Wangerin v. DOR
2022 MT 236
Mont.2022Background
- James C. Wangerin, a CPA, represented clients whose 2017 Montana income-tax returns were audited by the Montana Department of Revenue (MDOR), which issued adjustment notices in 2021 proposing additional tax assessments.
- The adjustment letters informed taxpayers of the alleged errors, revised tax liabilities, and the right to seek informal MDOR review and then review by the MDOR Office of Dispute Resolution (ODR) under § 15-1-211, MCA.
- Wangerin argued MDOR’s three-year limitation in § 15-30-2605(3), MCA, should be tolled until exhaustion (or waiver) of all internal administrative appeals under § 15-1-211 — i.e., that MDOR may assess tax only if all appeal rights are exhausted within three years.
- He petitioned MDOR under § 2-4-315, MCA, for adoption of an interpretive rule to that effect; MDOR denied the petition, reasoning the three-year limit applies to MDOR’s initial determination (completion of the audit) and does not require exhaustion of subsequent appeals within three years.
- Wangerin sought judicial review; the Third Judicial District Court affirmed MDOR’s denial, and the Montana Supreme Court likewise affirmed, holding MDOR’s statutory construction and denial were not arbitrary, capricious, or unlawful.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper construction of § 15-30-2605(3) (three-year limit) | Wangerin: the three-year period must encompass exhaustion (or waiver) of all internal administrative appeals under § 15-1-211 (tolling until final agency decision). | MDOR: the three-year limit governs when MDOR must determine/complete its audit; subsequent internal appeals and final department decisions may occur after three years. | Court: MDOR’s construction is correct — § 15-30-2605(3) limits MDOR’s initial determination to within 3 years, not exhaustion of appeals. |
| Lawfulness of MDOR’s denial of Wangerin’s § 2-4-315 rule petition | Wangerin: denial was erroneous/arbitrary because MDOR misread the statute and should have initiated rulemaking to adopt his proposed tolling rule. | MDOR: denial was reasonable and based on correct statutory interpretation and within agency discretion under § 2-4-315. | Court: denial was not arbitrary, capricious, or unlawful; MDOR provided a reasoned decision consistent with statute. |
| Whether MDOR’s interpretive position amounted to an unpromulgated "rule" requiring formal rulemaking | Wangerin: MDOR’s consistent statements construing § 15-30-2605(3) amount to an agency "rule" that must be adopted via formal rulemaking. | MDOR: stating its statutory interpretation in a taxpayer dispute is not the same as issuing a separate administrative rule subject to MAPA rulemaking. | Court: Wangerin did not show MDOR’s statutory interpretation was a separate invalid rule or that denial was unlawful on that basis. |
Key Cases Cited
- Core-Mark Int’l, Inc. v. Mont. Bd. of Livestock, 376 Mont. 25, 329 P.3d 1278 (discussing standard for judicial review of agency denials of rule petitions)
- Winchell v. Mont. Dep’t of Nat. Res. & Conservation, 293 Mont. 89, 972 P.2d 1132 (agency decision review — arbitrary/capricious standard)
- Vainio v. State, 306 Mont. 439, 35 P.3d 948 (MAPA rulemaking procedures and agency rule limits)
- Bell v. Mont. Dep’t of Prof. & Occup. Licensing, 182 Mont. 21, 594 P.2d 331 (agencies may not add requirements beyond enabling statutes)
- Anaconda Co. v. Mont. Dep’t of Revenue, 178 Mont. 254, 583 P.2d 421 (agencies have only statutory powers conferred by legislature)