96-005977 Nick And Sue Farah vs. Department Of Revenue Status: Closed Recommended Order on Wednesday, June 10, 1998.

Summary: Circumstances of case waived/estopped/compromised which of two taxpayers were liable and locked--in amount of damages but did not determine collectability. Uncollectability was not proven by taxpayer.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

NICK AND SUE FARAH, d/b/a )

FARAH GAZEBO RESTAURANT, )

)

Petitioners, )

)

vs. ) Case No. 96-5977

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

_________________________________)

RECOMMENDED ORDER

Upon due notice, this cause came on for formal hearing on

February 24, 1998, in Gainesville, Florida, before Ella Jane P.

Davis, a duly assigned Administrative Law Judge of the Division

of Administrative Hearings.

APPEARANCES

For Petitioner: Jeffrey R. Dollinger, Esquire

Scruggs & Carmichael, P.A.

1 Southeast 1st Avenue

Gainesville, Florida 32601

For Respondent: Elizabeth T. Bradshaw

Assistant Attorney General

Office of the Attorney General

The Capitol, Tax Section

Tallahassee, Florida 32399-1050

STATEMENT OF THE ISSUE

Whether Petitioner, Nick Farah, Sr., is liable for the taxes

assessed under Chapter 212, Florida Statutes, for the March 1,

1989 - February 28, 1994 audit period, and to what degree, if

any, the audit debt may be compromised as uncollectible.

PRELIMINARY STATEMENT

This case involves an assessment of sales taxes and charter

transit system surtaxes associated with audit number 9501539 for

the audit period of March 1, 1989 - February 28, 1994.

Any timeliness and scope of issue questions originally

raised were waived or compromised by the prehearing stipulation

or the admission of evidence without objection. The prehearing

stipulation was thorough and included many agreed material facts.

It was filed on February 6, 1998. It has been utilized

extensively within the body of the recommended order, but

repetitious material has been eliminated, details have been

amplified based on the record, and there have been grammatical

changes and rearrangement of material.

Petitioners presented the oral testimony of Nick Farah, Sr.,

Sue Farah, and Donald Ritchie. They had four exhibits admitted

in evidence.

The Department of Revenue presented the oral testimony of

Donald Ritchie, and had two composite exhibits admitted in

evidence.

A transcript of testimony and proceedings was filed on

March 12, 1998. After extensions of time, the parties each filed

their respective proposed recommended orders on April 2, 1998.

At the request of the undersigned, an agreed Notice of Filing

statutory and rule provisions applicable to the audit period was

filed April 7, 1998.

FINDINGS OF FACT

1. This case involves an assessment of sales taxes and

charter transit system surtaxes associated with audit number

9501539, and covering the audit period of March 1, 1989, to

February 28, 1994 (audit period), for Farah's Gazebo Restaurant

(the restaurant) located at 3541 University Boulevard, North,

Jacksonville, Florida.

2. Sales of food and alcoholic beverages were made at the

restaurant during the audit period. Sales tax was collected and

remitted to the Department on the sales of alcoholic beverages

during the audit period, but not on the sales of prepared food.

3. The assessment relates to the sale of food during the

audit period.

4. The restaurant was first opened as a sandwich shop in

1974 by both Petitioners, Nick Farah, Sr., and Sue Farah, who at

all times material have been husband and wife. Mrs. Farah's

middle initial is "N." Mr. Farah is now 74 years old. Mrs.

Farah is 63.

5. When the restaurant was opened in 1974, Nick Farah, Sr.,

opened a utility account with the City of Jacksonville in his

name alone. At all times material, that same account in Nick

Farah, Sr.'s name has been used by the restaurant.

6. At all times material, Nick Farah, Sr., and Sue Farah

had a checking account (number 467835202-01), in the name "Nick

Farah d/b/a Farah's Gazebo Cafe, Restaurant & Lounge" with

American National Bank of Florida (American National checking

account). During the audit period, this account was used by

Petitioners as both the restaurant's checking account and their

personal checking account.

7. During the audit period, all proceeds from sales at the

restaurant were deposited into the American National checking

account. All of the Petitioners' personal living expenses were

paid from monies deposited into the American National checking

account.

8. During the audit period, Nick Farah, Sr., ran banking

and shopping errands for the restaurant at his wife's direction,

and considered it appropriate to write checks on behalf of the

restaurant in his wife's absence.

9. When their restaurant was first opened, Petitioners

obtained a sales tax registration certificate from the Department

of Revenue. This certificate was issued in the names of both

Petitioners.

