Findings Of Fact At all times pertinent to the allegations contained herein, the Petitioner was the state agency responsible for licensing and monitoring the real estate profession in Florida. Respondents, Gruhler and Wilson were licensed as a real estate broker and real estate salesman, respectively, in this state. In April, 1988, Respondent Wilson was a 50% owner of Wilson's Cavalier Motor Inn, Inc., located in Sarasota, Florida and, that same month, listed it for sale with his employer, Respondent Gruhler. In June, 1988, Maurice G. Andersen and his wife, who were in the market to buy a motel, looked at the Cavalier and, after discussion with the Respondents, agreed to buy it for $181,900.00. Prior to agreeing to purchase the property, the Andersens were shown several papers regarding it, including the listing sheet prepared and provided by Mr. Wilson which reflected gross sales of $62,769.00 in 1986 and $65,413.00 in 1987. Based on his analysis of the property, Mr. Andersen made an offer to purchase it by Purchase agreement dated June 28, 1988, with which he enclosed a deposit of $1,000.00. Mr. Andersen now claims that at the time he felt the income figures provided by Mr. Wilson were too high for a 9 unit motel but assumed they were accurate. He claims his decision to purchase the property was based on the income and expense figures provided by Mr. Wilson incident to the purchase. A statement of earnings for the property for the period March 5, 1986 to February 28, 1987 , a term of approximately 14 months, reflected gross income of $72,360.70, expenses of $37,904.51, with a net income of $34,456.19. This statement which Andersen admits is accurate, is only one of four that he received. The closing transferring ownership to the Andersens took place on September 30, 1988. At that time, the parties executed a stock purchase agreement by which the Andersens purchased not only the assets of the motel but also 100% of the stock in the corporation which owned the motel and its assets. The corporation had been owned by Mr. and Mrs. Wilson. During the first six months of Andersen's ownership of the property, the income was not up to his expectations. He claims he had been told he'd do a lot of business through advance reservations but, in fact, had only one and the six month gross income during that period was approximately the same amount the previous owner, Mr. Wilson, had done. In February, 1989, Mr. Wilson gave the Andersens a financial statement on the property and business for the period April 5 through September 30, 1988 which reflected gross income of $24,622.36 and expenses of $24,604.10, for a net income of $18.26. He also provided, sometime that year, a more detailed statement for the period from April 17, 1988 through June 30, 1988 which reflected, among other things, a gross income for that period of $9,956.00. In reality, the income for that period, as reflected on the Department of Revenue sales tax returns submitted by Mrs. Wilson, the bookkeeper, was $7,483.60, a difference of $2,472.40. This is a significant difference. All of the financial information provided to the Andersens by Mr. Wilson, except for that contained in the erroneous statement prepared by Mrs. Wilson, was provided by previous owners of the motel. Neither Mr. Gruhler nor Mr. Wilson was familiar in detail with the actual revenue and expense of the motel prior to the time Mr. Wilson took it over in 1988. Mr. Andersen's chief complaint lies with Mr. Wilson, who he believes intentionally misled him with false information to induce his purchase, and not with Mr. Gruhler. He is satisfied the latter did not intentionally try to trick him or commit fraud. Wilson purportedly advised him orally that the motel brought in approximately $3,000 per month when in reality it was only about two- thirds that figure. He admits to having an opportunity to examine the property thoroughly prior to the purchase and even had his accountant in Minnesota go over the listing sheet and the initially provided figures before agreeing to buy. The motel is a 9 unit operation with small rooms and one large efficiency apartment. There is no pool. The Andersens occupy one unit and their son occupies another. Mr. Andersen does not know if, even with this reduction from rental space, his operation is bringing in any less than Mr. Wilson did, and proudly claims that as an inexperienced operator, for the year past he did $2,000.00 more in business than did the experienced operator from whom Wilson took back the business. He asserts he had a good year even though the tourist activity for Sarasota County was down for the same period. Mr. Wilson was first contacted by Mr. Andersen in June, 1988, regarding several motels for sale advertised by Gruhler, for whom Wilson works. They met at one motel which Mr. Andersen did not like and then went to the Cavalier which Andersen liked because he could afford it. Andersen came back with his wife the following Monday and on the following day, met with Wilson at the Gruhler brokerage office where he made his offer on the property At the time they made the offer, the Andersens had had an opportunity to examine the property and had been given a copy of the listing sheet and the financial statement which, all agreed, was accurate and which were examined by Andersen's accountant before closing. This information was prepared by Mrs. Wilson from the business books which she kept. There is no evidence that Mr. Wilson knew, or had any reason to believe, that the information furnished to the Andersens at any time was incorrect. Though Mrs. Wilson admits that one document, that relating to the April 17 through June 30, 1988 income is in error, all other income information provided to the Andersens has been shown to be correct. The error was made when she incorrectly included in the income certain items which should not have been there. Even she did not know the report was incorrect at the time she presented it and first found out about her mistake when it was brought to her attention later by the Andersens after they checked the reported income against the sales tax forms. In light of the fact that she prepared those forms as well and that such forms are public records which are open for inspection, it is found to be unlikely she would have intentionally provided incorrect income figures to the Andersens who had already indicated their habit of having financial records checked by their accountant. In any case, there is no evidence she made Mr. Wilson or Mr. Gruhler aware of the mistake and that they thereafter acted on that information knowing it to be incorrect. The Reverend Robert Miller has known the Wilsons for 11 years and been their pastor for 9 years. Both are dedicated Christians and have a high reputation for truth and veracity in the community. In all the years he has known them there has never been a hint of dishonesty of the part of either.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that the Administrative Complaint as to both Respondents, Walter Gruhler and Calvin L. Wilson, be dismissed. RECOMMENDED this 3rd day of July, 1990, in Tallahassee, Florida. ARNOLD H. POLLOCK, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 3rd day of July, 1990. APPENDIX TO RECOMMENDED ORDER IN CASE NO. 89-6264 The following constitutes my specific rulings pursuant to S 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the parties to this case. FOR THE PETITIONER: 1. - 3. Accepted and incorporated herein. 4. - 6. Accepted and incorporated herein. Accepted. Accepted and incorporated herein. & 10. Accepted and incorporated herein. Rejected as not supported by the evidence of record. Not proven. The last sentence of this paragraph is rejected. FOR THE RESPONDENT: Accepted and incorporated herein. Accepted and incorporated herein. Accepted and incorporated herein. & 5. Accepted and incorporated herein. 6. & 7. Accepted and incorporated herein as to ultimate facts. Accepted and incorporated herein. - 11. Accepted and incorporated herein. 12. Not a Finding of Fact but a Conclusion of Law. COPIES FURNISHED: Steven W. Johnson, Esquire Division of Real Estate 400 West Robinson Street P.O. Box 1900 Orlando, Florida 32802 Thomas Fitzgibbons, Esquire 1800 Second Street, Suite 775 Sarasota, Florida 34236 Kenneth E. Easley General Counsel Department of Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-0792 Darlene F. Keller Division Director Division of Real Estate 400 West Robinson Street P.O. Box 1900 Orlando, Florida 32801
The Issue Whether the contested and unpaid portions of the tax, penalty and interest assessment issued against Petitioners as a result of Audit No. 9317210175 should be withdrawn as Petitioners have requested?
