IN THE OREGON TAX COURT
MAGISTRATE DIVISION
Small Claims
Income Tax
ANDREW A. YOUNG and COLLEEN A.
YOUNG,
Plaintiffs,
v.
DEPARTMENT OF REVENUE,
STATE OF OREGON,
Defendant.
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No. 010881C
DECISION AND JUDGMENT
Plaintiffs have asked the court to waive the interest charged by Defendant for
underpayment of estimated taxes in 2000. A case management conference was held
on October 8, 2001. Mr. Young appeared for the Plaintiffs. Ron Graham appeared for
the Defendant. For ease of reference, the parties will be referred to as taxpayers and
the department.
STATEMENT OF FACTS
Taxpayers moved to Oregon from Colorado on or about August 13, 2000.
Roughly six weeks later, taxpayers received a lump sum retirement distribution in the
amount of $38,512. Taxpayers also had earned income after moving to Oregon. Their
Oregon taxable income for tax year 2000, other than the lump sum distribution, was
less than $14,000. Taxpayers filed a tax year 2000 part-year Oregon return in April
2001, reporting all of their Oregon source income, including the lump sum distribution,
and paid a tax of $2,582. The department issued a Notice of Assessment on June 6,
2001, imposing interest for underpayment of estimated tax in the amount of $136.55
because taxpayers failed to make an estimated tax payment on the lump sum
distribution they received. The calculation of interest by the department assumed the
DECISION AND JUDGMENT CASE NO. 010881C
1
additional income was earned evenly over the calendar year. The assessment notice
included a statement of appeal rights which read in part:
“If you disagree with this Notice of Assessment, you have the right to
appeal. You must appeal to the Magistrate Division of the Oregon Tax
Court.
“* * * * *
“IF YOU DISAGREE ONLY WITH THE PENALTY AND/OR INTEREST
CHARGES OR YOU HAVE CONCERNS ABOUT THE PAYMENTS,
PLEASE WRITE TO OREGON DEPARTMENT OF REVENUE, 955
CENTER STREET NE, SALEM, OR 97301-2555. WE MAY BE ABLE TO
ADJUST THE CHARGES WITHOUT YOU HAVING TO FILE AN
APPEAL.”
Taxpayers promptly appealed the assessment to the Magistrate Division of the
Oregon Tax Court, challenging the interest charge. The Complaint was received
roughly one week after taxpayers received the assessment. In their Complaint,
taxpayers stated they do not believe the estimated tax rule applies because they
anticipated receiving the payment before moving to Oregon. Taxpayers requested that
the court “waive interest penalty of $136.55.” In its Answer, the department defended
the assessment and requested taxpayers submit a completed Form 10, along with a
related income worksheet and any supporting documentation pertaining to the date the
money was received. That information was provided.
During the court’s October 8 telephone conference Mr. Graham indicated that he
had recalculated the interest based on the additional information he received from
taxpayers and determined that the correct charge for interest should be only about $52.
Mr. Graham opined that taxpayers’ situation does not satisfy the Form 10, “Exception 4"
waiver criteria. Taxpayers disagree with Mr. Graham. They argue that the timing of
their move to Oregon and receipt of the payment, being near the end of the calendar
year, along with Oregon’s unusual estimated tax payment laws, constitute an “unusual
DECISION AND JUDGMENT CASE NO. 010881C
2
circumstance” which brings them within the parameters of “Exception 4" on Form 10.
Taxpayers have stated that they were not aware of Oregon’s estimated tax laws until
they were preparing their return in April 2001.
ISSUE
The court must determine whether it can hear a case where the taxpayer alleges
interest on underpayment of estimated tax should be "waived" because the rule does
not apply or, alternatively, because of "other unusual circumstance."
COURT'S ANALYSIS
The imposition of interest is mandatory where estimated taxes are due and not
timely paid. The applicable statute provides in relevant part:
“(1) Except as provided in subsection (5) of this section, if an
individual makes an underpayment of estimated tax, interest shall accrue at
the rate established under ORS 305.220 for each month, or fraction thereof,
on the amount underpaid for the period the estimated tax or any installment
remains unpaid. The penalty provisions contained in ORS chapter 314 for
underpayment of tax shall not apply to underpayments of estimated tax
under ORS 316.557 to 316.589.” ORS 316.587.1 (Emphasis added.)
Subsection (5) of the statute providing for the interest sets forth an exception.
The provision reads:
“(b) Interest accruing under subsection (1) of this section shall not be
imposed with respect to any underpayment of estimated tax to the extent that
the Department of Revenue determines that by reason of casualty, disaster
or other unusual circumstances the imposition of interest would be against
equity and good conscience.” ORS 316.587(5).
As the language of the exception makes clear, it is the department, not the court, who
has authority to determine whether the interest should be imposed. The relevant
portion of the sentence reads: “Interest * * * shall not be imposed * * * to the extent that
the Department of Revenue determines * * *.” ORS 316.587(5)(b). Moreover, ORS
305.275(1)(c) limits appeals to the tax court to situations where “[t]here is no other
1
All references to the Oregon Revised Statutes are to 1999.
DECISION AND JUDGMENT CASE NO. 010881C
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statutory right of appeal for the grievance.”
A taxpayer can challenge the imposition of interest on two grounds. However, in
either case the request must initially be filed with the department. The department’s
determination may or may not be appealed to the Tax Court, depending on the nature
of the request, as explained below.
The department’s administrative rule sets forth the various grounds for
challenging interest on underpayment of estimated taxes, and provides in part as
follows:
“(1) Appeals based on accuracy.