10. In 1986, Petitioners refurbished and expanded their

sandwich shop to a full restaurant serving dinner along with

alcoholic beverages.

11. During the several months in which the restaurant was

being expanded, the restaurant was closed for business.

12. Petitioners have a son, Nick Farah, Jr., who has a

restaurant and lounge in Gainesville, Florida.

13. Nick Farah, Jr., helped his parents expand their

restaurant and donated certain restaurant equipment for the

expansion.

14. In 1986, Nick Farah, Jr., obtained alcoholic beverage

license 26-02438SRX solely in his name for the restaurant.

15. In 1988, Petitioners' other son, John Farah, became

actively involved with the operation of the restaurant, in order

to allow his father, Nick Farah, Sr., to retire. John Farah's

involvement with the restaurant lasted approximately six or seven

months, after which he was no longer involved.

16. In 1988, due to numerous medical problems, including

high blood pressure, prostate cancer, diabetes, and weak eyes,

Nick Farah, Sr., "retired." He advised the social security

office in 1988 of his retirement and filed all necessary papers

in order to begin to receive his social security benefits. His

social security income was "direct deposited" to a Barnett Bank

account set up solely for that purpose.

17. Nick Farah, Sr., listed himself as "retired" on the

couple's joint 1989-1994 federal income tax returns. These

returns include Schedule C, "Profit or Loss from Business," and

listed the restaurant as solely owned by Sue Farah, as

proprietor. On these returns, Sue Farah stated that she was sole

owner of the business known as Farah's Gazebo Restaurant.

18. When Nick Farah, Sr., retired, Sue Farah began paying

bills and making all executive decisions concerning employees,

doing the ordering, deciding on the menu, and pricing. However,

since 1988, the restaurant also has had a manager who has dealt

with the employees and food ordering as well.

19. Although he considers himself retired, Nick Farah, Sr.,

consistently has gone to the restaurant to eat, talk with

friends, and play rummy. He has also performed errands and

written checks for the restaurant. (See Finding of Fact 8) In

testimony, he referred to the American National account as "our

Gazebo account." (TR-111)

20. Sales Tax Registration Certificate No. 26-08-093045-

08/1 was issued in the name of Nick Farah, Sr., Sue N. Farah, and

Nick Farah, Jr., until June 1, 1992.

21. On June 1, 1992, Sales Tax Registration Certificate

No. 26-08-126824-08/1 was issued in the names of Nick Farah, Sr.,

and Sue N. Farah. This was done to separate the restaurant from

Nick Farah, Jr.'s, Gainesville restaurant. The type of business

organization listed on the certificate is "partnership."

22. On each of the sales tax registration certificates,

Nick Farah, Sr.'s social security number was used as the federal

identification number.

23. In 1993, the Alcoholic Beverage License was renewed in

the names of Nick Farah, Sr., and Sue Farah.

24. Petitioners' personal residence is held jointly in

their names. During the audit period, Petitioners refinanced

their personal residence and obtained a home equity loan through

American National Bank. The proceeds from this loan were used to

pay expenses related to the restaurant. (See Finding of Fact

52).

25. On March 24, 1994, the Department issued its DR-840

Notice of Intent to Audit Books and Records to "Nick & Sue Farah

d/b/a Farah Gazebo Restaurant." Notices of Intent are usually

issued in the name(s) on the current Sales Tax Registration

Certificate.

26. On April 14, 1994, the Farahs both executed a Power of

Attorney appointing their attorney to represent them in matters

relating to the audit.

27. Subsequent to the audit, the Department issued its

"Notice of Intent to Make Sales & Use Tax Audit Changes," under

Chapter 212, Florida Statutes, on November 4, 1994, in the names

of "Nick & Sue Farah d/b/a Farah Gazebo Restaurant." Taxes for

the audit period March 1, 1989 - February 28, 1994, were assessed

in the amount of $65,093.44. Penalties were assessed up to that

point in time in the amount of $20,679.43. Interest was assessed

up to that point in time in the amount of $22,678.86. The total

was $108,451.73. Interest would continue to run.

28. Also on November 4, 1994, the Department issued its

"Notice of Intent to Make Charter County Transit System Surtax

Changes" in the names of "Nick & Sue Farah d/b/a Farah Gazebo

Restaurant." Taxes were assessed in the amount of $5,424.46;

penalties were assessed in the amount of $1,723.27; and interest

was assessed in the amount of $1,889.92 for a total of $9,037.65.

