Massachusetts Department of Revenue, penalties, interest, and payment allocation.

13 July 2013

Benjamin Franklin said “the only things certain in life are death and taxes.”  Although we know there are more things certain that can be added to that list, we must concede that paying taxes is indeed one of them.  In dealing with the tax man, many find themselves being assessed an unpaid tax and penalties and interest that flows from it.  

In this case, there is a subject that the taxpayer may want to look at — payment allocation.  In years past, directing a partial payment to the tax itself instead of the penalties and interest that flowed from it would result in a reduction in the total amount paid.  The taxpayer’s power to direct partial payments was established when the Massachusetts Supreme Judicial Court found that if a taxpayer directs partial payments to the tax itself and the payment is accepted, it must be honored, absent statutory authorization.  Commissioner of Revenue v. Molesworth, 408 Mass. 580, 583 (1990).  So, at that time when a taxpayer was faced with the situation of not having enough money to pay the Massachusetts Department of Revenue and sought to make a partial payment, designating the partial payment for the tax itself, and not the penalties or interest that flow from it, saved in the long run. See e.g., Commissioner of Revenue v. Molesworth, 408 Mass. 580, 583 (1990); Massachusetts Department of Revenue, Technical Information Release 91-2.

Before getting excited about finding a great way to save yourself taxes, there is another saying that applies — “all good things come to an end.” It did here, and soon.  The Massachusetts legislature changed the law and allowed the computation of interest on both the tax and penalties on 1 January 1993.  It also effectively ended the benefit of directing a partial payment generally ended because the total tax would not be reduced by this practice. Massachusetts Department of Revenue, Technical Information Release 92-6.  Also (now that it generally does not matter) it appears that the Massachusetts DOR voluntarily decided to apply partial payments to the tax first.  Id.

In any event, in complex situations, there may still be reasons a taxpayer would still want to allocate partial payments in a manner he desires.  These will be addressed below, but first, there is an important trap for the unwary to avoid.  It is to follow the regulations concerning allocation of payments found at 830 CMR 62C.33.1(8). The Massachusetts DOR now requires the use of Form TDP-1 or a letter containing specific required information to accompany the payment.  Id.  Thus, if payment allocation is desired, you must follow these rules.

Directing payment allocation may still be immensely beneficial if multiple tax years and tax types are owed.  But if the taxpayer does not make the direction, the Massachusetts Department of Revenue makes the call.  New regulations establish this.  For example, absent specific instructions of payment allocation from the taxpayer, the Massachusetts Department of Revenue has significant latitude to apply payments as it desires that can be avoided. 830 CMR 62C.33.1(9)a (“In the absence of written taxpayer instructions given in the manner provided in 830 CMR 62C.33.1(8), the Commissioner may apply a taxpayer's payments to its outstanding liabilities in any manner.”) 

In addition, the Massachusetts DOR has outlined a payment application order that benefits it, instead of the taxpayer.  See e.g., 830 CMR 62C.33.1(9) (indicating order of application of payments in absence of taxpayer direction).  In some situations, it is better for the taxpayer to have certain tax types paid before others or have recent taxes paid instead of other older tax obligations.  In these situations, allocating payment could change the way the Massachusetts DOR would have applied it and bring great benefit to the taxpayer.  So, although some of the power and benefit of payment allocation has been eliminated in Massachusetts, it still may make a significant difference and benefit to the taxpayer to direct allocation of payments.

In closing, it is always best to make your tax payments on time, however, if you do get behind, consider employing payment allocation.  Further, if you are facing such a question, you probably need legal counsel.  Feel free to give this office a call.

Corporate sales taxes, personal liability, and the Massachusetts Department of Revenue.

11 July 2013

Business owners who are behind on paying their corporate sales taxes may find themselves in a big mess. Generally, these amounts are considered to be held in trust for the Commonwealth.  Should corporations fail to pay these sales taxes, the Commonwealth is able to collect the amount due from the officers of the company who are responsible for their collection and payment.  Mass. Gen. Laws c. 64H § 16.  These corporate officers are also personally obligated for the interest and penalties that stem from overdue corporate sales taxes as well.  Berenson v. Commissioner of Revenue, 413 Mass. 831, 832 (1992).  This applies even if the corporation has gone out of business.  Id.   This means that if the sales taxes are not paid by the corporation when due, it can haunt the corporate officer responsible for their payment for years into the future.

If such a situation arises, there could be significant conflict between those that ran the corporation, as people may have different opinions about whether the responsibility for the taxes coincide with the “fault” for not paying them.  In the event that you find yourself in such a situation or need advice on what to do with old corporate sales tax debt, feel free to give this office a call. 

