TiNY Report for November 7, 2019 (reporting on DTA cases issued October 31)

After the almost 80 page determination last week, I think the DTA decided to take it easy this week, so we just have one determination. On the plus side, it’s not a timy and the petitioner prevailed.

Matter of Shi; Judge Law; Division’s Rep.: Melanie Spaulding; Petitioner’s Reps.: Larry Kars and Jeffrey Eng; Articles 28 and 29.

The Division commenced an audit of New Shanghai Tan Restaurant (“the restaurant”) for the period March 2013 through March 2015. When it contacted the restaurant to confirm an audit appointment, it was told that the restaurant was out of business and its owner, Fu Ling Shi (no relation to Petitioner), was in jail for alleged credit card fraud, but that her son would get her to sign the POA when he visited her in jail (that’s never a good sign). No surprise here – a POA was never received and no sales tax records were provided. So the auditor calculated the estimated additional sales tax due and issued a notice of determination to the restaurant and to Petitioner as a responsible person.  The Division determined that Petitioner was a responsible person based on the following facts: (1) the electronically-filed sales tax returns for part of the audit period were submitted by  “C Shi” [ed. Petitioner is Chuanmin Shi]; (2) the restaurant’s application to register for a sales tax certificate of authority was electronically submitted by Petitioner three years before the audit period; and (3) the restaurant’s quarterly combined withholding, wage reporting, and unemployment insurance returns for the quarters ended September 30, 2009, September 30, 2011, December 31, 2011 and December 31, 2012 showed wages paid to Petitioner.

Petitioner testified that he had given his membership interest to Fu Ling Shi in 2012 (i.e. before the audit period) because he was spending so much time in China taking care of his sick dad, and he introduced passport pages to support this. Petitioner also testified that he wasn’t an employee, officer, or director of the restaurant during the audit period, and he had no check-signing authority or access to the restaurant’s computers, and he submitted affidavits of two friends to support this. Petitioner also provided a letter from the restaurant’s accountant which said that Petitioner had not been an owner since March 2012, despite the fact that the accountant used his name on the sales tax returns. Petitioner also submitted federal tax filings showing Fu Ling Shi as the sole shareholder.

At the hearing, the Division submitted copies of documents allegedly signed by Petitioner. Petitioner denied that he signed these documents and presented a handwriting report prepared by forensic document examiner, which included his qualifications, and support that Petitioner did not in fact sign any of these documents [ed. this is the first time we’ve seen a handwriting expert report submitted into evidence at the DTA]. The Division did not object to this submission (it would later regret this).

The Judge determined that Petitioner was not a responsible person for the restaurant during the audit period. The Judge relied on Petitioner’s credible testimony, the affidavits, and the federal tax filings showing that he did not own the restaurant.  The Judge also noted that Petitioner was not named as a defendant in an Fair Labor Standards Act (“FLSA”) action against Fu Ling Shi alleging that she was under a duty to act on behalf of the restaurant during the audit period. The Judge also diminished the probity of the documentary evidence submitted by the Division as it found that “[t]he handwriting report of [the handwriting expert] convincingly establishes that the signatures appearing thereon were not made by petitioner.” Since the Division didn’t object to this evidence when submitted, it waived any objection to it, and the Judge didn’t consider the Division’s contrary arguments in its post-hearing submission (I guess the Division forgot the rules of evidence still apply).

And for those keeping score, the recap is handwriting experts: 1, the Division: 0.

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