Findings Of Fact Based upon the evidence adduced at hearing, and the record as a whole, the following Findings of Fact are made: Shuckers is an oceanfront restaurant and lounge located at 9800 South Ocean Drive in Jensen Beach, Florida. In November of 1992, Petitioner Mesa's brother, Robert Woods, Jr., telephoned Mesa and asked her if she wanted a job as Shuckers' bookkeeper. Woods had been the owner of Shuckers since 1986 through his ownership and control of the corporate entities (initially Shuckers Oyster Bar Too of Jensen Beach, Florida, Inc., and then NAT, Inc.) that owned the business. Mesa needed a job. She therefore accepted her brother's offer of employment, notwithstanding that she had no previous experience or training as a bookkeeper. When Mesa reported for her first day of work on November 19, 1992, she learned that Woods expected her to be not only the bookkeeper, but the general manager of the business as well. Mesa agreed to perform these additional responsibilities. She managed the day-to-day activities of the business under the general direction and supervision of Woods. After a couple of weeks, Woods told Mesa that it would be best if she discharged her managerial responsibilities through an incorporated management company. Woods had his accountant draft the documents necessary to form such a corporation. Among these documents were the corporation's Articles of Incorporation. Mesa executed the Articles of Incorporation and, on December 3, 1992, filed them with the Secretary of State of the State of Florida, thereby creating Petitioner TAN, Inc. TAN, Inc.'s Articles of Incorporation provided as follows: The undersigned subscribers to these Articles of Incorporation, natural persons competent to contract, hereby form a corporation under the laws of the State of Florida. ARTICLE I- CORPORATE NAME The name of the corporation is: TAN, INC. ARTICLE II- DURATION This corporation shall exist perpetually unless dissolved according to Florida law. ARTICLE III- PURPOSE The corporation is organized for the purpose of engaging in any activities or business permitted under the laws of the United States and the State of Florida. ARTICLE IV- CAPITAL STOCK The corporation is authorized to issue One Thousand (1000) shares of One Dollar ($1.00) par value Common Stock, which shall be designated "Common Shares." Article V- INITIAL REGISTERED OFFICE AND AGENT The principal office, if known, or the mailing address of this corporation is: TAN, INC. 9800 South Ocean Drive Jensen Beach, Florida 34957 The name and address of the Initial Registered Agent of the Corporation is: Linda A. W. Mesa 9800 South Ocean Drive Jensen Beach, Florida 34957 ARTICLE VI- INITIAL BOARD OF DIRECTORS This corporation shall have one (1) director initially. The number of directors may be either increased or diminished from time to time by the By-laws, but shall never be less than one (1). The names and addresses of the initial directors of the corporation are as follows: Linda A. W. Mesa 9800 South Ocean Drive Jensen Beach, Florida 34957 ARTICLE VII- INCORPORATORS The names and addresses of the incorporators signing these Articles of Incorporation are as follows: Linda A. W. Mesa 9800 South Ocean Drive Jensen Beach, Florida 34957 On the same day it was incorporated, December 3, 1992, TAN, Inc., entered into the following lease agreement with the trust (of which Woods was the sole beneficiary) that owned the premises where Shuckers was located: I, Michael Blake, Trustee, hereby lease to Tan, Inc. the premises known as C-1, C-2, C-3, C-4, 9800 South Ocean Drive, Jensen Beach, Florida for the sum of $3,000.00 per month. This is a month to month lease with Illinois Land Trust and Michael Blake, Trustee. Mesa signed the agreement in her capacity as TAN, Inc.'s President. She did so at Woods' direction and on his behalf. No lease payments were ever made under the agreement. 3/ The execution of the lease agreement had no impact upon Shuckers. Woods remained its owner and the person who maintained ultimate control over its operations. At no time did he relinquish any part of his ownership interest in the business to either Mesa or her management company, TAN, Inc. Mesa worked approximately 70 to 80 hours a week for her brother at Shuckers doing what he told her to do, in return for which she received a modest paycheck. Woods frequently subjected his sister to verbal abuse, but Mesa nonetheless continued working for him and following his directions because she needed the income the job provided. As part of her duties, Mesa maintained the business' financial records and paid its bills. She was also required to fill out, sign and submit to Respondent the business' monthly sales and use tax returns (hereinafter referred to as "DR- 15s"). She performed this task to the best of her ability without any intention to defraud or deceive Respondent regarding the business' tax liability. The DR-15s she prepared during the audit period bore NAT, Inc.'s Florida sales and use tax registration number. On the DR-15 for the month of December, 1992, Mesa signed her name on both the "dealer" and "preparer" signature lines. Other DR-15s were co-signed by Mesa and Woods. In April of 1993, Woods told Mesa that she needed to obtain a Florida sales and use tax registration number for TAN, Inc., to use instead of NAT, Inc.'s registration number on Shuckers' DR-15s. In accordance with her brother's desires, Mesa, on or about May 14, 1993, filed an application for a Florida sales and use tax registration number for TAN, Inc., which was subsequently granted. On the application form, Mesa indicated that TAN, Inc. was the "owner" of Shuckers and that the application was being filed because of a "change of ownership" of the business. In fact, TAN, Inc. was not the "owner" of the business and there had been no such "change of ownership." By letter dated June 22, 1993, addressed to "TAN INC d/b/a Shuckers," Respondent gave notice of its intention to audit the "books and records" of the business to determine if there had been any underpayment of sales and use taxes during the five year period commencing June 1, 1988, and ending May 31, 1993. The audit period was subsequently extended to cover the six year period from June 1, 1987 to May 31, 1993. Relying in part on estimates because of the business' inadequate records, auditors discovered that there had been a substantial underpayment of sales and use taxes during the audit period. The auditors were provided with complete cash register tapes for only the following months of the audit period: June, July, August and December of 1992, and January, February, March, April and May of 1993. A comparison of these tapes with the DR-15s submitted for June, July, August and December of 1992, and January, February, March, April and May of 1993 revealed that there had been an underreporting of sales for these months. Using the information that they had obtained regarding the three pre- December, 1992, months of the audit period for which they had complete cash register tapes (June, July and August of 1992), the auditors arrived at an estimate of the amount of sales that had been underreported for the pre- December, 1992, months of the audit period for which they did not have complete cash register tapes. The auditors also determined that Shuckers' tee-shirt and souvenir sales, 4/ Sunday brunch sales, cigarette vending sales, vending/amusement machine location rentals 5/ and tiki bar sales that should have been included in the sales reported on the DR-15s submitted during the audit period were not included in these figures nor were these sales reflected on the cash register tapes that were examined. According of the "Statement of Fact" prepared by the auditors, the amount of these unreported sales were determined as follows: TEE-SHIRT SALES: Sales were determined by estimate. This was determined to be $2,000/ month. No records were available and no tax remitted through May, 1993. SUNDAY BRUNCH SALES: Sales were determined by estimate. This was determined to be 100 customers per brunch per month (4.333 weeks). No audit trail to the sales journal was found and no records were available. CIGARETTE VENDING SALES: The estimate is based on a review of a sample of purchases for the 11 available weeks. The eleven weeks were averaged to determine monthly sales at $3/pack. VENDING MACHINE LOCATION RENTAL REVENUE: The revenue estimate is based on a review of a one month sample. TIKI BAR SALES: The sales estimate is based on a review of infrequent cash register tapes of February, 1993. The daily sales was determined by an average of the sample. The number of days of operation per month was determined by estimate. In addition, the auditors determined that TAN, Inc. had not paid any tax on the lease payments it was obligated to make under its lease agreement with Illinois Land Trust and Michael Blake, Trustee, nor had any tax been paid on any of the pre-December, 1992, lease payments that had been made in connection with the business during the audit period. According to the "Statement of Fact" prepared by the auditors, the amount of these lease payments were determined as follows: The estimate is based on 1990 1120 Corporate return deduction claimed. This return is on file in the Florida CIT computer database. The 1990 amount was extended through the 6/87 - 11/92 period. For the period 12/92 - 5/93 audit period, TAN's current lease agreement of $3,000/month was the basis. No documentation was produced during the audit supporting any the sales tax exemptions that the business had claimed during the audit period on its DR-15s. 6/ Accordingly, the auditors concluded that the sales reported as exempt on the business' DR-15s were in fact taxable. Using records of sales made on a date selected at random (February 1, 1993), the auditors calculated effective tax rates for the audit period. They then used these effective tax rates to determine the total amount of tax due. An initial determination was made that a total of $201,971.71 in taxes (not including penalties and interest) was due. The amount was subsequently lowered to $200,882.28. On or about December 22, 1993, TAN, Inc., entered into the following Termination of Lease Agreement with Ocean Enterprises, Inc.: TAN, Inc., a Florida corporation, hereby consents to termination of that certain lease of the premises known as C-1, C-2, C-3 and C-4 of ISLAND BEACH CLUB, located at 9800 South Ocean Drive, Jensen Beach, Florida, dated December 3, 1992, acknowledges a landlord's lien on all assets for unpaid rent; and transfers and sets over and assigns possession of the aforesaid units and all of its right, title and interest in and to all inventory, equipment, stock and supplies located on said premises 7/ in full satisfaction of said unpaid rent; all of the foregoing effective as of this 22nd day of December, 1993. FOR AND IN CONSIDERATION of the foregoing termin- ation of lease, OCEAN ENTERPRISES, Inc., a Florida corporation, hereby agrees to pay Linda Mesa, each month all of the net revenues of the operation of the bar and restaurant located on said premises, up to the sum of $15,000.00, for sales tax liability asserted against TAN, Inc. or Linda A. W. Mesa based upon possession or ownership of said premises or any of the assets located thereon, plus attorney's fees incurred in connection with defending or negotiating settlement of any such liability. Net revenue shall mean gross revenue, less operating expenses, includ- ing, but not limited to, rent, up to the amount of $5,000.00 per month, costs of goods sold, utilities, payroll and payroll expense and insurance. OCEAN ENTERPRISES, Inc. represents that it has entered into a lease of said premises for a term of five years commencing on or about December 22, 1993, pursuant to the terms and conditions of which OCEANFRONT [sic] ENTERPRISES, Inc. was granted the right to operate a restaurant and bar business on said premises. Ocean Enterprises, Inc., leases the property from Island Beach Enterprises, which obtained the property through foreclosure. TAN, Inc., has been administratively dissolved.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby RECOMMENDED that the Department of Revenue enter a final order withdrawing the contested and unpaid portions of the assessment issued as a result of Audit No. 9317210175, as it relates to TAN, Inc., and Linda A. W. Mesa. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 27th day of June, 1995. STUART M. LERNER Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 27th day of June, 1995.
