STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

SIGNS OF ALL KINDS, INC., and ) DAVID G. LENNARD, )

)

Petitioners, )

)

vs. ) CASE NO. 89-5974

) STATE OF FLORIDA, DEPARTMENT ) OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, Claude B. Arrington, held a formal hearing in the above-styled case on June 7, 1990, in Miami, Florida.

APPEARANCES

For Petitioner: Lynn C. Washington, Esquire

Fine, Jacobson, Schwartz, Nash Block & England, P.A.

100 Southeast 2nd Street Miami, Florida 33131-2112

For Respondent: Kevin J. O'Donnell, Esquire

Assistant Attorney General Department of Legal Affairs Tax Section, The Capitol

Tallahassee, Florida 32399-1050 STATEMENT OF THE ISSUES

Whether Petitioner, Signs of All Kinds, is eligible to participate in the 1988 Florida Tax Amnesty Program.

PRELIMINARY STATEMENT

On June 20, 1988, Respondent filed a "Notice of Assessment for Tax, Penalty and Interest Due" against Petitioner, Signs of All Kinds, Inc., based on the alleged underpayment of sales taxes by said Petitioner between May 1985 and December 1987. The total amount of taxes due was assessed as being $58,584.00. With interest and penalties added to the assessed amount of taxes, the total of the amount assessed against Signs of All Kinds was $104,606.02. On June 20, 1988, Respondent filed a separate "Notice of Assessment for Tax, Penalty and Interest Due" in the amount of $58,584.00 against Petitioner, David Gerald Lennard, in his individual capacity. This assessment, pursuant to Section

213.29, Florida Statutes, was premised on Mr. Lennard's status as president of Signs of All Kinds, Inc. The principal amount of the tax and the interest thereon were paid by Petitioners in 1988, and the lien that had been filed by Respondent against Mr. Lennard was discharged.

Petitioners did not pay the penalties that were assessed against it.

Petitioners contend that Signs of All Kinds, Inc. is not liable for the payment of the penalties because it is entitled to participate in a tax amnesty program that was begun by Respondent on January 1, 1988. The application to participate in the amnesty program submitted by Signs of All Kinds, Inc. was denied by Respondent on the grounds that said applicant was not eligible to participate in the amnesty program because it was, at the time of its application for amnesty, under criminal investigation. This proceeding followed Respondent's denial of the subject application to participate in the amnesty program.

The parties stipulated that Petitioner would be liable for the penalties that have been assessed against it if Petitioner is determined to be ineligible to participate in the amnesty program.

At the formal hearing the following witnesses testified on behalf of the Petitioners: David G. Lennard, Karen F. Johnson, Paul S. DeLesdernier, and Catherine Lennard. The following witnesses testified on behalf of the Respondent: Karen F. Johnson, Tom Steckler, Brian Matlin, and David L. Skinner. Mr. Lennard is president of Signs of All Kinds and Catherine Lennard is his wife. Mr. DeLesdernier and Ms. Johnson are investigators employed by Respondent. Mr. Steckler is the supervisor of Respondent's investigation section. Mr. Matlin is an accountant who performed services for Petitioners and who provided information to Respondent. Mr. Skinner is Respondent's chief of enforcement.

A transcript of the proceedings has been filed. At the request of the parties, the time for filing post-hearing submissions was set for more than ten days following the filing of the transcript. Consequently, the parties waived the requirement that a recommended order be rendered within thirty days after the transcript is filed. Rule 22I-6.031, Florida Administrative Code. Rulings on the parties' proposed findings of fact may be found in the Appendix to this Recommended Order.

FINDINGS OF FACT

1. Petitioner, Signs of All Kinds, Inc., is a corporation duly organized and existing in the State of Florida with its principal place of business being in Miami, Florida. David G. Lennard is the president of Signs of All Kinds. (Signs of All Kinds, Inc. will be referred to herein as Petitioner. David G. Lennard will be referred to by his name.)

2. Respondent is an agency of the State of Florida, created pursuant to Section 20.21, Florida Statutes, and is charged with the administration and enforcement of Chapter 212, Florida Statutes.

