Section 81 Neglect or Refusal to File or Fraud

• Library: Tax Law 2009

If there is fraud in the return or there is neglect or refusal to file a return, the three-year statute of limitations on assessment under § 144.220, RSMo 2000, does not start to run when a return is filed. But in the absence of a showing of the proscribed conduct, the normal three-year limitation will apply. Atlas Powder Co. v. Dir. of Revenue, No. RS-79-0349, 1982 WL 12008 (Mo. Admin. Hearing Comm’n, Aug. 30, 1982); Cascio v. Dir. of Revenue, No. RS-80-0307, 1982 WL 12056 (Mo. Admin. Hearing Comm’n, Sept. 9, 1982). Excel Drug Co. v. Missouri Department of Revenue, 609 S.W.2d 404 (Mo. banc 1980), construed § 516.130(2), now RSMo Supp. 2007, to commence the applicable statute of limitations on imposing a 25% penalty under § 144.500, now RSMo 2000, when fraud is involved from the time MoDOR’s assessment became final, which could not occur until MoDOR could bring a lawsuit against the taxpayer for the collection of tax. Thus, a three-year period for action on a penal statute did not apply. Indeed, if § 144.150, RSMo 2000, “successor” liability is involved, a taxpayer’s failure to file returns prevents the statute of limitations on assessment from running in favor of its successors. Casa Verde Foods, Inc. v. Dir. of Revenue, No. RS-86-2355, 1989 WL 40977 (Mo. Admin. Hearing Comm’n, Jan. 25, 1989).

In Lora v. Director of Revenue, 618 S.W.2d 630 (Mo. 1981), MoDOR contended that the taxpayer’s failure to make a return was due to “neglect.” The AHC construed neglect to make a return as negligent or careless failure to file a return. When the taxpayer exercised able prudence and good faith on the basis of reasonable belief that her business was exempt, there was no such “neglect.” See also Signs by Sherri Sherri Williams v. Dir. of Revenue, No. RS-84-2142, 1987 WL 51142 (Mo. Admin. Hearing Comm’n, Mar. 5, 1987). A contrary result was reached in High Adventure Game Ranch, Inc. v. Director of Revenue, 824 S.W.2d 905 (Mo. banc 1992), in which the taxpayer had never sought a license, had never paid any tax (though some tax was collected), and had only once contacted MoDOR by telephone five years previously (inconclusively) regarding its compliance responsibilities. The taxpayer’s inaction constituted “neglect.”

To show absence of “neglect,” a taxpayer often hopes to show the exercise of “reasonable prudence and good faith,” Lora, 618 S.W.2d 630, on the basis of a reasonable belief that the transactions at issue are not taxable. See also Neely v. Dir. of Revenue...