Findings Of Fact Prior to May, 1983, Camelot Gulfside Interval Vacations, Inc. routinely made monthly payments of the Florida sales and use tax. Apparently during this period of time, the Department of Revenue sent preprinted forms to Camelot on a monthly basis and Camelot used these forms for remittance of the tax. During the months May, 1983, through April, 1985, inclusive, Camelot made no monthly payments of the Florida sales and use tax. During this same period of time, Camelot did not receive forms from the Department of Revenue for the monthly remittance. It cannot be determined from the record whether the cessation of receipt of forms occurred because Camelot failed to send in the monthly payments, or whether the forms ceased to be received independently of Camelot's failure to pay. The total amount of taxes due and paid late was $11,481.69. Ms. Margaret Thompson became the office manager of Camelot in May of 1983. The prior office manager failed to tell her that she had to pay the Florida sales and use tax on a monthly basis. Ms. Thompson was supervised by Mr. Alex Minden, who was present in the St. Petersburg Beach office on a day-to- day basis both prior to May, 1983, and during the period when no sales and use tax was paid. The books of Camelot Gulfside Interval Vacations, Inc. are kept in Toronto, Canada, pursuant to information sent to Toronto by the office in St. Petersburg Beach. In May, 1985, the Toronto office discovered that sales and use tax had previously been routinely paid, but had not been paid for the above periods. Upon investigation, it further discovered that such tax was due and owing. By letter from Mr. Minden, Camelot thus wrote the Department of Revenue on June 11, 1985, to advise it that it owed back taxes. Accompanying the letter was a check for $11,481.69 in full payment. Hearing Officer's Ex. 1. In December, 1985, the Department of Revenue gave notice to Camelot that $3,788.53 was due as penalties and interest. The computation of this amount is not in dispute. Camelot immediately paid the amount assessed as penalties and interest, but previously had requested waiver and timely requested a formal administrative hearing to seek a waiver of penalties and interest. During the period of time that it failed to make monthly sales and use tax payments, Camelot was not notified by the Department of Revenue that payments were overdue and owing. As discussed above, it was Camelot itself that brought the problem to the attention of the Department of Revenue.
Recommendation For these reasons, it is recommended that the Department of Revenue enter its final order denying any waiver of interest paid, but granting a waiver to the taxpayer of 50 percent of the amount of the penalties paid as an overpayment of such tax, and crediting such amount on future assessments. DONE and RECOMMENDED this 9th day of April, 1987, in Tallahassee, Florida. WILLIAM C. SHERRILL, JR. Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 9th day of April, 1987. COPIES FURNISHED: Randy Miller, Executive Director Department of Revenue 102 Carlton Building Tallahassee, Florida 32399-0100 William D. Townsend, Esquire General Counsel Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100 J. Gordon Alexander, President Camelot Gulfside Interval Vacations, Inc. 1801 Gulf way St. Petersburg Beach, Florida 33706-4297
The Issue The issue to be resolved in this proceeding concerns whether the Petitioner's application for licensure as a nonresident life, health and variable annuities insurance agent should be denied on the basis of his having pled guilty and been convicted of a felony. Embodied within that general issue are the issues of whether the felony involved is one of moral turpitude and whether the conviction, and the circumstances surrounding it, demonstrate that the Petitioner lacks fitness or trustworthiness to engage in the business of insurance.
Findings Of Fact The Petitioner, Preston Hursey, Jr., filed an application for qualification in Florida as a nonresident life, health and variable annuities agent. The application was filed on November 13, 1989. On April 9, 1990, the Department of Insurance issued a letter of denial with regard to that application based upon a felony conviction of the Petitioner in the past. The Respondent is an agency of the State of Florida charged, in pertinent part, with enforcing the licensure, admission and continuing practice standards for insurance agents of all types, embodied in Chapter 626, Florida Statutes, and with regulating the admission of persons to licensure as insurance agents in the State of Florida. On August 12, 1988, an Information was filed with the United States District Court for the District of Columbia, charging the Petitioner with three felony counts involving "aiding or assisting presentation of false income tax return". That is a felony violation of Title 26 U.S.C., Sections 7206(2). On November 15, 1989, the Petitioner was found guilty of three counts of aiding or assisting presentation of false income tax return in violation of that statutory section. The actual conduct for which he was convicted occurred prior to the charges. Prior to 1984, the Petitioner worked for some years as a medical examiner for insurance companies, taking medical histories, blood pressures, pulses and the like, for purposes of establishing insurance coverage for clients of the companies. Some time in early 1984, the Petitioner approached American Dynamics Corporation, as a client, with the intent of availing himself of the financial planning services of that company with the intent of saving on income taxes. The company was apparently counseling clients as to tax shelters in which they could invest or which they could claim, as a means of' avoidance of federal income tax. The Petitioner became very interested in that tax saving procedure and sometime in 1984 became involved with the firm as one of its financial counselor employees. The firm trained him in the service they offered to taxpayers, which involved financial planning by using trusts to defer taxes, as well as other means of sheltering income from tax liability. The company and the Petitioner counseled numerous clients and assisted them in taking advantage of alleged tax shelters, including the final act of preparing their tax returns. During the course of going to hearings with his clients, when their tax returns came under question by the Internal Revenue Service, the Petitioner became aware that apparently the service would not accept the tax shelter devices being used by his company and him as a legitimate means of avoiding taxes. He then sought legal advice from a tax attorney and received an opinion from him that the tax avoidance counseling methods, devices and tax return preparation the Petitioner and his employer were engaging in were not legal, and that the Petitioner should advise anyone he knew involved in such schemes to terminate their relationship. The Petitioner acted on that advice, terminated his relationship with the company and recommended to his clients that they terminate their relationship with the company and the tax avoidance devices being used. Through hindsight and learning more about relevant tax law in the last four to five years since the conduct occurred, the Petitioner realizes that the tax shelter schemes marketed by his employer at that time and, by himself, did not make financial or legal sense. The Petitioner at that time had very little training in financial counseling or advising and very little training in the Federal income tax laws arid regulations. In retrospect, after receiving much more such training as an agent of New York Life Insurance Company since that time, he realized the significance of the error he and his former employer committed. When the tax returns were prepared by the Petitioner and others employed with the firm involved, the tax return accurately reflected the gross income of he taxpayer, the "W2 forms", and all appropriate documentation. Then, the gross income of the taxpayer was shown as reduced by the amount of funds affected by the tax shelter system marketed by the Petitioner's former employer and the Petitioner. There was a statement on the tax return itself explaining the disparity in taxable income so that basically the Internal Revenue Service had the facts and circumstances of such situations disclosed to it. It, however, deemed anyone marketing such tax shelters as engaged in marketing "abusive tax shelters", in effect, in violation of the Internal Revenue Code. Ultimately, the Petitioner was prosecuted along with others involved in the transactions and suffered a felony conviction of three counts of violation of the statute referenced above. The Petitioner has