3. Between January 1, 1988 and June 30, 1988, a taxpayer amnesty program, authorized by Section 48 of Chapter 87-6, Laws of Florida, as amended by Section

   27 of Chapter 87-101, Laws of Florida, was put into effect by Respondent. Chapter 12-20, Florida Administrative Code, was adopted by Respondent to

   administer the amnesty program. Rule 12-20.002, Florida Administrative Code, describes the amnesty program, and provides, pertinent to these proceedings, as follows:

   
   

   12-20.002. Description of the Tax Amnesty Program. the tax amnesty program is an opportunity for eligible taxpayers to satisfy their liabilities arising under included Florida revenue laws and to thereby avoid criminal prosecution and payment of penalties under such laws.

   1. The tax amnesty program is available to eligible taxpayers

   during the period January 1, 1988 through June 30, 1988. Eligible taxpayers have this period to resolve their liability for tax, interest, or penalties imposed under included Florida revenue laws and to file delinquent returns or reports, or to file amended returns or reports under such laws. Tax and interest

   owed by the eligible taxpayer must be paid in full during the amnesty period. ...

   
   

   * * *

   
   

   1. The term "eligible taxpayer" means any person liable for an amount of tax, interest, or penalty under an included Florida revenue law, penalty under an included revenue law, except persons under criminal investigation, indictment, information, or prosecution. Delinquent taxpayers, taxpayers under audit, and taxpayers involved in administrative or judicial proceedings contesting their liability, are eligible to participate in the tax amnesty program for amounts for which amnesty is available. ...

      
      

   2. Eligible taxpayers who comply with the terms and conditions of the tax amnesty program will be granted amnesty from criminal prosecution for violation of included Florida revenue laws and will not be required to pay any penalty imposed under an included Florida Revenue law. Eligible taxpayers are required to pay any tax or interest due under an included Florida revenue law for which amnesty is granted.

   
   

4. Brian Matlin is an accountant who performed accounting services for Petitioner between January 1986 and May 1987. These services did not include the preparation or the filing of sales tax returns. In May 1987, Mr. Matlin and Mr. Lennard had a disagreement which resulted in Mr. Matlin becoming disgruntled and in his services to Petitioner being terminated. In June of 1987 Mr. Matlin provided Respondent's investigators, Karen F. Johnson and Paul DeLesdernier, a sworn statement in which he alleged that Petitioner had underpaid its sales taxes. Mr. Matlin produced certain financial records of Petitioner that had come into his possession during the time he performed services for Petitioner which supported his contention that Petitioner was underpaying its sales taxes.

5. As a result of the information that had been supplied to it by Mr. Matlin, Respondent began an investigation of Petitioner that was initially classified by Investigator Johnson as being both civil and criminal.

6. Prior to the institution of the amnesty program, Respondent developed a procedure to designate and to handle those cases that were to be considered to be under criminal investigation, and therefore ineligible to participate in the amnesty program. On December 28, 1987, Investigator Johnson filled out a request that the investigation into Petitioner's underpayment be formally classified as a criminal investigation. This request was approved by Mr. David Skinner, Respondent's Chief of Enforcement, on December 29, 1987. The procedure followed by both Ms. Johnson and Mr. Skinner was consistent with the procedure Respondent had adopted.

7. As of December 29, 1987, Petitioner was under a criminal investigation by Respondent for a possible violation of Section 212.12(2), Florida Statutes, for making a false or fraudulent return or willfully attempting to evade payment of tax. As of December 29, 1987, Respondent's records formally reflected that the investigation of Petitioner was classified as a criminal investigation.

8. Respondent's first contact with Mr. Lennard occurred on February 9, 1988, at which time he was interviewed by Investigators Johnson and DeLesdernier at the Petitioner's offices. At this first meeting, Ms. Johnson gave to Mr. Lennard a statement of rights form that contained, in pertinent part, the following warning:

   
   

   As a Revenue Investigator for the Florida Department of Revenue, one of my functions is to investigate the possibility of criminal violations of Florida Tax Laws, and other related offenses.

   
   

   I am investigating tax matters which involve you or your business and would like to ask you some questions. I must advise you, however, that under the Fifth Amendment to the Constitution, you cannot be compelled to answer any of my question or submit any information which you feel might tend to incriminate you in any way. You are further advised that anything that you say and any documents that you may submit may be used against you in a criminal proceeding. ...