29. The Department revised its audit on January 17, 1995.

Two revised Notices of Intent were issued, each in the names of

"Nick & Sue Farah d/b/a Farah Gazebo Restaurant," with assessment

in the following amounts: $62,974.40 (sales and use taxes),

$19,839.95 (penalties), and $28,373.14 (interest); and $5,247.86

(charter county surtaxes), $1,653.29 (penalties), and $2,367.18

(interest). These revised notices were issued to reflect the

deduction of certain non-revenue items from the gross deposits

reflected on the Petitioners' bank statement. They also show

accruing interest.

30. By their attorney's letter dated February 6, 1995,

Petitioners raised the issue of Nick Farah, Sr.'s liability for

the assessment, arguing that his involvement with the restaurant

during the audit period was insufficient to render him a

"taxpayer" as contemplated by the applicable statutes and rules,

and insufficient to create such a tax liability for him.

31. The letter from Petitioners' counsel stated that

Petitioner Sue Farah "considered the restaurant to be hers, and

has filed her federal income tax returns accordingly. She is

willing to sign the Notice of Intent and enter into a payment

arrangement."

32. Donald Ritchie, the Department's Jacksonville tax

auditor who had initiated the audit, subsequently issued a "Memo

to File," dated February 7, 1995, stating,

Auditor contacted atty. Jeff Dollinger in

response to his letter of 2-6-95 in which he

states TP's claim that Sue Farah is sole

proprietor of restaurant and Nick is not a

"dealer" in connection with the restaurant

operation. He stated in a telephone

conversation that Sue Farah wished to sign

NOI indicating agreement with the proposed

audit changes "with the exception of penalty"

and obtain a stipulated payment schedule but

only if registration and audit were changed

to eliminate Nick's name.

33. On February 7 and 8, 1995, Peggy Bowen, a Departmental

superior of Mr. Ritchie, directed two memoranda by electronic

mail (e-mail) to another Departmental employee, Allen Adams,

located in Tallahassee. These memoranda requested guidance on

how to proceed with the questions raised by Petitioners' counsel.

34. In response to these requests, a series of e-mail

memoranda were exchanged within the Tallahassee office of the

Department. The first, on February 8, 1995, from George Stinson,

stated, in part:

What advantage would we have if we assessed

"Nick's Partnership"? . . . from what Peggy

said, "Nick's Partnership" doesn't even

exist, but "Sue's Sole Proprietorship" does.

It seems to me that it would be absurd to

assess an entity ("Nick's Partnership") that,

by the taxpayer's own admission, doesn't

exist. Just because the registration social

data on the database is erroneous doesn't

mean we should issue an erroneous assessment.

35. The second February 8, 1995, electronic mail memorandum

from Allen Adams to Peggy Bowen, stated, "OK, I take this as an

approval to change our NOI and get an agreed case."

36. The final electronic mail memorandum dated February 9,

1995, from George Stinson to Allen Adams provides:

Allen...While mulling this all over in my

brain, it occurred to me it would not be

unwise for Peggy to prepare (but hold on to

for the time being) an NOI under "Nick's

Partnership" in case the other one somehow

goes awry. If "Sue's Sole Proprietership"

[sic] tries to pull a "fast one" and reneg on

their agreement and stip because they claim

they weren't the "registered" or "840'd"

entity, we can file off the other one to make

sure all bases are covered. If the TP seems

to be dragging their feet and we're getting

into a jeopardy situation, we could even have

both NOI's (and assessments) in existence

concurrently to keep us protected.

37. Donald Ritchie testified that he did not know of the

existence of a "Nick's Partnership" or where such a term came

from. However, see Findings of Fact 21, 25, and 46.

38. A memo to file was subsequently produced by Peggy

Bowen, dated February 10, 1995, which stated in part:

I spoke to Allen Adams on the telephone

regarding the memo from George Stinson dated

2/9/95. We agreed that our procedure would

be to revise the existing NOI which is in the

name Nick and Sue Farah to Sue Farah, and

correct the SSN, under the existing audit

number. We issued the existing NOI as a sole

proprietorship, as Nick & Sue Farah, and we

are only clarifying the name of the sole

proprietorship to Sue Farah. There were not

any partnership federal tax returns filed

only joint 1040.

39. Neither Petitioner was privy to the internal e-mail

memoranda of the Department.

40. The parties have stipulated that the Department agreed

to remove Nick Farah, Sr.'s name from the Notices of Intent in

exchange for Sue Farah's agreement to sign the notices as

"agreed" liabilities. Accordingly, the Department's Second

Revised Notices of Intent were issued on February 13, 1995.