steadfastly maintained both before and after his conviction that he had no intent to violate the tax laws of the United States, but rather believed, until he sought a legal opinion from a qualified attorney, that the service he was marketing was a legal one. After he came under prosecution by the Justice Department for the violation, the Petitioner cooperated fully with the Internal Revenue Service and the Justice Department. The felony violation of which he was convicted, by guilty plea, carried a sentence of three years imprisonment, one year for each tax return involved. That sentence was reduced by the court; however, in consideration of the circumstances of the Petitioner's offense and his cooperation with the prosecuting authorities, to one month of "work release", which he served by working during the day for senior citizens organizations and returning to a confinement facility in the evening. He also was required to render 200 hours of community service, which he has completed, and three years probation. Because of his excellent attitude and behavior and his demonstrated activities designed to further his education in the insurance and securities field, his successful pursuit of the insurance and securities marketing profession in other states and his obviously-positive motivation, his probation officer has recommended that his probation be terminated early, after only two years of it would have been completed in November, 1990. The sentence was reduced because of the Petitioner's positive record in his community, the fact that he had no prior criminal history and because of widespread support by responsible members of the community and by the probation officers who reviewed his case and situation. The judge, upon sentencing, also noted that he was impressed by the fact that the Petitioner wanted to continue to work in the insurance and securities field and was the sole support of a young son whom he was supporting and caring for as an active parent. He continues to do that. The record establishes that the Petitioner's conviction was the result of a guilty plea. That plea resulted from a negotiated "plea bargain" settlement with the prosecuting authorities. The Petitioner established with unrefuted testimony, that he never had any willful intent to commit a crime or defraud the Federal government and the Internal Revenue Service. While he had a general intent to offer the tax advice involved to clients and assist them in engaging in tax shelter arrangements and in preparing the related tax returns, he had no specific intent to commit acts which he knew to be illegal when he committed them, nor which he believed amounted to fraud or deceit of the Internal Revenue Service. Although he pled guilty to a crime involving, by the language of the above--cited statute, the element of falsity, which bespeaks of deceit or fraud, the evidence shows that the Petitioner harbored no such fraudulent or deceitful intent. This is corroborated by the fact that the Petitioner and his clients disclosed all income on the tax return and simply disclosed that a portion of it was sheltered, which procedure was determined by the Internal Revenue Service to be illegal. There was no evidence of record to indicate that the Petitioner sought to conceal income or otherwise commit a false or fraudulent act in the course of his financial and tax advice to these clients, nor in the preparation of their tax returns for submittal. While the statute he is convicted of violating appears to involve the element of moral turpitude because it refers to false or fraudulent tax returns, it is a very general type of charge which can cover many types of activities or conduct. Consequently, one should consider the specific conduct involved in a given instance, such as this one, to determine whether the crime committed factually involved moral turpitude. Based upon the unrefuted evidence of record culminating in the findings of fact made above, it is clear that the Petitioner committed no conduct involving moral turpitude at the time the activity in question was engaged in for the above reasons. The Petitioner has been in no legal altercation, criminal or otherwise, before or since the instance which occurred in 1984. He has become licensed in Washington DC, Maryland and Virginia as an insurance agent and as a broker agent. He represents numerous insurance companies, including, for approximately five years, the New York Life Insurance Company and other reputable companies. He has pursued his continuing education requirements and has earned more requirements than he needs for licensure in Florida and Maryland. He is actively seeking to improve his professional standing and competence in the insurance and securities field and is highly motivated to continue doing so. A great deal of his motivation comes from the fact that he is the sole support of his young 11-year-old son. He enjoys the insurance profession because it gives him time to participate in his son's many school-related and extracurricular activities, such as football. The Petitioner's testimony, and the proven circumstances of the situation, establish without question that he is an honest, forthright person who has candidly admitted a past mistake and who has worked actively, in the approximate six years which have elapsed since the conduct was committed, to rectify that blemish on his record. His efforts to rehabilitate himself personally and professionally involved his active participation as a parent for his son in his son's school life and otherwise, and participation in church and community activities. During the time period which has elapsed since the conduct in question occurred, he has sufficiently rehabilitated himself both personally and professionally so as to justify the finding that he has demonstrated trustworthiness and fitness to engage in the business of insurance. Indeed, three other states, after having the circumstances of his conviction fully disclosed to them, have licensed him or retained him as a licensee insurance agent. The Petitioner is a navy veteran of Vietnam, having served three tours in the Vietnam war, for which service he was decorated. He had a number of security clearances, including a top secret security clearance based upon his work in the field of communications and cryptology during that war. This honorable service, the efforts he has made to improve himself personally and professionally before and since the subject conduct occurred, the fact that it was an isolated incident on his record, the fact that it did not involve any established intent to defraud or deceive on his part, the fact that he is an active, positive parental role model, community member and church member, and his general demeanor at hearing of honesty and forthrightness convinces the Hearing Officer that the isolated incident of misconduct he committed did not involve a demonstrated lack of fitness and trustworthiness to engage in the business of insurance. Quite positively, the Petitioner has demonstrated his fitness and trustworthiness to engage in that business.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses, and the pleadings and arguments of the parties, it is therefore, RECOMMENDED that the Petitioner's application for licensure as a nonresident life, health and variable annuities insurance agent should be granted. DONE AND ENTERED this 7th day of February, 1991, in Tallahassee, Leon County, Florida. P. MICHAEL RUFF Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 7th day of February, 1991. APPENDIX TO RECOMMENDED ORDER IN CASE NO. 90-3069 Petitioner's Proposed Findings of Fact 1-4. Accepted. 5. Rejected, as not clearly established by the evidence of record. 6-14. Accepted. Respondent's Proposed Findings of Fact 1-4. Accepted. 5. Rejected, as not clearly established by the evidence of record. COPIES FURNISHED: Mr. Tom Gallagher State Treasurer and Insurance Commissioner Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, FL 32399-0300 Don Dowdell, Esq. General Counsel Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, FL 32399-0300 Preston Hursey, Jr., pro se Post Office Box 43643 Washington, DC 20010 Willis F. Melvin, Jr., Esq. Andrew Levine, Esq. Department of Insurance Division of Legal Services 412 Larson Building Tallahassee, FL 32399-0300
The Issue 1. Whether the Emergency Rules on Sales and Use Tax on Services and Other Transactions adopted by the Respondent effective July 1, 1987, were adopted pursuant to Section 33, Chapter 87-6, l987 Laws of Florida, and Section 120.54(9), Florida Statutes (1987)? 2. Whether Rules 12AER87-31(1)(c), (5), (7)(i)(7)(k), (10), (12) and (13), Florida Administrative Code, constitute an invalid exercise of delegated legislative authority?