How long do I have to bring my legal claim to court?

1 July 2013

This is a common question and one that has the typical legal answer, it depends.  The author herein recommends a comprehensive approach to this type of question.

  

Initially, let’s point out that we must back up and ask whether there is a claim to being with.  Typically a person answers this question, without much, if any, professional help.  At best, they have called and talked to an attorney, usually over the phone, and obtained what they believed was the correct answer, which is almost always, yes.  They did not have the attorney review any documents related to the issue and presented a one-sided story of the facts.  Further, human nature being what it is, an attorney, especially one that has just “met” the client, may be reluctant to tell the caller there is no claim.  Although with a very simple set of facts a proper assessment can be made in one phone call, often this approach is risky as many times there is not enough investigation into the facts or law that could apply.

Assuming there is a claim, the next question that needs to be answered is: What kind of claim is it?  And the last question: what statute of limitations applies? 

There are broad categories that most lawyers can recite readily, such as tort (generally 3 years in Massachusetts), unfair business practices (generally 4 years in Massachusetts), and contract (generally 6 years in Massachusetts).  However, these broad categories, are just that — broad — and an attorney less familiar with the facts or possible claims can easily mistakenly place a claim into one of these broad categories and miss a more specific and applicable limitation.  Not only that, it may not be abundantly clear in the law.

For example, in Crocker v. Townsend Oil Company the plaintiffs brought a case arguing that they were employees and not independent contractors and thus were entitled to compensation for overtime pay.  Crocker v. Townsend Oil Company, Inc., 464 Mass. 1 (2012).  One question was whether the general 3 year limitation in the Wage Act or a 2 year limitation period a different statute governing overtime claims applied to the specific overtime claims brought by the plaintiffs.  Crocker v. Townsend Oil Company, Inc., 464 Mass. at 6.  This caused the court to have to compare the statutes.  It decided that a plaintiff could bring a claim for hours worked within the 3 years, but if successful, the recovery would be limited to the regular hourly rate and not the enhanced overtime rate.  Crocker v. Townsend Oil Company, Inc., 464 Mass.  at 7.

As you can imagine, the set of facts that existed in Crocker, even though not all that complicated, would not be adequately addressed with a simply phone call.  Even if both statutes were considered, it would take formulating a formal legal opinion to allow a plaintiff to assess the claim properly.

The author suggests that if you find yourself assessing a claim, instead of relying on free advice obtained over the phone, to formally engage and compensate an attorney to answer the proper questions; and further, make the decision whether to pursue the claim without delay.

I signed a general release effective in Massachusetts, can I now bring a claim against the party I gave the release to?

1 July 2013

Answer: Probably not.

Although any release must be assessed with consideration of all the facts and its particular language, the idea behind a general release is that the party providing it releases all claims, not just the claim or claims the parties were disputing initially, whether known or unknown at the time of execution.  Radovsky v. Wexler, 273 Mass. 254, 257 (1930).  Understand, generally, when you sign a general release you are not permitted to raise claims that existed at the time of execution at a later time.  This means that if you learn later that you had a claim against that entity, no matter the value or damage to you, it is lost.

However, rarely, and this author stresses rarely, the Supreme Judicial Court of Massachusetts has allowed plaintiffs to bring a claim that was otherwise included in a general release.  Such an event occurred in Crocker v. Townsend Oil Company, Inc. when the plaintiffs brought an employment overtime claim against a former employer after the plaintiffs executed a general release.  Crocker v. Townsend Oil Company, Inc.,  464 Mass. 1 (2012).  In that case, the court recognized its “policy concerning the broad enforceability of general releases” but had to balance it against specific statutory language in the Massachusetts Wage Act and its recognized “strong statutory protection for employees and their right to wages.”   Id. at 12-13.  The court ruled that any release of Wage Act claims must be “plainly worded and understandable to the average individual and . . . specifically refer to the rights and claims under the Wage Act [for it to be effective to release Wage Act claims].”  Id. at 14.  It found the general release at issue in Crocker did not release the plaintiffs’ claims.  Id. at 15.

Before you believe that your may enjoy the same victory the plaintiffs did in Crocker, realize that the plaintiffs in that case had a very strongly worded statute and public policy in their favor.  It was unique.

 

The important lesson is to realize what is at stake when signing a general release and that in most cases the general release will be enforced.  To ensure that you understand what rights are being released when presented with a release, it is recommended that one engage a competent attorney to get the advice your need.