41. The Second Revised Notices of Intent were issued in the

name "Sue Farah d/b/a Farah Gazebo Restaurant." These were

issued by Donald Ritchie .1

42. The Second Revised Notice of Intent to make Sales and

Use Tax Audit Changes (also referred to as "the second NOI")

states in paragraph #1, "The Department of Revenue presents you

with a Notice of Intent to make Sales and Use Tax Audit Changes

for the period of time which you have been found to be liable on

various transactions subject to the tax under Chapter 212,

Florida Statutes, during the period 03/01/89 Through 02/28/94."

It further states on the bottom of the first page, "NOTE: The

execution and filing of this waiver will expedite adjustment of

the tax liability as indicated above. . . . If you now agree

with the tax audit changes, please sign this form and return it

to the audit office indicated above."

43. Petitioner Sue Farah signed the Second Revised Notices

of Intent on March 10, 1995.

44. Also on March 10, 1995, Petitioner Sue Farah submitted

a request for compromise of taxes, penalties, and interest.

45. The Department's representative in Jacksonville agreed

to waive the penalties on the assessment. Subsequently, the

Department's auditor forwarded the audit file to Tallahassee for

further consideration of the Request for Compromise of Taxes and

Interest.

46. Donald Ritchie testified that during the course of the

audit, it was apparent to him that it was an operation that was

owned and operated by a husband and wife, Nick Farah, Sr., and

Sue Farah, but that a Notice of Intent is issued in the name of

the taxpayer as it is listed on the sales tax registration. It

is noted, however, that the audit period covered a period in

which there were two sales tax registration numbers for the

restaurant in the name(s) first of Nick, Sr., Sue and Nick, Jr.,

until June 1, 1992, and thereafter as Nick Farah, Sr. and Sue

Farah, a partnership. (See Findings of Fact 20-21.)

47. After the audit was conducted, the audit file was

forwarded to Tallahassee for review. Included within the audit

file was the Standard Audit Program & Report for Sales and Use

Tax form. Donald Ritchie testified that he filled out the

Standard Audit Program & Report for Sales and Use Tax form

listing the taxpayers as "Nick & Sue Farah d/b/a Farah's Gazebo

Restaurant," and indicating that the entity was a "sole

proprietorship" because he understood that a business entity run

by a husband and wife did not constitute a partnership but rather

a sole proprietorship in the absence of the formal procedures of

organizing a partnership.

48. Donald Ritchie further testified that he forwarded the

file to Tallahassee as an "unagreed audit," because after signing

the second NOI the Petitioners had asked for "additional

conditions," including a request by Sue Farah for compromise of

the taxes, penalties, and interest, that had not been specified

at the time Sue Farah signed. However, he conceded that anyone

signing an NOI could request such compromise. It is also clear

that Sue Farah had always retained the right to compromise the

penalties. (See Findings of Fact 30, 32 and 44-45)

49. The Department subsequently issued its Notices of

Proposed Assessment (NOPA) on September 6, 1995, in the names of

both husband and wife, as "Nick & Sue Farah/Farah Gazebo

Restaurant."

50. By letter dated November 3, 1995, Petitioner Sue Farah

d/b/a Farah Gazebo Restaurant protested the entire proposed

assessments, on the ground of "doubt as to collectability."

51. By letter dated January 15, 1996, Petitioner Sue Farah

submitted her financial information in support of her protest.

52. Petitioners had borrowed additional monies in order to

pay off general debts and debt associated with the restaurant

involved in this proceeding. They then borrowed again in order

to open a second restaurant on "Mandarin" in Jacksonville. This

new venture was to be run by a newly created corporation, of

which Sue Farah is sole stockholder. Petitioners are agreed that

if the restaurant which is at issue in this cause were sold, Sue

Farah would get all the proceeds.

53. By letter dated March 15, 1996, Kathleen Marsh, CPA and

Tax Law Specialist for the Department, requested certain

financial information from both Petitioners in order to consider

the issues raised in the letter of protest, including but not

limited to, audit papers, bank statements for the years 1995 and

1996, and various information relating to the operation and

financial position of the second restaurant.

54. By letter dated April 8, 1996, Kathleen Marsh notified

Petitioners that she had not yet received the information she had

requested, and was going to issue the Notice of Decision.

55. By letter dated April 17, 1996, Petitioners' CPA

responded in part to the Department's request for additional

financial information, but it does not amount to a certification

or audit of the Farahs' financial statements.

56. Also on April 17, 1996, the Department issued its

Notice of Decision, sustaining the assessment in its entirety,

determining that doubt as to collectability had not been

established by the Petitioners.