Findings Of Fact The Respondent is an agency of the State of Florida. It is charged with the responsibility to implement, enforce and collect the taxes levied by the State of Florida, including Chapter 212, Florida Statutes (1987). During the 1987 Legislative Session the Legislature enacted Committee Substitute for Senate Bill 777, which is codified as Chapter 87-6, 1987 Laws of Florida (hereinafter referred to as "Chapter 87-6"). This act, which amended Chapter 212, Florida Statutes, was signed into law by the Governor on April 23, 1987. Section 5 of Chapter 87-6, created Section 212.0594, Florida Statutes. This new Section of Chapter 212 imposed a sales tax on construction services performed on or after July 1, 1987. Section 33 of Chapter 87-6, authorized the Respondent to adopt emergency rules pursuant to Section 120.54(9), Florida Statutes, to implement the new law. In authorizing the adoption of emergency rules, the Legislature determined that the failure to promptly implement the provisions of Chapter 87-6 would present an immediate threat to the welfare of the State because revenues needed for the operation of the State would not be collected. On June 6, 1987, the Legislature enacted Committee Substitute for House Bill 1506, which is codified as Chapter 87-101, 1987 Laws of Florida (hereinafter referred to as "Chapter 87-101"). Chapter 87-101 is commonly known as the Sales Tax Glitch Bill. Chapter 87-101 was passed by the Legislature on June 6, 1987, signed into law by the Governor on June 30, 1987, and was effective beginning July 1, 1987. Section 5 of Chapter 87-101 repealed Section 5 of Chapter 87-6. Section 6 of Chapter 87-101, created a new Section 212.0594, Florida Statutes, taxing construction services, in replace of the Section 212.0594, Florida - Statutes, previously created by Section 5 of Chapter 87-6. Thus the Legislature substantially changed the manner in which sales tax was to be imposed upon construction services. Section 20 of Chapter 87-101 amended Section 33 of Chapter 87-6 but continued the authorization to adopt emergency rules and the justification for doing so. On May 8, 1987, the Respondent published notice in the Florida Administrative Weekly of its intent to hold public meetings and workshops on May 19 and 26, 1987, and June 6, 1987. Proposed rules relating to Chapter 87-6 were to be considered at these meetings and workshops. On May 22, 1987, the Respondent published notice in the Florida Administrative Weekly of its intent to hold public meetings and workshops on May 26, 1987, and June 26, 1987. Proposed rules relating to Chapter 87-6 were to be considered at these meetings and workshops. On May 29, 1987, the Respondent published notice in the Florida Administrative Weekly of its intent to hold a public meeting and workshop on June 6, 1987, to consider proposed rules relating to Chapter 87-6. On June 5, 1987, the Respondent published notice in the Florida Administrative Weekly of its intent to hold a public meeting and workshop on June 12, 1987, to consider proposed rules relating to Chapter 87-6. Ultimately, the Respondent held four workshops concerning the emergency rules: May 19 and 26, 1987, and June 6 and 12, 1987. The workshop conducted on June 12, 1987, was conducted to consider Rules 12AER87-31, Florida Administrative Code. The rules considered at the June 12, 1987, workshop had been redrafted to implement Chapter 87-101. The rules considered at the workshop were available for a short period of time before the workshop and during the workshop. Comments were received by the Department at the June 12, 1987, workshop from the public, including representatives of the construction industry. As a result of these comments, changes in the Emergency Rules were made following the workshop. The Emergency Rules took into account the method of taxing construction services provided for in Chapter 87-101 rather than the method previously provided for in Chapter 87-6. The Respondent's emergency rules, including Rule 12AER87-31, Florida Administrative Code, were certified by the Executive Director of the Respondent and delivered to the Secretary of State for publication on June 18, 1987. The Respondent delivered the full text of the emergency rules, a statement of the specific reasons for finding an immediate danger, a statement of the reasons for concluding that the procedure followed to adopt the rules was fair under the circumstances and a summary of the purpose of the rules for publication in the first available issue of the Florida Administrative Weekly. The emergency rules had to be filed with the Secretary of State no later than June 18, 1987, in order to be published in the Florida Administrative Weekly by July 1, 1987, the effective date of Chapters 87-6 and 87-101 and the emergency rules. The full text of the emergency rules was published in the Florida Administrative Weekly on June 26, 1987. The text of this notice, which was accepted into evidence as Petitioner's exhibit 4, is hereby incorporated into this Final Order. The Emergency Rules had an effective date of July 1, 1987. Initially the Emergency Rules were to expire January 1, 1988, six months after their effective date, as specified in Chapter 87-101. Pursuant to Section 1, Chapter 87-539, 1987 Laws of Florida, the Emergency Rules are effective through June 30, 1988. Representatives of the Respondent and the Petitioner met between the passage of Chapter 87-101 by the Legislature and June 18, 1987, and discussed the act. The Respondent expended a great deal of time and effort in adopting the emergency rules implementing Chapters 87-6 and 87-101, and in providing information to the public. The method of taxation to be implemented was unique and, therefore, the Respondent was unable to look to other jurisdictions for guidance concerning implementation of the tax. The taxation of construction services was one of a multitude of services taxed. Chapter 87-101, required substantial redrafting of the emergency rules, including Rule 12AER87-31, Florida Administrative Code, within a relatively short period of time. The new tax necessitated the registration of 100,000 to 150,000 new sales tax "dealers" by July 1, 1987. Prior to July 1, 1987, the Respondent received thousands of telephone calls and thousands of written requests seeking information concerning the sales tax on services. The Respondent was extensively involved with the Legislature during the period of time when Chapters 87-6 and 87-101 were adopted. Representatives of the Respondent discussed the acts with Legislative members and staff. Dr. James Francis acted as a liaison between the Respondent and the Legislature. Dr. Francis also served on the Revenue Estimating Conference. In his capacity with the Revenue Estimating Conference, Dr. Francis prepared estimates of tax revenues from the services tax. A revenue impact analysis of the services tax was also provided by the Respondent to the Legislature based upon each amendment and proposed amendment to Chapters 87-6 and 87-101. Representatives of the petitioner expressed dissatisfaction with the method of taxation of construction services contained in Chapter 87-6 because of the required itemization of building material costs on each contract. The Respondent prepared a revenue neutral (no loss of tax revenue previously estimated to be generated by Chapter 87-6) method of imposing the services tax on construction services without requiring itemization of building material costs. Pursuant to this method, a set percentage, generally equal to the average percentage of building material costs, is backed out of "contract price" or "cost price." The remainder is treated as the amount of the "contract price" or "cost price" attributable to the construction services. The revenue estimated by the Respondent and provided to the Legislature, based upon the elimination of an average percentage of building material costs, was based upon the inclusion in "contract price" and "cost price" of all expenditures associated with the construction industry, including the total expenditures for building materials supplied by owners to contractors. The Legislature was aware of this fact before it adopted Chapter 87-101. Fiscal notes for Chapter 87-101, which the Respondent had available prior to the adoption of the Emergency Rules, numerically quantified the estimated revenue to be generated by Chapter 87-101. The Respondent also knew what amounts were included in the estimate of revenue contained in the fiscal notes. These amounts were consistent with the revenue estimates provided by the Respondent to the Legislature. The Emergency Rules represent a contemporaneous administrative construction of Chapters 87-6 and 87-101 by an agency charged with responsibility to administer the acts and which was intimately involved in the adoption of the acts. The Petitioner has challenged the validity of Rules 12AER87-31(1)(c), (5), (7)(i), (7)(k), (10), (12) and (13) Florida Administrative Code. The Petitioner withdrew its challenge of other portions of the Emergency Rules. Rule 12AER87-31(7)(i), Florida Administrative Code, defines the terms "contract price" which determines the amount of tax due on construction work performed pursuant to a contract and any speculative construction which is sold within six months of completion. The Petitioner has challenged Rule 12AER87-31(7)(i), Florida Administrative Code, to the extent that contract price is defined to include the fair market value of materials used by a contractor if the value of those materials is not otherwise included in the contract price. The Petitioner's contractor witnesses' understanding of Rule 12AER87- 31(7)(i), Florida Administrative Code, that the fair market value of materials supplied by the owner are to be included in the computation of contract price, is consistent with the Respondent's interpretation of the Rule. Prime contractors often estimate the cost of building materials in their daily business activities. The Respondent's interpretation of Rule 12AER87-31(1)(c), Florida Administrative Code, does not require a contractor or subcontractor who uses building materials which are purchased tax free to remit a tax. The rule simply makes it clear that there is not necessarily any link between the question of whether the purchase of building materials and the provision of construction services are tax exempt.
