Court Opinion

ID: 5088295
Source: CourtListenerOpinion
Date Created: 2021-10-01 14:39:40.138762+00
Date Added: 2024-06-11T08:20:31.218783
License: Public Domain

PRICE, Judge,
dissenting.
I dissent from the majority opinion for three reasons. First, it imposes a new and stricter standard not set out in Lloyd v. Director of Revenue. Second, it misconstrues the record and fails to apply the appropriate standard of review. And, third, it disregards the merits of the taxpayers’ position.
Just two years ago, we decided Lloyd v. Director of Revenue, 851 S.W.2d 519 (Mo. banc 1993). In Lloyd, we denied the imposition of penalties and clearly stated the standard for such determinations as follows:
The Court is satisfied that their deductions were based on a good faith, albeit wrong, construction of the statutes. There was no attempt to hide income and no failure to report the income of the corporations. Under the circumstances, it cannot be said that the failure to pay was the result of negligence... ,1
The majority now adds a new requirement that the taxpayer must rely upon a specific “statute or other authority” to justify the taxpayer’s position. Such a “requirement” is no where stated in Lloyd, nor is such a restrictive standard justified by law or common sense. Further, application of a statutory requirement is inapplicable in this case where taxpayer’s true position is that the amounts at issue were not properly Missouri income. The new majority standard in this regard would preclude taxpayers from taking any position not already approved. It misses the point. The assessment of penalties should be based upon the good faith and reasonableness of the taxpayer’s argument, not upon whether the taxpayer cites any particular statute or authority.2
Second, the majority opinion misconstrues the record. Apparently, the majority was greatly taken with the statement included in taxpayers’ return that:
... taxpayers are of the opinion that due to circumstances beyond their control [the December 19, 1991 order of the bankruptcy court] ... the $483,750 salary earned in Florida while Florida residents is not taxable in Missouri.
Rather than accepting this statement for what it is, a simple declaration of the basis for the deduction, the majority attempts to transform the statement into a disclaimer by the taxpayers’ accountant. In fact, the tax-preparer, Mr. Mangold, a certified public accountant, signed the return without qualification. The more objective and reasonable reading would be that he concurred with the position of the taxpayers. The majority completely disregards this significant evidence.
The majority’s failure to deal with this evidence reveals an even deeper problem. They fail to follow the appropriate standard of review. The decision of the AHC is to be upheld if it is “authorized by law and supported by competent and substantial evidence upon the whole record.... ” § 621.193, RSMolQOI/.. The AHC found that these taxpayers were not negligent. Rather than reviewing the record for competent and substantial evidence that supports the AHC’s finding, the majority combed the record for *875evidence open to interpretation and then interpreted this evidence against taxpayers and contrary to the findings of the AHC. This simply exceeds our statutory role in this process.
Finally, the majority ignores the merits of the taxpayers’ position. By the fortuity of a bankruptcy court order, Missouri has taxed income that was earned and otherwise would have been paid to the taxpayers in years during which they did not live in Missouri; years during which they received no protection or benefit from the state. This is not simply an issue of accrual versus cash basis accounting. Significant constitutional issues exist regarding such taxation. Kennedy v. Commissioner of Corps, and Taxation, 256 Mass. 426,152 N.E. 747 (1926); McLaughlin v. New York State Tax Com’n, 87 A.D.2d 712, 448 N.Y.S.2d 891 (3rd Dep’t 1982). Merely because the taxpayers did not prevail before the Administrative Hearing Commission and did not appeal that decision, does not justify imposition of penalties without consideration of the merits of their position.
Taxpayers were faced with a unique and complicated taxation issue. Significant constitutional (and common sense) issues exist as to the propriety of Missouri taxation. Taxpayers retained the assistance of a certified public accountant to prepare their return, who signed the return. On the return, the taxpayers did not attempt to conceal the income, but reported it and showed a deduction. Although the taxpayers declined to spend thousands of dollars for legal representation before the AHC and this Court, and ultimately gave up the fight on the merits, penalties should not be imposed. Their position was reasonable, taken in good faith, and not negligent.
Taxpayers are required to raise issues such as this in their tax returns. Advocating a position, even aggressively, should not be confused with “negligence”. The majority opinion is unduly harsh in this regard and will chill the ability of taxpayers to take reasonable positions adverse to the Department of Revenue. Instead of allowing the taxpayer a level playing field to contest tax issues, the majority has erected a brick wall of penalties.
The decision of the Administrative Hearing Commission denying penalties should be affirmed.

. The Lloyd standard is consistent with the standard set out by the Ninth Circuit Court of Appeals in Human v. Commissioner of Internal Revenue, 500 F.2d 401, 403 (9th Cir.1974), which held:
While the taxpayers were misguided and unsophisticated in the realm of tax law, they acted in good faith, without negligence and without
“intentional disregard” of applicable rules and regulations.

. Although not cited by taxpayers, Kennedy v. Commissioner of Corps, and Taxation, 256 Mass. 426, 152 N.E. 747 (1926), and McLaughlin v. New York State Tax Com’n, 87 A.D.2d 712, 448 N.Y.S.2d 891 (3rd Dep't 1982), support their position.