57. The Petitioners sought reconsideration of the

Department's determination, raising the additional argument that

Nick Farah, Sr., was not sufficiently involved in the operation

of the restaurant during the audit period so as to be liable for

the tax assessment.

58. The following information had been requested by the

Department but was never received from the Petitioners: a copy of

an IRS audit, bank statements for all accounts for the years 1995

and 1996, information relating to ownership of stock in the new

restaurant corporation, and information relating to sales tax

registration for the new restaurant.

59. The Department issued its Notice of Reconsideration on

November 5, 1996, again sustaining the assessment in its entirety

and determining that doubt as to collectability still had not

been established. It further determined that Nick Farah, Sr.,

was a registered dealer under Chapter 212, Florida Statutes, and

was otherwise sufficiently involved in the operation of the

restaurant so as to be liable for the assessment.

60. Petitioners timely filed their Petition for this

administrative hearing under Chapter 120, Florida Statutes.

61. Petitioners agreed that the amount of the tax assessed

by the Department is correct.

62. Since the offer of compromise, several properties owned

either jointly by husband and wife or owned solely by Nick Farah,

Sr., have been foreclosed. Otherwise, the sworn financial

statements in the audit file have been adopted by the

Petitioners' testimony as still accurate. None of these

financial statements bear a certification by a certified public

accountant.

63. Neither Mr. nor Mrs. Farah's financial situation has

remained static in the ensuing two years.

64. Sue Farah still desires to compromise the total tax

bill with small monthly payments, but she could not articulate an

amount she can currently pay and relied on her earlier offer.

CONCLUSIONS OF LAW

65. The Division of Administrative Hearings has

jurisdiction over the parties and subject matter of this cause,

pursuant to Sections 120.57(1) and 120.80(14), Florida Statutes.

66. Petitioner Sue Farah has agreed that the amount of

sales and charter county surtaxes was correctly assessed by the

Department and has further agreed to her liability for the

assessed taxes.

67. Left to be determined in this case is: (1) Was Nick

Farah, Sr., obligated to collect and remit sales taxes during the

audit period? (2) If Nick Farah, Sr., was a "taxpayer" during

the audit period, was his liability waived by the Department at

any point so that the Department is now estopped or otherwise

precluded from proceeding against him for collection? and (3) Is

the Department obligated to compromise the amount assessed

against Nick Farah, Sr., and/or Sue Farah on the basis of

uncollectability?

68. Section 212.05, Florida Statutes provides that

"every person is exercising a taxable

privilege who engages in the business of

selling tangible personal property at retail

in this state. . ."

69. Section 212.06(1)(a), Florida Statutes provides,

"the aforesaid tax at the rate of six percent

of the retail sales prices as of the moment

of sale . . . shall be collectable from all

dealers as herein defined on the sale at

retail . . ."

70. In return for the privilege of engaging in business in

this state, the general sales tax statutes require retailers to

collect and remit certain taxes. See Cash v. State , 628 So. 2d

1100 (Fla. 1993).

71. Section 212.18(3)(a), Florida Statutes provides,

every person desiring to engage in or

conduct business in this state as a dealer,

as defined in this chapter . . . must file

with the Department an application for a

certificate of registration for each place of

business, showing the names of the persons

who have interest in such business . . .

72. The evidence demonstrates that at the time the Farahs

originally opened their sandwich shop in 1974, they were both

involved in its operation. At that time, both Petitioners were

registered with the Department as dealers for purposes of

collecting and remitting sales taxes.

73. The evidence also demonstrates that at several times

over the course of the years before and during the audit period,

Petitioners applied for new sales tax certificate registration

numbers, including applications filed in 1986 and 1992. At all

times, Nick Farah, Sr.'s name was included on the registration

applications and his social security number was listed.

Moreover, the 1992 registration certificate was filled out to

reflect that the restaurant was operated as a "partnership"

between Nick Farah, Sr., and Sue Farah, his wife. Finally, it

was not until after the audit period that Nick Farah, Sr.'s name

was removed from the registration certificate for the restaurant.

74. Nick Farah, Sr., testified that he retired for purposes

of social security benefits, in 1988. At that time, he filled

out the necessary paperwork for the federal Social Security

Administration to begin collecting his social security benefits.

75. However, no new sales tax registration certificate was

submitted by the Petitioners to the Department of Revenue in 1988

to reflect any change in the ownership of the restaurant or to

reflect how profits would be dispersed from the restaurant or to

release Nick Farah, Sr., from responsibility for sales taxes

arising from operation of the restaurant.

