Buckingham obtains full vindication for Congressman Renacci, earning six figure refund as decided by Ohio Supreme Court

Ohio Supreme Court mandates Ohio Tax Commissioner refund Congressman Jim Renacci $359,822  plus interest.

Represented by Buckingham Tax Attorney, Steven A. Dimengo, and Litigator, Matthew R. Duncan, U.S. Congressman Jim Renacci won a six figure tax appeal stemming from amounts paid in 2008. In its June 15 decision, the Ohio Supreme Court unanimously found that Mr. Renacci acted in good faith and had reasonable cause in delaying the payment of tax based on a reasonable interpretation of federal tax law. The Court held that the Ohio Tax Commissioner abused his discretion in refusing to refund a double-interest penalty.

The Court dealt a significant blow to the authoritative nature of the Tax Commissioner’s published information releases, which the Renaccis challenged in this case.

“The tax commissioner unaccountably exalts the pronouncements of his information releases, which have no force of law, as though they impose binding obligations that no taxpayer should dare to question. * * * An information release does not create legal obligations by its own force – a fact both the commissioner and the BTA ignore when they measure the Renaccis’ good faith solely in terms of their willingness to abide by demands set forth in the tax department’s pronouncements. We have repeatedly held that when the tax commissioner seeks to exercise administrative authority in a systematic way over a broad range of taxpayer claims, he must promulgate his pronouncement as an administrative rule.”

Renacci v. Testa, 2016-Ohio-3394, ¶3 and ¶37. The Tax Commissioner often uses information releases as the basis for enforcing new policy. See e.g., Ohio Department of Taxation Agressively Extends Electronic Information Service Tax Base. But, as the Court explains, this tactic does not obligate taxpayers to follow these informal pronouncements.

“I am very happy Congressman Renacci was fully vindicated by a unanimous Ohio Supreme Court – all seven justices”, said Steven. A. Dimengo, Buckingham attorney who argued the case before the Ohio Supreme Court on behalf of the Renaccis. “The Supreme Court rightfully found the Renacci’s acted in good faith and with reasonable cause in delaying the payment of Ohio income tax until the Court rendered its decisions relevant to their tax liability,” Dimengo said.

Congressman Jim Renacci and his wife were assessed a significant penalty on taxes due on their “electing small business trust” (“ESBT”) income for the 2000 tax year. Former Tax Commissioner, Thomas Zaino, and his former income-tax counsel, Jeffrey Sherman, both testified that income from an ESBT was not taxable to the grantor prior to January 2000. The Tax Commissioner prospectively changed his position and began taxing historically nontaxable income commencing with the 2000 tax year. See Information Release IT 2000-01.

Many taxpayers, including the Renaccis, challenged the Tax Commissioner’s new policy and were not penalized if they paid the tax/interest during audit, while still preserving full refund rights. However, taxpayers who did not pay the tax/interest and exercised their appeal rights, such as the Renaccis, were assessed significant penalties – equal to more than 30% of the tax in the Renaccis’ case. Although there was a parallel case pending in the Ohio Supreme Court addressing the merits of the tax liability, the Tax Commissioner would have abated the penalty only if the Renaccis paid the tax/interest and relinquished their appeal rights. The Court found the Tax Commissioner’s actions were arbitrary and the Renaccis acted in good faith.

The Ohio Supreme Court decision is available here: http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2016/2016-Ohio-3394.pdf