City of Philadelphia v. Lerner, N., Aplt., 26 EAP 2015

In 2004 an anonymous tip plus documentary evidence prompted Philadelphia to audit Lester Goldstein and investigate Nathan Lerner’s business interests (Elco and LeGo), revealing loan/partnership documents and a supplemental 2006 agreement.
The City issued notices and a 2006 delinquent tax bill estimating Lerner’s net business income at $150,000/yr; Lerner did not provide tax records or otherwise exhaust administrative review before the Tax Review Board.
The City filed a collection action; a default judgment was opened, proceedings were reinstated, and the trial court consolidated limited administrative appeals before later quashing Lerner’s administrative appeal for failure to order a transcript.
At trial the City’s witness conceded the City’s income estimate was essentially made up; the trial court nonetheless entered judgment for the City after granting the City’s motion in limine that precluded Lerner from challenging the assessment because he failed to appeal to the Tax Review Board.
Lerner’s post-trial and appellate filings focused on the assessment’s lack of evidentiary support, but he did not preserve on the trial-court level the separate contention that Krug should not bar judicial review where an assessment is baseless.
The Commonwealth Court affirmed; the Supreme Court affirmed, holding Lerner waived the jurisdictional/exhaustion argument by failing to raise it below and concluding administrative exhaustion rules (and Krug) bar his collateral challenge.

Issue	Lerner's Argument	City’s Argument	Held
Whether a taxpayer who failed to exhaust administrative remedies may nonetheless challenge a tax assessment in a later collection action when the City’s own evidence shows the assessment has no factual basis	Lerner: courts should allow a judicial challenge to an assessment that is demonstrably baseless despite failure to exhaust	City: Krug and related precedent require exhaustion; failure to appeal to the Tax Review Board waives defenses to the assessment	Held: Issue waived — Lerner failed to preserve the exhaustion/jurisdiction argument below; courts properly precluded challenge under Krug and exhaustion principles
Whether Lerner preserved his challenge to the trial court’s reliance on Krug/exhaustion in his Rule 1925(b) statement	Lerner: (on appeal) argued the exhaustion rule should not apply in these factual circumstances	City: Lerner did not raise that legal argument below and thus waived it under Pa.R.A.P. 1925(b) and precedent	Held: Waiver — appellate courts cannot consider the unpreserved jurisdictional/exhaustion argument; affirmation of lower courts’ rulings

Krug v. City of Philadelphia, 620 A.2d 46 (Pa. Cmwlth. 1993) (taxpayer who fails to appeal assessment to Tax Review Board may not later challenge assessment in collection action)
Canonsburg Gen. Hosp. v. Dep’t of Health, 422 A.2d 141 (Pa. 1980) (requirement to exhaust administrative remedies before seeking judicial relief)
Commonwealth, to Use of Unemployment Compensation Fund v. Lentz, 44 A.2d 291 (Pa. 1945) (taxpayer who does not exhaust administrative remedies cannot later assert invalidity in court)
Cherry v. City of Philadelphia, 692 A.2d 1082 (Pa. 1997) (Philadelphia Tax Review Board has exclusive original jurisdiction over tax assessment challenges)