76. Nick Farah, Sr.'s registration as a "dealer" with the

Department created an obligation for him under Chapter 212,

Florida Statutes, to collect and remit the appropriate sales

taxes on sales made at the restaurant, regardless of his

situation with federal social security, which is based on

"employment" not profits from investment in a business. To the

extent those sales taxes were not collected and remitted, Nick

Farah, Sr., bore as much liability as did Sue Farah. See

Sections 212.05, 212.06(1)(a), and 212.06(2), Florida Statutes.

77. In addition to his registration as a dealer under

Chapter 212, Florida Statutes, other considerations support the

conclusion that Nick Farah, Sr., was a de facto partner in the

business during the audit period, and was liable for the sales

taxes that should have been collected at the restaurant during

that period. This involvement is demonstrated by the name on the

Alcoholic Beverage License, by co-mingling of funds and by the

joint checking account upon which Nick Farah, Sr., could write

both personal checks and checks for the restaurant. Likewise,

his performing minor duties for the restaurant indicates some

involvement.

78. Under Section 620.59(4), the receipt by a person of a

share of the profits of a business is prima facie evidence that

the person is a partner in the business. In this case, Nick

Farah, Sr., testified that the small profit reflected on the tax

returns for each year of the audit period was deposited into the

parties' joint checking account, and used with other monies to

pay their personal expenses. In addition, Nick Farah, Sr.,

testified that he was available to run errands and write checks

on behalf of the restaurant as needed by his wife, even after

1988. The financial benefit that Nick Farah, Sr., was enjoying

from the restaurant herein bespeaks more of a partnership than it

does of a spouse benefiting only derivatively from an income or

profit that belongs solely to the wage-earner spouse.

Accordingly, the business continued to be operated as a

partnership even after Nick Farah's "retirement" in 1988.

79. Having determined that Nick Farah, Sr., was liable for

the taxes of the audit period on the basis of his continued

registration for sales tax purposes and his involvement in the

restaurant, inquiry must then pass to whether or not the

Department is estopped or otherwise precluded from proceeding

against him for collection.

80. The Department now asserts in its Proposed Recommended

Order that all that occurred here was that during the process of

finalizing the audit in the field, the parties could not come to

terms on a final agreement by which Sue Farah would pay the

assessed liability without further contesting it. That is not

what the facts show.

81. Rather, the facts show that the Department of Revenue

breached its agreement with Sue Farah which had provided that if

the Department would remove Nick Farah, Sr., from the audit, Sue

Farah would sign the Second Revised Notices of Intent. The

parties specifically stipulated herein that

The Department agreed to remove Nick Farah,

Sr.'s name from the Notices of Intent in

exchange for Sue Farah's agreement to sign

the notices as "agreed" liabilities.

Accordingly, the Department's Second Revised

Notice of Intent were issued on February 13,

1995. . . . Petitioner Sue Farah signed the

Second Revised Notice of Intent on March 10,

1995." (See Findings of Fact 40, 43)

Because the Department of Revenue removed Nick Farah, Sr., from

the audit and Mrs. Farah then signed the Notice of Intent, the

Department breached the agreement by once again declaring

Mr. Farah to be a taxpayer liable for the tax imposed by the

audit.

82. Herein, the Department made an agreement with Sue Farah

that if the Department removed Nick Farah, Sr., from the audit,

Sue Farah would sign the Second Revised Notices of Intent,

acknowledging her sole liability and agreeing not to contest the

amounts assessed, except penalties. The Department of Revenue

prepared the NOI in Sue Farah's name solely, and Sue Farah

signed. (See Findings of Fact 39-43) There was Departmental

authority or apparent authority in the NOI as prepared, and there

was no way Nick Farah, Sr., or Sue Farah could have known that

Departmental personnel had planned, by secret e-mail, to "fudge-

factor" with two different NOIs if Sue Farah did not pay up the

entire agreed amount. It is clear from the internal e-mail that

Departmental personnel had "doubt as to the liability" of Nick

Farah, Sr., and thought there was a real chance that they could

not establish any tax liability in Nick Farah, Sr. To reach an

agreed amount and avoid time-consuming negotiation and

potentially unsuccessful litigation, the Department waived any

entitlements against Nick Farah, Sr. Mrs. Farah's signature

waived her right to assert her own lack of liability for all

taxes and her right to dispute the amounts assessed (except

penalties). The agreement benefited the Department in not having

to "prove up" the audit calculations or amounts or Mrs. Farah's

liability. Offer and acceptance of this compromise, under the

circumstances of this case, precludes the Department from then

going back after Nick Farah, Sr.

