Thursday, June 21, 2012

Some Preliminary Thoughts On The New Maine Board Of Tax Appeals

The Maine Legislature recently voted to create a new, three-member Maine Board of Tax Appeals (MBTA).   The MBTA replaces the Independent Appeals Office that the legislature devised in 2011, which had yet to take effect, and will serve as an independent entity within the Department of Administrative and Financial Regulation.  The MBTA is not part of (or supervised by) Maine’s revenue department (know as Maine Revenue Services (“MRS”)). 

The MBTA will spring into existence as of July 1, 2012.  Obviously, time is short for the MBTA to get up and running.  While the MBTA is intended as a business friendly measure to “provide taxpayers with a fair system of resolving controversies and to ensure due process,” it remains to be seen whether it will be a favorable option/forum for taxpayers.     
Here is how the tax appeals process will work under the new law creating the MBTA:

First, after an assessment is issued, an aggrieved party is required to file, within 60 days of receipt of the assessment, an initial petition for reconsideration with MRS.   Failure to file a petition for reconsideration prevents any further review of the matter by either the MBTA or directly to the Maine Superior Court.
The petition for reconsideration process is intended to be informal, and to create an opportunity for MRS and the aggrieved party to discuss and negotiate.   MRS is empowered to settle issues and cases on the basis of the relevant facts and law, including the hazards of litigation.  There is no obligation on the aggrieved party to make any particular showing or submission to MRS in connection with such discussions and negotiations.

After reconsideration by MRS, a petitioner who remains aggrieved by the outcome may appeal to either the MBTA or the Superior Court.  In either case, the matter is reviewed on appeal de novo, meaning the all issues are open to review, although the taxpayer bears the burden of proof.  If the aggrieved party appeals to the MBTA, the petitioner can control whether the matter will be considered by the Board based on a hearing (with live testimony and oral argument) or, instead, on a written record (including affidavits, documentary evidence and briefs).  In either case, the matter is first evaluated by a “tax appeals officer,” who makes a recommended decision to the Members of the Board.  Unless it decides to send the matter back to the appeals officer for further consideration, the MBTA can adopt, modify, or reject (and enter its own decision) the appeals officer’s recommended decision.
Either the petitioner or MRS may appeal from a final decision of the MBTA by filing, within 60 days of receipt of the MBTA decision, a petition for review by the Superior Court, which reviews the MBTA’s decision de novo.  The Court is empowered to hear any issue, regardless of whether or not it was raised before the Board.   The standard rules of civil procedure (including discovery, etc.) apply in the Superior Court.

Experience over the next few years will show whether the MBTA proves to be an attractive forum for taxpayers seeking a relatively less costly, independent forum for presenting their case, or not.   Assuming that the MBTA demonstrates a degree of independence from MRS (by no means a foregone conclusion), much will depend upon the approach taken by MRS to matters in which the MBTA decides against it.  If the default approach by MRS is to appeal most adverse decisions, the MBTA may only serve to add another layer of administrative expense for taxpayers.  In fact, the preservation of unlimited, de novo review by the Superior Court may considerably limit the MBTA’s value to taxpayers, if the filing of an initial appeal with the MBTA serves only to provide MRS an opportunity to discover the weaknesses in its case, before getting a chance at full discovery in the Superior Court.

Separate from the option of an appeal to the MBTA, it will be interesting to see how MRS exercises its authority to negotiate and settle cases on a more informal basis through the reconsideration process.  The opportunity for settling tax matters in manner that approximates the settlement of contested litigation, before a more formal appellate process is even initiated, may, in the end, prove an even more useful opportunity for taxpayers than the MBTA itself.  Time will tell.

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