanatory statements, supplied the Department with the information required by both statute and regulations. Id. at 1299. Therefore, the taxpayer had properly requested refunds. Id.
The flaw in the Departments argument is that it contradicts the plain language of section 6-5.5-6-6 and is inconsistent with other FIT statutes. First, section 6-5.5-6-6(c) states that a taxpayer shall pay additional FIT tax or penalty upon notice or demand from the department. Thus, unlike the basic scheme of the FIT statutes, which requires taxpayers to automatically file returns and pay taxes without assessment or notice and demand from the department, taxpayers who have had their federal returns altered or modified must pay additional FIT taxes or penalties only if the Department issues them notices or makes demands instructing the taxpayers to do so. Filing an amended tax return involves the recalculation by a taxpayer of its FIT liability, an action not required by section 6-5.5-6-6. Second, the language of the FIT statues shows that the General Assembly knows how to distinguish between requiring a return to be filed and requiring a notice to be filed. Sections 6-5.5-6-1, -2, -4, -5 and 7, among others, use the term return. This suggests that, if the General Assembly had intended for the term notice under section 6-5.5-6-6 to be the equivalent of the term return under the other FIT provisions, it would have expressly said so.
Moreover, UACC Midwest does not help the Departments claim. UACC Midwest considered whether a form other than that prescribed by the Department, i.e., an amended return, could be used to claim a refund. In other words, UACC Midwest involved the proper form for claiming a refund and not, as in the present case, the proper form for informing the Department of the taxpayers changed federal tax liability. Applying UACC Midwest, one could surmise that, if it had it chosen to do so, Salin could have used an amended tax return to notify the Department of its 1995 closing agreement. The case does not, despite the Departments statements to the contrary, stand for the proposition that the notice required by section 6-5.5-6-6 is an amended tax return.
In short, absent any statute or regulation saying otherwise, the Court refuses to interpret the notice called for by section 6-5.5-6-6 as requiring a taxpayer to file an amended return. Such an interpretation would be illogical, and the Court endeavors to construe statutes so as to prevent absurd results. Uniden Am., 718 N.E.2d at 828. The Court finds that Salin could have chosen to but was not required to file an amended tax return in order to satisfy the notice requirement of section 6-5.5-6-6. Therefore, the Departments limitations period for assessing Salin additional FIT was not indefinitely extended under section 6-8.1-5-2(d).
However, Salin does not escape liability. Although not argued by the Department, the Court finds that Salin is equitably estopped from asserting its statute of limitations defense. Equitable estoppel is available if one party, through its representations or course of conduct, knowingly misleads or induces another party to believe and act upon his conduct in good faith and without knowledge of the facts. Wabash Grain, Inc. v. Smith, 700 N.E.2d 234, 237 (Ind. Ct. App. 1998), trans. denied. The elements of equitable estoppel are: (1) a representation or concealment of a material fact; (2) made by a person with knowledge of the fact and with the intention that the other party act upon it; (3) to a party ignorant of the fact; (4) which induces the other party to rely or act upon it to his detriment. Id. Accord Glass Wholesalers, Inc. v. State of Ind. Bd. of Tax Commrs, 568 N.E.2d 1116, 1122 (Ind. Tax Ct. 1991). The reliance element consists of two prongs: (1) reliance in fact and (2) right of reliance. Wabash Grain, 700 N.E.2d at 237. Fraud, either actual or constructive, on the part of the person estopped, is essentially the basis for the doctrine of equitable estoppel. Farrington v. Allsop, 670 N.E.2d 106, 109 (Ind. Ct. App. 1996) (quoting Lawshe v. Glen Park Lumber Co., 176 Ind. App. 344, 347, 375 N.E.2d 275, 278 (1978)). Constructive fraud is fraud that arises by operation of law from conduct which, if sanctioned by the law, would secure an unconscionable advantage. Id. Thus, application of the equitable estoppel doctrine is not limited to circumstances involving an actual false representation or concealment of existing material fact, where the fraud demonstrated is of such character as to prevent inquiry, or to elude investigation, or to mislead the party who claims the cause of action. Paramo v. Edwards, 563 N.E.2d 595, 599 (Ind. 1990) (quoting Guy v. Schuldt, 236 Ind. 101, 107, 138 N.E.2d 891, 894 (1956)). Equitable estoppel may preclude a party from invoking the statute of limitations defense. Farrington, 670 N.E.2d at 109.
The elements of equitable estoppel are established in this case. Here, Salin failed in its statutory duty to notify the Department of its 1995 closing agreement, which led to a change of its 1991 federal income tax liability. Salins failure left the Department ignorant of the closing agreements terms. Thus, the Department was prevented from recalculating Salins FIT liability for the 1991 tax year in a timely manner. As with all taxpayers, the Department relied upon Salin to be forthright in notifying it of changes to its federal tax liabilities. Given the self-reporting scheme used by the FIT statutes, the Department had every right to presume that Salin would notify it of changes in Salins federal tax liability. The Court will not allow Salin to disclaim its obligation to notify the Department of the closing agreements terms. Salins conduct amounted to constructive fraud on its part. Salin cannot rely upon its own failure to notify as the basis for claiming that the Departments period for assessing additional FIT and penalties has run; to allow Salin to successfully invoke a statute of limitations defense would secure for it an unconscionable advantage via its own misconduct. Cf. Glass Wholesalers, 568 N.E.2d at 1123 ([Taxpayer] could not base its claim of estoppel on its own failure to amend its 1987 federal income tax return. . . . [or] upon its own failure to keep adequate books.).
The closing agreement was effective as of June 30, 1995. Salin had one hundred twenty days from that point to notify the Department of the closing agreements terms. It submitted no notice to the Department. The Department had a reasonable time from the time it received notice of Salins changed federal tax return in which to assess the taxpayer additional FIT tax and penalties. The Department completed its audit of Salin on August 2, 1996; thus, at that moment it either knew or should have known of Salins deficient FIT payment for the 1991 tax year. The Department issued a proposed assessment to Salin of additional FIT, penalties and interest the following month, on September 19, 1996. This was a reasonable period. Therefore, under these circumstances, the Departments assessment was timely issued.