The Issue The issue in this case is whether the Respondent's certificate of registration to collect sales tax should be revoked.
Findings Of Fact In 1996, the Respondent and Lance Arnette were engaged in a dissolution of marriage action in the circuit court, Case No. 96-1185-FD. On June 20, 1997, the business known as Giff’s Sub Shop was awarded to Respondent, Linda Arnette. The circuit court transferred the business to Respondent free of any and all liabilities. Later, Respondent discovered that there was an undisclosed sales tax liability. The amount of that liability was not clear from the record. However, the Department was not a party to the Arnette’s dissolution of marriage action. On March 3, 1998, Respondent filed an application for a certificate of registration with the Department. The reason for the application was due to the change of ownership from Respondent’s ex-husband to Respondent. The application reflected an opening date for the business of June 1, 1997. Linda Arnette was reflected as the owner of the business. Respondent was the only person who signed the application. No other person was listed as having an interest in the sub shop. The certificate of registration was issued to Respondent and she became the registered dealer for the sub shop. As such, she was under a legal duty to collect and remit all taxes collected by the sub shop to the Department. She was also responsible to file tax returns for the business with the Department. Her first return would have been due on July 20, 1997. A tax warrant or lien for unpaid taxes was filed against Respondent on October 26, 2005. It is unclear what happened with the 2005 warrant. Department records reflect that the sub shop did not file returns for November 2006, December 2006, January 2007, and February 2007. A second tax warrant for unpaid taxes was filed against Respondent on April 4, 2007. The warrant covered the period from August 2003 to February 2007. The amount of tax due under the warrant was $14,658.07, plus interest and penalties. The 2003 date was well after Respondent had taken over operation of the sub shop from her ex-husband. The evidence did not show that the amount included any taxes which may have been due prior to her award of the sub shop in 1997 or prior to the August 2003 date. Moreover, the warrant did not include months for which Respondent had timely paid the tax due. Data from the Department revocation worksheet showed that Respondent owed only interest for the months of August 2003 and March through August, 2006. The fact she owed only interest in those months indicates that the taxes were paid late. The Department’s data showed the month of December 2005 with zero tax due and zero interest due. It is not clear from the evidence why the Department claimed the month of December 2005 was out of compliance. However, even without the month of December 2005, the Department’s data showed 30 months of noncompliance by Respondent either by not filing timely or not paying the tax. On March 2, 2007, the Department sent Respondent a notice of its intent to revoke her certificate of registration. An informal meeting was scheduled for April 17, 2007. The purpose of the meeting was to permit Respondent to present evidence on why her certificate of registration should not be revoked and to show that the amount of taxes due was incorrect. Respondent attended the meeting on April 17, 2007. The Department waived the penalties due on her tax liability. Interest due totaled $2,857.68. Respondent did not raise any issue regarding her ex-husband’s past tax liability or any payments she had allegedly made thereon. Indeed, Respondent’s argument regarding payment on her ex-husband’s past tax liability did not make sense and was not borne out by the evidence. Respondent did file her tax returns for November 2006, December 2006, January 2007, and February 2007. It was unclear, if Respondent brought her account books for the sub shop to the meeting. Respondent’s own books reflect that she reported tax liability for the period August 2003 through August, 2006 in the amount of $25,133.97, and through December 2006, she owed $27,620.97. Respondent’s records did not reflect the return amounts for 2007. Her records also reflect that for the period August 2003 through August 2006, she paid $13,311.68 and through December 2006, she paid $16,029.68 to the Department. Returns filed with the Department for 2007 totaled $1,379.78 though February 2007. In 2007, Respondent’s records reflect that through April 2007, she paid $1,912.08 to the Department. In short, Respondent’s own records reflect that for the period August 2003 through August 2006, she owed past due taxes in the amount of $11,822.19 and through December 2006, she owed past due taxes in the amount of $11,591.29. Her own records reflect she had repeatedly not complied with the requirements of Chapter 212, Florida Statutes, to timely remit and pay taxes. More importantly, Respondent entered into a compliance agreement with the Department at the April 17, 2007, meeting. In the agreement, Respondent admitted she owed taxes in the amount of $14,658.07, plus interest in the amount of $2,857.68, for a total of $17,515.75, to the Department. She admitted she had not complied with Sections 212.14(1), 212.14(2) and 212.15(1), Florida Statutes, regarding timely filing of returns and timely payment of taxes. These failures were repeated. Additionally, Respondent agreed to timely file all tax returns for the period April 2007 through March 2008, timely pay all tax due for the same period, as well as, comply with the payment schedule for the past due amount referenced above. Failure to abide by the terms of the compliance agreement would permit the Department to initiate revocation of the Respondent’s certificate of registration and the use of the compliance agreement to establish the facts of the earlier noncompliance with Chapter 212, Florida Statutes. Respondent made the payments required under the payment schedule in the compliance agreement, but did not make such payments timely. Her most current return was late. Respondent also paid the current taxes due each month, but did not timely pay those taxes. Thus, Respondent has accrued $2,519.96 in interest and $214.22 in penalties through July 18, 2007, in addition to the amount she agreed was due in the compliance agreement. Given this history, Respondent has clearly not complied with the requirements of Chapter 212, Florida Statutes, and her certificate of registration should be revoked.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is: RECOMMENDED that the Department of Revenue enter a final order revoking Respondent’s certificate of registration pursuant to Section 212.18, Florida Statutes. DONE AND ENTERED this 14th day of March, 2008, in Tallahassee, Leon County, Florida. S DIANE CLEAVINGER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 14th day of March, 2008. COPIES FURNISHED: Warren J. Bird, Esquire Office of the Attorney General The Capitol, Plaza Level 101 Revenue Litigation Bureau Tallahassee, Florida 32399-1050 Glen M. Swiatek, Esquire 5 Clifford Drive Shalimar, Florida 32579 Marshall Stranburg, General Counsel Department of Revenue The Carlton Building, Room 204 501 South Calhoun Street Post Office Box 6668 Tallahassee, Florida 32314-6668 Lisa Echeverri, Executive Director Department of Revenue The Carlton Building, Room 104 501 South Calhoun Street Tallahassee, Florida 32399-0100
The Issue The issue is whether respondent's license as a public adjuster should be revoked, suspended, or otherwise disciplined after his conviction for aiding in the preparation of a false tax return in violation of 26 U.S.C. Section 7206(2).