83. In its Proposed Recommended Order, the Department seems

to be saying that it would have considered itself bound by the

Second Revised Notices of Intent signed by Sue Farah alone, not

to go against Nick Farah, Sr., as a taxpayer, but for Sue Farah

subsequently attempting to compromise the amount of taxes owed.

While the Department claims further negotiation over the amount

constituted Sue Farah's attempt to avoid liability for the full

amount, the Farahs have argued that in signing the Second Revised

Notices of Intent, Sue Farah was only agreeing to be solely

liable (i.e., without any liability attaching to Nick Farah, Sr.)

for the taxes and she still considered herself to have the right

that any other taxpayer has to seek to compromise the agreed

amount or "damages" aspect, on the basis of collectability. In

other words, Sue Farah agreed she owed the full amount, except

penalties, but not that she could pay the full amount with or

without penalties.

84. I note that Section 213.21(3)(a), Florida Statutes,

also makes a distinction between "doubt as to liability for . . .

such tax or interest" and "doubt as to . . . collectability of

such tax or interest." (Emphasis supplied,) ( See full statutory

text below.) Based on the statute and the respective dealings,

responsibilities, and leverage of the parties, I am satisfied

that Sue Farah's position is the more reasonable one. 2

85. Herein, Petitioners have not challenged the correctness

of the Department's calculations of the amount of taxes owed.

They have not challenged the legal basis for the assessment. Due

to the signature of Sue Farah on the NOI and the determination

herein that the Department must accept that Sue Farah bears sole

liability for the taxes in this cause, liability for the taxes is

no longer at issue. Sue Farah remains liable for the entire

amount of the taxes, penalties, and accruing interest.

86. Having now determined that the Department is precluded

from attempting to collect from Nick Farah, Sr., it is necessary

to address the final issue of whether or not the amount Sue Farah

alone owes should be compromised based on uncollectability.

87. Under Section 212.21(3)(a), Florida Statutes, it is

within the Department's discretion to compromise an assessment of

sales taxes and interest, as well as an assessment of penalties.

Its discretion, however, is limited to those situations in which

there is "doubt as to liability for . . . such tax or interest,"

or where there is "doubt as to . . . collectability of such tax

or interest." Penalties may be compromised if non-compliance

resulted from reasonable cause and not from willful negligence,

willful neglect, or fraud.

88. Section 213.21(3)(a), Florida Statutes, provides:

A taxpayer's liability for any tax or

interest specified in s. 72.011(1) may be

compromised by the Department upon the

grounds of doubt as to liability for or

collectability of such tax or interest. A

taxpayer's liability for penalties under any

of the chapters specified in s. 72.011(1) may

be settled or compromised if it is determined

by the Department that the non-compliance is

due to reasonable cause and not to willful

negligence, willful neglect, or fraud.

89. Rule 12-13.003(2), Florida Administrative Code,

provides that in order for a taxpayer to establish doubt as to

the collectability of taxes or interest, such taxpayer must

demonstrate uncollectability "to the satisfaction of the

Department by audited financial statements or other suitable

evidence acceptable to the Department." (Emphasis supplied,)

90. Rule 12-13.006, Florida Administrative Code, further

provides:

Tax or interest may be compromised or settled

on the grounds of "doubt as to

collectability" when it is determined that

the financial status of the taxpayer is such

that it is in the best interest of the State

to settle or compromise the matter because

full payment of the tax obligation is highly

doubtful and there appears to be an advantage

in having the case permanently and

conclusively closed.

91. At the time Petitioners initially raised the

collectability issue, they failed to submit financial information

to the Department which, within the Department's expertise, was

deemed necessary to support the request for compromise. Without

being able to determine the Petitioners' true financial

condition, the Department was unable to find that the Petitioners

had established doubt as to collectability. Accordingly, on that

basis, the Department was within the discretion imposed on it by

statute to initially deny a compromise based on non-

collectability. However, the Department's ultimate denial of

compromise was based, in part, on its belief that Nick Farah,

Sr., was liable for the taxes, an issue which has now been

resolved against the Department. Moreover, nearly two years have

passed since the Notice of Reconsideration, and testimony herein

shows that the Farahs' financial situation had changed

significantly as of the date of formal hearing.

92. Petitioners raised the issue of collectability vel non

in this de novo proceeding, and herein the burden is upon

Petitioners to demonstrate that as of the date of formal hearing

it is in the best interest of the State to settle or compromise

with Sue Farah because full payment of her tax obligation is

currently highly doubtful and there appears to be an advantage

(to the State) in having the case permanently and conclusively

closed.