   
   

9. Mr. Lennard denies that such a form was given to him at this meeting and that he was not advised that his company was under criminal investigation. Investigator Johnson's testimony is in conflict with Mr. Lennard's testimony in this regard. She contends that the form was given to Mr. Lennard, but that he refused to sign the form. She contends that Mr. Lennard took the form so that his attorney could review it. This dispute in the testimony is resolved by rejecting the testimony of Mr. Lennard and by accepting the testimony of Ms. Johnson because her testimony is found to be more credible.

10. Subsequent to the February 9, 1988, meeting, Mr. Lennard was contacted on several occasions by Investigator Johnson to produce various records of the Petitioner. On each occasion, Mr. Lennard complied with the request and was asked to sign an Investigation Unit Property Receipt. Such receipts were signed on the following dates in 1988: February 16, March 2, March 16, March 23, April 8, May 9, and May 20.

11. As of the formal hearing, Respondent had not referred this case to the office of the State Attorney for prosecution, and the State of Florida had not commenced any criminal proceedings against Petitioner.

12. From May 1985 through December 1987, Petitioner underpaid the sales taxes it owed the State of Florida under the provisions of Part I of Chapter 212, Florida Statutes, by the total amount of $58,584.00.

13. On March 2, 1988, Petitioner and Mr. Lennard made a request for amnesty under the Florida Tax Amnesty Program for all Florida sales tax

    liabilities owed by them for the period May 1985 through December 1987. Petitioner paid the full amount of tax and interest assessed by Respondent for the period May 1985 through December 1987 prior to July 1, 1988. These payments were made as follows:

    
    

    Date	Amount
    March 4, 1988	$10,000.00
    May 16, 1988	$10,000.00
    June 30, 1988	$50,680.01

    
    

14. On June 20, 1988, Respondent filed a "Notice of Assessment for Tax, Penalty and Interest Due" against Petitioner based on the alleged underpayment of sales taxes by Petitioner between May 1985 and December 1987. The total amount of taxes due was assessed as being $58,584.00. In addition to interest assessed pursuant to the provisions of Section 212.12(3), Florida Statutes, Respondent assessed penalties under the provisions of Section 212.12(2)(a), Florida Statutes, that are the subject of this proceeding. First, a late penalty was assessed in the amount of $4,634.01. Second, a specific penalty in the amount of $29,292.00 (50% of the assessed taxes) was assessed. This specific penalty was assessed on the premise that Petitioner had submitted a false or fraudulent return.

15. Petitioner's application to participate in the amnesty program was denied by Respondent on the grounds that Petitioner was under a criminal investigation prior to the request being made and was, consequently, not eligible to participate in the amnesty program. At Petitioner's request, the initial determination was reconsidered by Respondent. Following the reconsideration, the initial determination that Petitioner was not eligible to participate in the amnesty program was confirmed. This proceeding followed Petitioner's request for a formal administrative hearing.

16. The parties stipulated that the penalties that were assessed against Petitioner were properly assessed unless Petitioner is eligible to participate in the amnesty program.

17. On June 20, 1988, Respondent filed a separate "Notice of Assessment for Tax, Penalty and Interest Due" in the amount of $58,584.00 against Mr. Lennard, in his individual capacity. This assessment, pursuant to Section 213.29, Florida Statutes, was premised on Mr. Lennard's status as president of Signs of All Kinds, Inc. The principal amount of the tax and the interest thereon were paid by Petitioners in 1988. As a consequence, the lien that had been filed by Respondent against Mr. Lennard was discharged and the separate assessment has been rendered moot.

    
    

    CONCLUSIONS OF LAW

    
    

18. The Division of Administrative Hearings has jurisdiction over the subject matter of and the parties to this proceeding. Section 120.57(1), Florida Statutes

19. Section 48 of Chapter 87-6, Laws of Florida, as amended by Section 27 of Chapter 87-101, Laws of Florida, provides, in pertinent part, as follows:

    
    

    ... A taxpayer who is under a criminal investigation, indictment, information, or prosecution is not eligible to participate in the amnesty program. ...

    
    

20. Chapter 12-20, Florida Administrative Code, contains rules adopted by Respondent to administer the subject tax amnesty program. Rule 12-20.002(3), Florida Administrative Code, excludes from the definition of an "eligible taxpayer" a person who is under criminal investigation.