Recommendation It is RECOMMENDED that Mr. Lesser be found guilty of violation of Section 626.611(7), Florida Statutes (1987), and that his licensure as a public adjuster be suspended for a period of six months. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 28th day of December, 1989. WILLIAM R. DORSEY, JR. Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of December, 1989. APPENDIX TO RECOMMENDED ORDER DOAH CASE NO. 89-0502 Rulings on findings proposed by the Department: 1 and 2. Adopted in finding of fact 3. Adopted in finding of fact 4. Implicit in findings of fact 5 and 6. Adopted in finding of fact 6. Adopted in finding of fact 8. Adopted in finding of fact 8. Adopted in finding of fact 8. Implicit in finding of fact 11. Rulings on findings proposed by Mr. Lesser: 1-11. Inapplicable. Adopted in finding of fact 3. Adopted in finding of fact 3, to the extent necessary. Rejected as unnecessary. Adopted in finding of fact 5. Adopted in finding of fact 5. Adopted in finding of fact 5, though finding of fact 5 includes certain logical deductions or inferences. Made more specific in findings of fact 5 and 6. Adopted as modified in finding of fact 7. Rejected. Not only were the laundering transactions illegitimate because they allowed Benevento Maneri to mischaracterize the source of their income, they also created false expenses for Lesser and Company, Inc., which artificially lowered the income of Lesser and Company, Inc., by the amount of the expense. Adopted as modified in finding of fact 7. It is difficult to determine what Mr. Lesser actually thought the source of the money was, but he knew it was illicit. See, finding of fact 7. Adopted as modified in finding of fact 8. Adopted as modified in finding of fact 9. 25 and 26. Adopted as modified in finding of fact 9. Adopted as modified in finding of fact 10 The extent of Mr. Lesser's danger cannot be determined from this record, although he was in some danger. Covered in finding of fact 9 Adopted as modified in finding of fact 11. Rejected. See, finding of fact 8. The IRS first contacted Mr. Lesser. He then went to Mr. Weinstein to set matters straight. Adopted as modified in finding of fact 11. Adopted as modified in finding of fact 4. Adopted as modified in finding of fact 12. Adopted as modified in finding of fact 12. A light sentence implies the factors set out in finding of fact 35, were taken into consideration, but does not prove that they were all the reasons the U.S. District Judge took into consideration. To the extent necessary, mentioned in finding of fact 12. Rejected as procedural. 38-51. Covered in findings of fact 13 and 14. The proposed findings are subordinate to the findings made in findings of fact 13 and 14. COPIES FURNISHED: S. Marc Herskovitz, Esquire Robert V. Elias, Esquire Office of Legal Services 412 Larson Building Tallahassee, Florida 32399-0300 William W. Corry, Esquire Jack M. Skelding, Jr., Esquire Patrick J. Phelan, Jr., Esquire Parker, Skelding, Labasky & Corry 318 North Monroe Street Post Office Box 669 Tallahassee Florida 32301 Honorable Tom Gallagher State Treasurer and Insurance Commissioner Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Don Dowdell, General Counsel Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, Florida 32399-0300
The Issue The issues to be resolved in this case are what amount of federal income tax expense is properly included as an expense in Premier's excessive profits filings for the years 2005-2007, and in light of that deduction, how much Petitioner must refund as excessive profits pursuant to section 627.215, Florida Statutes (2009)?
Findings Of Fact Premier is a foreign insurer authorized to write workers' compensation insurance in the State of Florida. As a workers' compensation insurer, Premier is subject to the jurisdiction of the Office. Premier began writing workers' compensation insurance coverage in Florida on January 1, 2005. The Office is a subdivision of the Financial Services Commission responsible for the administration of the Insurance Code, including section 627.215. Section 627.215(1)(a) requires that insurer groups writing workers' compensation insurance file with the Office on a form prescribed by the Commission, the calendar-year earned premium; accident-year incurred losses and loss adjustment expenses; the administrative and selling expenses incurred in or allocated to Florida for the calendar year; and policyholder dividends applicable to the calendar year. Insurer groups writing types of insurance other than workers' compensation insurance are also governed by section 627.215. Its purpose is to determine whether insurers have realized an excessive profit and if so, to provide a mechanism for determining the profit and ordering its return to consumers. Insurer groups are also required to file a schedule of Florida loss and loss adjustment experience for each of the three years prior to the most recent accident year. Section 627.215(2) provides that "[t]he incurred losses and loss adjustment expenses shall be valued as of December 31 of the first year following the latest accident year to be reported, developed to an ultimate basis, and at two 12-month intervals thereafter, each developed to an ultimate basis, so that a total of three evaluations will be provided for each accident year." Section 627.215 contains definitions that are critical to understanding the method for determining excess profits. Those definitions are as follows: "Underwriting gain or loss" is computed as follows: "the sum of the accident-year incurred losses and loss adjustment expenses as of December 31 of the year, developed to an ultimate basis, plus the administrative and selling expenses incurred in the calendar year, plus policyholder dividends applicable to the calendar year, shall be subtracted from the calendar-year earned premium." § 627.215(4). While the sum of the accident-year losses and loss adjustment expenses are required by the statute to be developed to an ultimate basis, the administrative and selling expenses are not. "Anticipated underwriting profit" means "the sum of the dollar amounts obtained by multiplying, for each rate filing of the insurer group in effect during such period, the earned premium applicable to such rate filing during such period by the percentage factor included in such rate filing for profit and contingencies, such percentage factor having been determined with due recognition to investment income from funds generated by Florida business, except that the anticipated underwriting profit . . . shall be calculated using a profit and contingencies factor that is not less than zero." § 627.215(8). Section 627.215 requires that the underwriting gain or loss be compared to the anticipated underwriting profit, which, as previously stated, is tied to the applicable rate filing for the insurer. Rate filings represent a forecast of expected results, while the excess profits filing is based on actual expenses for the same timeframe. The actual calculation for determining whether an insurer has reaped excess profits is included in section 627.215(7)(a): Beginning with the July 1, 1991, report for workers' compensation insurance, employer's liability insurance, and commercial casualty insurance, an excessive profit has been realized if the net aggregate underwriting gain for all these lines combined is greater than the net aggregate anticipated underwriting profit for these lines plus 5 percent of earned premiums for the 3 most recent calendar years for which data is filed under this section. . . Should the Office determine, using this calculation, that an excess profit has been realized, the Office is required to order a return of those excess profits after affording the insurer group an opportunity for hearing pursuant to chapter 120. OIR B1-15 (Form F) is a form that the Office has adopted in Florida Administrative Code Rule 69O-189.007, which was promulgated pursuant to the authority in section 627.215. The information submitted by an insurer group on Form F is used by the Office to calculate the amount of excessive profits, if any, that a company has realized for the three calendar-accident years reported. The terms "loss adjustment expenses," and "administrative and selling expenses," are not defined by statute. Nor are they defined in rule 69O-189.007 or the instructions for Form F. Form F's first page includes section four, under which calendar-year administrative and selling expenses are listed. Section four has five subparts: A) commissions and brokerage expenses; B) other acquisition, field supervision, and collection expense; C) general expenses incurred; D) taxes, licenses, and fees incurred; and E) other expenses not included above. No guidance is provided in section 627.215, in rule 60O-189.007, or in the instructions for Form F, to identify what expenses may properly be included in the Form F filing. There is no indication in any of these three sources, or in any other document identified by the Office, that identifies whether federal income taxes are to be included or excluded from expenses to be reported in a Form F filing. While the form clearly references taxes, licenses, and fees incurred under section 4(D), the instructions do not delineate what types of taxes, licenses, and fees should be included. The instructions simply state: "for each of the expenses in item 4, please provide an explanation of the methodology used in deriving the expenses, including supporting data." On or about June 30, 2009, Premier filed its original Form F Filing with the Office pursuant to section 627.215 and rule 69O-189.007. Rule 69O-189.007 requires that a Form F be filed each year on or before July 1. On March 19, 2010, the Office issued a Notice of Intent, directing Premier to return $7,673,945.00 in "excessive profits" pursuant to section 627.215. Premier filed a petition challenging the Office's determination with respect to the amount to be refunded, based in part on its position that federal income tax expense is appropriately included as an expense for calculation of excess profits. The parties attempted to resolve their differences over the next year or so. As part of their exchange of information, Premier subsequently filed three amendments to its Form F filing on December 11, 2009; on June 21, 2010; and on January 13, 2012. In each of its amended filings, Premier