93. The undersigned has reviewed the record herein at

length and concludes, on the basis of all the evidence, that

although there is no showing of fraud, penalties cannot be waived

due to the absence of proof of reasonable cause for not

collecting the sales tax in the first place. See

Section 213.21(3)(a), Florida Statutes.

94. Petitioners also have failed to present sufficient

evidence to support a compromise and payment schedule of the

entire tax debt. There appear to be no current audited financial

statements in evidence. The evidence also affirmatively shows

that Sue Farah controls two restaurants. Her current income and

assets are not clear. There is no evidence that the best

interests of the State will be served by a compromise of the

amounts. See Sections 213.21(3)(a), Florida Statutes, and

Rules 12-13.003(2) and 12-13.006, Florida Administrative Code.

RECOMMENDATION

Upon the foregoing findings of fact and conclusions of law,

it is

RECOMMENDED that a Final Order be entered by the Department

of Revenue that:

(1) Assesses the entire liability for the March 1, 1989 -

February 28, 1994, audit period against Sue Farah for the taxes,

penalties, and accruing interest;

(2) Absolves Nick Farah, Sr., of any liability for the same

audit period; and

(3) Denies all compromise of the amount(s) assessed.

DONE AND ENTERED this 10th day of June, 1998, in

Tallahassee, Leon County, Florida.

___________________________________

ELLA JANE P. DAVIS

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone] SUNCOM 278-9675

Fax Filing [phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 10th day of June, 1998.

ENDNOTES

1 / Mr. Ritchie further testified that there is "no requirement

for the taxpayer to sign the NOI in order to support an NOPA

because the . . . signature on the NOI shows agreement by the

taxpayer. There is no agreement required to issue the NOPA," and

that a taxpayer's signature on the NOI only means that the

taxpayer has agreed to be audited; if a taxpayer does not sign

the NOI, the file "goes to Tallahassee for issuance of the Notice

of Proposed Assessment," and that, "as a matter of routine," if a

taxpayer signs an NOI, then the NOPA is issued in the same name

as the NOI. However, due to the parties' stipulation that the

Department agreed to remove Nick Farah, Sr.'s name from the

Notices of Intent in order to get Sue Farah to sign the Notices

as "agreed" liabilities, Mr. Ritchie's evidence of what "usually"

happens with signed or unsigned Notices of Intent is not found as

fact or concluded as law.

2 / The four elements of estoppel are that there was a material

fact that is contrary to a later-asserted position; reliance on

that representation; and a change in position detrimental to a

party claiming estoppel, caused by representation and reliance

thereon. State Department of Revenue v. Anderson , 403 So. 2d 397

(Fla. 1981). Even so, it appears that there must be a positive

act by an official of the State, made in writing, that is relied

upon, before estoppel will lie against the sovereign. State

Department of Health and Rehabilitative Services v. Law Offices

of Donald W. Belveal , 663 So. 2d 650 (Fla. 2nd DCA 1995).

Indeed, estoppel is applied against the State in only the rarest

circumstances but may occur. Alachua County v. Cheshire , 603 So.

2d 1334 (Fla. 1st DCA 1992). Herein, Petitioners have proven all

four elements and even that the State employees with apparent

authority to make the representation did so in writing.

Alternatively, and notwithstanding the very different situation

of Jacksonville Electric Authority v. Draper's Egg and Poultry ,

557 So. 2d 1357 (Fla. 1990), the circumstances herein lend

themselves to a conclusion that an agreement to compromise

certain elements of the case (amount and sole liability in Sue)

was reached. By either legal theory, Sue Farah's argument must

prevail.

COPIES FURNISHED:

Jeffrey R. Dollinger, Esquire

SCRUGG & CARMICHAEL, P.A.

Post Office Box 23109

Gainesville, Florida 32602

Linda Lettera, Esquire

Department of Revenue

204 Carlton Building

Tallahassee, Florida 32399-0100

Joseph Mellichamp, III, Esquire

Elizabeth T. Bradshaw, Esquire

Albert Wollermann, Esquire

Department of Legal Affairs

The Capitol, Plaza Level 01

Tallahassee, Florida 32399-1050

Larry Fuchs, Executive Director

Department of Revenue

104 Carlton Building

Tallahassee, Florida 32399-0100

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within 15

days from the date of this Recommended Order. Any exceptions to

this Recommended Order should be filed with the agency that will

issue the final order in this case.