21. Respondent had formally classified its investigation of Petitioner as being a "criminal investigation" prior to January 1, 1988, the date the amnesty program went into effect. At all times during the effective period of the amnesty program, Petitioner was under criminal investigation by Respondent. Petitioner failed to establish that Respondent's classification of the investigation as a criminal investigation was arbitrary or capricious agency action. To the contrary, Respondent established that it had sufficient reason to classify the investigation as a criminal investigation. Consequently, Respondent correctly determined that Petitioner was not eligible to participate in the amnesty program.

22. The parties stipulated that the challenged penalties were properly assessed if it were determined that Petitioner was not eligible to participate in the amnesty program. These penalties, in the amounts of $4,634.01 and

$29,292.00, were properly assessed against Petitioner, Signs of All Kinds, Inc.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that Respondent enter a final order which determines that Petitioner, Signs of All Kinds, Inc., is not eligible to participate in the tax amnesty program because it was under criminal investigation and which upholds the assessment of the subject penalties against Petitioner, Signs of All Kinds, Inc. It is further RECOMMENDED that the assessment that was separately made against Petitioner, David G. Lennard, be dismissed.

DONE AND ENTERED this 13th day of September, 1990, in Tallahassee, Leon County, Florida.

CLAUDE B. ARRINGTON

Hearing Officer The DeSoto Building 1230 Apalachee Parkway

Tallahassee, Florida 32399-1550 904/488-9675

Filed with the Clerk of the

Division of Administrative Hearings this 13th day of September, 1990.

APPENDIX TO THE RECOMMENDED ORDER IN CASE 89-5974

The following rulings are made on the proposed findings of fact submitted by Petitioners:

1. The proposed findings of fact in paragraphs 1-3, 5-7, 9, 12, 15, 18, and 19 are adopted in material part by the Recommended Order.

   
   

2. The proposed findings of fact in paragraphs 4 and 8 are rejected as being subordinate to the findings made.

3. The proposed findings of fact in paragraph 10 are rejected because the proposed finding implies that the decision to classify the case as a criminal investigation was based solely on the contact with Mr. Matlin. Consequently, the proposed finding is contrary to the findings made.

4. The proposed findings of fact in paragraphs 11 and 14 are rejected as being unnecessary to the conclusions reached.

5. The proposed findings of fact in paragraphs 13 and 17 are rejected as being contrary to the greater weight of the evidence or to the findings made.

6. The proposed findings of fact in paragraphs 20-22 are rejected as being conclusions of law.

The following rulings are made on the proposed findings of fact submitted by Respondent.

1. The proposed findings of fact in paragraphs 1, 3, 4, 6, 9, 10, 20, 21, 23, and 29 are adopted in material part by the Recommended Order.

2. The proposed findings of fact in paragraphs 2, 8, 12, 16,

   13 (this is the second of two paragraphs numbered 13 and is found on page 6 of the proposed recommended order), 18, and

   19 are rejected as being subordinate to the findings made.

3. The proposed findings of fact contained in the first two sentences and in the last sentence of paragraph 5 are adopted in material part by the Recommended Order. The proposed findings of fact in the remainder of paragraph 5 are rejected in part as being unnecessary to the conclusions reached.

4. The proposed findings of fact in paragraphs 7 and 11 are adopted in part by the Recommended Order, and are rejected in part as being the recitation of testimony.

5. The proposed findings of fact in paragraphs 13-15, 17, 22, and 24-28 are rejected as being unnecessary to the conclusions reached or as being subordinate to the findings made.

Copies furnished:

Lynn C. Washington

One CenTrust Financial Center

100 Southeast 2nd Street Miami, Florida 33131

Kevin J. O'Donnell, Esquire Joseph C. Mellichamp, Esquire Department of Legal Affairs The Capitol - Tax Section

Tallahassee, Florida 32399-1050

William D. Moore, Esquire Department of Revenue

203 Carlton Building Tallahassee, Florida 32399-0100

J. Thomas Herndon Executive Director Department of Revenue

104 Carlton Building Tallahassee, Florida 32399-0100

Docket for Case No: 89-005974

Orders for Case No: 89-005974