included the federal income tax expense attributable to underwriting profit it earned during the 2005-2007 period. These expenses were included under section 4(E). As reflected in the Preliminary Statement, Premier filed a challenge to the Office's policy of not allowing federal income taxes to be used as an expense for excess profits filings as an unadopted rule. On July 5, 2012, a Final Order was issued in Case No. 12-1201, finding that the Office's Policy regarding the inability to deduct federal income taxes as an expense for excess profits filings met the definition of a rule and had not been adopted as a rule, in violation of section 120.54(a). The Final Order in Case No. 12-1201 directed the Office to discontinue immediately all reliance upon the statement or any substantially similar statement as a basis for agency action. At this point, the parties have resolved their differences with respect to all of the calculations related to the determination of excess profits, with one exception. The sole issue remaining is the amount, if any, that should be deducted as an administrative expense for payment of federal income tax. The parties have also stipulated that, before any adjustment to federal income tax is made, Premier's underwriting profit for 2005 was $2,923,157 and for 2006 was $2,119,115. For 2008, Premier suffered an underwriting loss of $785,170. Premier's federal income tax rate for all three years was 35%. The maximum amount of underwriting profit that a company can retain is the net aggregate anticipated profit, plus five percent of earned premiums for the calendar years reported on workers' compensation business. For the 2005-2007 reporting years, Premier's maximum underwriting profit is stipulated to be $1,189,892. Anything over this amount is considered excessive profits which must be returned to policyholders. The parties also agree that, prior to any deduction for federal income tax paid by Premier, the amount of excess profit earned by Petitioner and subject to return to policyholders is $3,067,220. Premier has filed a fourth amended Form F, which incorporated all of the stipulations of the parties to date. The fourth amended Form F also includes an allocation of federal income tax expense based upon the statutory allocation methodology outlined in section 220.151, Florida Statutes (2009). Section 220.151 provides the statutory method for allocating federal income tax expenses for purpose of paying Florida corporate income taxes. This section directs that insurance companies shall allocate federal taxable income based on the ratio of direct written premium the insurance company has written in Florida for the relevant period, divided by the direct written premium anywhere. Premier paid its Florida corporate income tax based upon this statutory methodology. Consistent with the methodology in section 220.151, Premier allocated its federal taxable income to the State of Florida based upon the percentage of direct premium written on risks in Florida, and reduced the amount of its federal taxable income by the amount investment income reflected on its federal tax return. Premier then multiplied the Florida portion of its taxable income by its 35% federal tax rate, resulting in the federal income tax expense allocated to Florida. For the year 2005, Premier's federal taxable income according to its tax return is $7,614,512.89. After subtracting investment income listed on the tax return of $969,051.97, the taxable income attributable to premium is $6,645,460.92. For 2006, Premier's federal taxable income according to its tax return is $6,577,534.06. After subtracting investment income of $2,011,614.86, the taxable income attributable to premium is $4,565,919.20. For 2007, Premier's federal taxable income according to its tax return was $4,359,742.88. After subtracting investment income of $2,266,291.99, the taxable income attributable to premium is $2,093,450.89. For the three years combined, the federal taxable income was $18,551,789.83. The amount of investment income subtracted was $5,246,958.82, leaving a balance of taxable income attributable to premium as $13,304,831.01. For the years 2005 through 2007, Premier paid $2,665,079.51; $2,302,136.92; and $1,525,910.01 respectively, in federal income tax. During those same years, Premier wrote 58.8388%; 51.2514%; and 29.8536%, respectively, of its direct premium in Florida. Allocating a portion of Premier's federal tax income and income tax liability to Florida, consistent with section 220.151, results in a calculation of Florida's portion of taxable underwriting income. For 2005, this amount is $3,910,109.46; for 2006, $2,340,097.51; and for 2007, $624,970.45. The total amount of federal taxable income allocated to Florida for the three-year period of $6,875,177.42. The taxable income is then multiplied by the applicable tax rate of 35%, which results in a federal income tax expense allocated to Florida of $1,368,538.46 for 2005; $819,034.13 for 2006; and $218,739.45 for 2007, totaling $2,406,312.10 for the three-year period at issue. The undersigned notes that Premier only writes workers' compensation insurance. It does not write other lines of insurance, which makes the allocation of earned premium much simpler than it would be for a company writing multiple lines of insurance. Under the methodology described above, Premier determined that $2,406,312.10 is the appropriate amount of federal income tax expense to be deducted for calendar years 2005-2007, resulting in an excess profit pursuant to section 627.215, of $660,907. Mr. Hester, a certified public accountant and president of Premier, testified that this methodology was used by Premier in determining its Florida corporate income tax liability. The methodology described above uses the amounts that Premier actually paid in taxes, and therefore reflects the actual expense experienced by Premier. It is accepted as a reasonable method. According to Mr. Watford, the Office does not determine the methodology that must be used in allocating expenses. The insurance company provides the methodology and the data to support it, and then the Office determines whether, in a given case, the methodology is appropriate. Premier points out that the Office has provided no guidance on how to allocate federal income tax expense for excess profits reporting. That no guidance has been offered is understandable, inasmuch as the Office holds firmly to the belief that no allowance for federal income tax expense should be made. Nonetheless, the Office reviewed the method provided by Premier and did not find it to be reasonable. Premier included in its Form F filing for the years 2005-2007 a deduction for the portion of Florida corporate income tax expense not related to investment income. The Office accepted the Florida corporate income tax deduction, which is calculated using the same allocation method Premier used to allocate federal income tax expense. Indeed, the Office acknowledged at hearing that it has permitted the methodology of direct written premium in Florida divided by direct written premium written everywhere for the determination of other expenses for excess profits filings, and has only rejected the methodology on one occasion. However, it has not accepted this same methodology for determining the appropriate amount of federal income tax expense and does not believe it to be a reasonable methodology. The rationale for this distinction is that, in Mr. Watford's view, federal income tax is "a totally different type of expense." Mr. Watford did not consult an accountant or certified public accountant in making the determination that the methodology used was impermissible. Mr. Watford opined that in order to determine that a proposed methodology is reasonable, the insurance company would need to have an adjustment in the profit factor, i.e., submit a new rate filing for the years in question; have a projected tax expense that did not exceed the expense he calculated, based on the effect on future tax expenses caused by the return of excess profits; and submit a methodology that was "appropriate for the insurance company." This approach is rejected. First, the rate filing is supposed to be a forecast, and the Office cited to no authority for adjusting the forecast in light of actual events. Further, Mr. Watford admitted that in this instance, the profit and contingencies factor is already at zero for the years at issue, and section 627.125 provides that no factor less than zero can be used to determine excess profits. Second, the excess profits statute specifies that the deduction for administrative and selling expenses is for those expenses incurred in Florida or allocated to Florida for the current year. Unlike incurred losses and loss adjustment expenses, administrative and selling expenses are not developed to an ultimate basis, which appears to be what the Office is attempting to require. Administrative expenses are incurred by calendar year.1/ Other than the net cost of re-insurance, the Office has not permitted any expense that is to be valued at a date that is later than the end of the calendar year(s) at issue in the excess profits filing. The future effect of these expenses would be considered in the year that effect is realized. Third, allowing whatever is "appropriate for the insurance company" is simply too nebulous a standard, to the extent it is a standard at all, to apply.2/ As noted by Mr. Hester, federal income tax liabilities are governed by the Internal Revenue Code and its attendant regulations, and not tied specifically to underwriting gain or loss.3/ Similarly, Florida corporate income tax liabilities are governed by Florida's taxing statutes. The fact that their calculation is not governed by the Florida Insurance Code does not change the fact that they are administrative expenses borne by the insurance company.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Office enter a Final Order finding that $2,406,312.10 may be deducted for federal income tax expense incurred or allocated to Florida for purposes of section 627.215, and that Premier must return $660,907.90 in excessive profits to its policyholders. DONE AND ENTERED this 19th day of December, 2012, in Tallahassee, Leon County, Florida. S LISA SHEARER NELSON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 19th day of December, 2012.
