Petition for Review of an Order of the Office of Administrative Hearings (TRC-800149-09) (Hon. Louis J. Burnett, Administrative Law Judge)
The opinion of the court was delivered by: Easterly, Associate Judge:
Argued September 26, 2012
Before FISHER, BECKWITH, and EASTERLY, Associate Judges.
This case presents a statute of limitations question within the context of business franchise taxes. Respondent, Sunbelt Beverage, with no intent to evade payment of the District's business franchise tax, filed the wrong return for the right tax. It thereby notified the Office of Tax and Revenue (OTR) that it was doing business in the District of Columbia and gave OTR information about its income. However, because it incorrectly treated itself as a pass-through entity for its parent holding corporation, it failed to provide its apportionment factor (the percentage of its net income that should be subject to taxation by the District), which was necessary to permit OTR to correctly calculate any taxes owed. We are asked to determine whether this wrong return for the right tax was a nullity or whether it triggered the default three-year statute of limitations for the assessment and collection of taxes in the District of Columbia.
Petitioning for review of an order by the Office of Administrative Hearings (OAH) that granted summary judgment to Sunbelt Beverage, OTR argues that Sunbelt Beverage's filed returns for the tax years in question - 2002, 2003, and 2004 -were nullities, both because they did not contain Sunbelt Beverage's apportionment factor, and because Sunbelt Beverage's filing mistake was unreasonable. Accordingly, OTR asserts that it could pursue Sunbelt Beverage for unpaid taxes at any time under D.C. Code § 47-4301 (d)(1)(C) (2001 & Supp. 2004) (allowing that a "tax may be assessed, or a proceeding in court for the collection of the tax may begin without assessment, at any time" if the taxpayer has "fail[ed] to file a return"). For its part, Sunbelt Beverage maintains that its mistakenly filed returns triggered the default three-year statute of limitation under D.C. Code § 47-4301 (a) (2001).
We review grants of summary judgment from OAH de novo, Woodland v. Dist. Council 20, 777 A.2d 795, 798 (D.C. 2001), and will affirm if the record demonstrates "no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law," Super. Ct. Civ. R. 56 (c); see 1 DCMR §§ 2801.2, 2812, 2828 (2004) (replaced in its entirety on December 31, 2010) (Per OAH Rules of Practice and Procedure, a party may move for summary judgment and where a procedural issue like the standard of review for a summary judgment motion is not specifically addressed, OAH may rely on the Superior Court Rules of Civil Procedure as persuasive authority). If the facts are undisputed, as here, whether the statute of limitations bars suit is likewise a question of law that we review de novo. Medhin v. Hailu, 26 A.3d 307, 310 (D.C. 2011).
We recognize OTR's need to receive accurate and complete information from taxpayers. But the structure of the District's statute of limitations - which sets out a default three-year limitation period for general deficiencies in tax payments, extends that limitation period to six years when a taxpayer significantly underreports income, and then dispenses with any limitation period at all where a taxpayer engages in fraud or fails to file a return - does not appear to support OTR's position that a return may be automatically disregarded for statute of limitations purposes if it is missing any piece of information that precludes the correct calculation of tax. Moreover, Supreme Court case law interpreting the analogous federal statute of limitations holds that although a "return" generally must contain the information necessary to compute and assess deficiencies, "[p]erfect accuracy or completeness is not necessary to rescue a return from nullity"; rather, "if it purports to be a return, is sworn to as such, and evinces an honest and genuine endeavor to satisfy the law," it may trigger a statute of limitations, even if "at the time of filing the omissions or inaccuracies are such as to make amendment necessary." Zellerbach Paper Co. v. Helvering, 293 U.S. 172, 180 (1934) (citation omitted).
With this case law as our guide, we conclude that Sunbelt Beverage was rightly afforded the protection of the default three-year statute of limitation under D.C. Code § 47-4301 (a). Sunbelt Beverage, in a good faith effort to comply with the District's tax laws, filed the wrong form for the right tax, accurately reported its gross income, deductions, and ordinary income, and identified its corporate parent, which also filed taxes in the District and which Sunbelt Beverage asserts paid tax for Sunbelt Beverage's income. The sole information Sunbelt Beverage failed to provide - because it mistakenly believed it could pass through its income to its parent company, as a partnership may under the federal tax scheme - was an apportionment factor which would have only reduced the amount of Sunbelt Beverage's taxable income. Under the circumstances, this information could properly be characterized as a necessary "supplement" or "amendment" to the original form, see Zellerbach, 293 U.S. at 180, rather than basic "facts on which liability [for the business franchise tax] would be predicated," Commissioner v. Lane-Wells Co., 321 U.S. 219, 223 (1944). In its absence, we cannot say that Sunbelt Beverage "fail[ed] to file a return" under D.C. Code § 47-4301 (d)(1)(C).
A.The Taxation System for Businesses Operating in the District of Columbia
To place the salient facts in context, we briefly review the taxation structure for businesses operating in the District of Columbia. The District imposes a franchise tax upon businesses "for the privilege of carrying on or engaging in any trade or business within the District and of receiving such other income as is derived from sources within the District . . . ." D.C. Code § 47-1810.01 (a)(2) (2001). A business filing a tax return in the District is required to file one of three forms with OTR: a DC Form D-65, a DC Form D-30, or a DC Form D-20.
The instructions in the D-65 ("Partnership Return of Income") direct
that, "[e]xcept for partnerships required to file an unincorporated
business franchise tax return, DC Form D-30, all partnerships [which
are defined to include limited liability companies*fn1
] engaged in any trade or business in DC or which received
income from sources in DC, must file a DC Form D-65."*fn2
The D-65 is an informational return. A business that files a
D-65 simply alerts the District to its existence and the amount of its
ordinary income. It makes no apportionment calculations and pays no
tax because the District treats the partnership as a pass-through
entity - that is, each partner pays its portion of the partnership's
tax on its individual return.*fn3 The D-65 is
analogous to a federal Form 1065 ("U.S. Return of Partnership
Income"). Indeed, the D-65 explicitly links itself to the federal Form
1065: businesses that file a D-65 are instructed to attach their
federal Form 1065, along with the 1065's supporting
schedules.*fn4 The D-65 instructions also direct a
taxpayer that, for purposes of filing in the District, an LLC "must
use the same classification on [its] DC return as used on [its]
federal return" and the only exception to classifying a limited
liability company as a partnership "is if the IRS has classified [it]
These instructions notwithstanding, there is a significant difference between the District business franchise tax filing system and its federal analog. Unlike the federal system where a partnership files a federal Form 1065 and acts as a pass-through for its owners unless it elects to do otherwise,*fn6 in the District, a partnership (including a limited liability company) may only file a D-65 and treat itself as a 8 pass-through entity if its gross income attributable to the District is $12,000 or less*fn7
and it meets other specified criteria.*fn8
Businesses operating in the District which do not file a D-65 must file one of two other forms. A partnership that exceeds the $12,000 gross income limit is required to file a D-30 ("Unincorporated Business Franchise Tax Return").*fn9 An incorporated business must file a Form D-20 ("Corporation Franchise Tax Return"). A business that files either a D-30 or D-20 in the District is asked on the form to identify an apportionment factor, which is derived from a consideration of its sales, payroll, and property in the District. D.C. Code § 47-1810.02 (d) (2001 & Supp. 2005) (defining the apportionment factor for business income).The business is required to apply that apportionment factor to its net income to identify the amount of its ...