Interest on
underpayment of estimated tax imposed under the provisions
of ORS 316.587 * * * shall be appealed as if it were a
deficiency * * *. A taxpayer who disagrees with either the
correctness of the imposition or the calculation of interest may
request a conference or file a written objection with the
department. The conference request or written objection shall
be made in the manner prescribed under OAR 150-305.265(5),
but without regard to the time limitation of 30 days. If the
taxpayer does not agree with the result of the conference or
the written objection, the taxpayer may appeal the decision to
the Oregon Tax Court as provided by ORS 305.275.
“(2) Discretionary waiver. A taxpayer who agrees that
interest on underpayment of estimated tax was correctly
imposed, but who believes there is good and sufficient cause
for a waiver of all or part of the interest, may file a request for
waiver under OAR 150-305.145(3)-(F). A denial by the
department of a discretionary waiver request under that
provision is final and may not be appealed to the Oregon Tax
Court.” OAR 150-305.265(1)-(B).2
Taxpayers appear to be both challenging the validity of the assessment and requesting
a discretionary waiver because of unusual circumstances. In either case, the request
should have initially been filed with the department.
Accuracy of Assessment
When a taxpayer chooses to challenge the validity of interest assessed for the
2
All references to the Oregon Administrative Rules are to January 2000.
DECISION AND JUDGMENT CASE NO. 010881C
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alleged underpayment of estimated tax, OAR 150-305.265(1)-(B)(1) requires that the
assessment be appealed “as if it were a deficiency.” Id. The specific process set out in
the rule (OAR 150-305.265(1)-(B)(1)) mirrors in most respects the statutory provisions
for challenging deficiencies. See ORS 305.265(5). Specifically, OAR 150-305.265(1)(B)(1) articulates that a taxpayer may either request a conference or file a written
objection with the department. If the department denies either request, the taxpayer
may, at that point, file an appeal with this court. See id. In this case, taxpayers filed
their appeal directly with this court, without first pursuing their administrative remedy.
Pursuant to the rule, taxpayers appeal at this time is premature because they failed to
exhaust their administrative remedy.
The court notes that the rule provides that a request for conference or a written
objection may occur in these instances “without regard to the time limitation of 30 days.”
Id. In this respect the process differs from that applicable to appealing a deficiency.
The rule is clear that the 30-day limitation does not apply. Thus, an administrative
appeal as to the merits of the underlying charge is still timely. 3
The court understands why taxpayers may have been confused by the
department’s appeal note and, as a result, ended up at the court rather than the
department. However, the right of appeal is governed by statute and because
taxpayers object only to interest, they must first approach the department. The wording
of the appeal note is technically correct. It is only after the department has made a
determination challenging the correctness of the imposition of the interest or the
accuracy of the calculations that a taxpayer may appeal to this court.
Discretionary Waiver
3
The court recognizes taxpayers filed a Form 10 after coming to this court and that, after
reviewing it, the department agreed to reduce the assessment. However, it appears that some interest
is due in this case and, more importantly, any challenge should be presented first to the department.
DECISION AND JUDGMENT CASE NO. 010881C
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Under OAR 150-305.265(1)-(B)(2), set out above, the provisions of OAR 150305.145(3)-(F) apply to discretionary waiver requests. The rule notes further that the
department’s decision is final. OAR 150-305.145(3)-(F) provides a two-step process
whereby the taxpayer first requests a partial or complete waiver and, if denied, the
taxpayer may request a conference or file written objections within thirty days of the
denial. The relevant portion of the rule provides:
“(b) If taxpayers request a discretionary waiver of
interest or penalties from the department and the request is
denied, taxpayers may request a conference or file written
objections within 30 days of the date of the department's notice
of denial. The request for conference or filing of a written
objection shall be filed with the department in the manner
prescribed under OAR 150-305.265(5). If the conference or
written objection results in a denial of the waiver request, that
decision is final and may not be appealed to the Oregon Tax
Court.” OAR 150-305.145(3)-(F)(1).
It is not clear in this case that the department has made a determination under
the rule (OAR 150-305.265(1)-(B)(2)). Mr. Graham expressed an opinion during the
court’s case management conference that the exception in Form 10 (#4) was not met,
but the opinion appears premature, as taxpayers have not made a request to the
department, but rather to the court. Presumably, the determination at the first level
would be in writing. Once that occurs, taxpayers can either request a conference or file
written objections with the department if the outcome is unfavorable. It may be that the
department’s June 6, 2001, assessment is intended to constitute the initial review and
denial and the use of the Form 10 the redetermination, thus fulfilling the two-step
process in the rule. However, such a process would appear not to comport with the
department’s rule.
The department cited Cebra v. Dept. of Revenue, OTC-MD No. 001067B (Oct.
30, 2000) (Small Claims), apparently as authority for the court to make the
DECISION AND JUDGMENT CASE NO. 010881C
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determination of whether to waive the interest. That case, however, is not on point
because it does not speak to the question of authority as between the court and the
department. In Cebra, the department agreed to entirely waive the interest and the
court simply accepted the parties’ agreement. That is not the situation in the present
case.
Based on the timing of the appeal, and the lack of an official written decision,
taxpayers’ appeal to the court is premature.
CONCLUSION
Taxpayers should have presented their interest waiver request to the
department, as provided under ORS 316.587(5)(b), OAR 150-305.265(1)-(B), and OAR
150-305.145(3)-(F)(1). The outcome may or may not be appealable, depending on the
basis for the request. Now, therefore,
IT IS HEREBY ADJUDGED AND DECREED that taxpayers’ Complaint is
dismissed.
Dated this _____ day of March, 2002.
_______________________________________
DAN ROBINSON
MAGISTRATE
THIS DOCUMENT WAS SIGNED BY MAGISTRATE DAN ROBINSON ON MARCH
29, 2002. THE COURT FILED THIS DOCUMENT ON MARCH 29, 2002.
DECISION AND JUDGMENT CASE NO. 010881C
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