The District of Columbia Office of Tax and Revenue's computer system was like something out of "The Terminator," Senior Judge Frank Schwelb of the D.C. Court of Appeals wrote: a machine "defying the will of those who programmed it."
For John and Sara Shuman, the faulty computer system meant years of fighting erroneous notices from the tax office, long after city officials admitted the couple was right. Schwelb had bad news for the Shumans, though—the administrative law judge who ordered the tax office to fix its computer system and imposed sanctions lacked authority to do so.
A three-judge panel today said only a D.C. Superior Court judge could have offered the type of relief the couple sought. In the same breath, though, the court said its opinion should not be read to suggest the tax office's handling of the Shuman's case was "justifiable."
"The problem in this case was not necessarily any substantive weakness, but rather the fact that critical issues were being argued in the wrong forum," Schwelb wrote. "Although they may be frustrating to lay persons, such considerations matter."
The Shumans' problems began when they filed an amended 2004 tax return seeking a $790 refund. In September 2007, the Shumans received a notice from the tax office saying that, to the contrary, they owed $790.
The couple contacted the tax office and within weeks received a notice essentially admitting the office had made a mistake, according to the opinion. But when the Shumans filed their 2007 tax return, the tax office deducted $790 from their refund check to satisfy a supposed 2004 tax liability—a liability the office previously acknowledged didn't exist.
"By this time, the Shumans may have been a trifle bewildered, for the effective confession of error which they had received half a year earlier had apparently come to naught," Schwelb wrote.
The Shumans protested in the Office of Administrative Hearings. According to the opinion, an internal investigation by the tax office revealed its computer system was still relying on the erroneous information about the couple's 2004 tax return.
In October 2008, the tax office admitted to an administrative law judge that the city owed the Shumans a $790 tax refund. However, in the months that followed, the Shumans continued to repeatedly receive incorrect notices.
At a March 2009 conference before the administrative law judge, a tax office official said a "glitch" in the computer system was causing the erroneous notices. She said she thought she could override it, but the problems persisted.
"As we shall see, however, it turned out that she was mistaken; the computer system, though inanimate, would not be so easily diverted," Schwelb wrote.
the judge subsequently ordered the tax office to correct the problems with the Shumans' account. At a May 2011 hearing, witnesses from the tax office detailed numerous efforts to fix the problem, but they said the computer system wouldn't remember the corrections. They claimed that the problem couldn’t be fixed without replacing the computer system.
Several months later, the administrative law judge ordered the tax office to pay $80,000 for failing to follow her orders to fix the system. She also imposed daily sanctions as long as the office failed to solve the problem.
The city, in its appeal, said the judge lacked jurisdiction over the case and, even if there was jurisdiction, didn't have the authority to order the city to fix its computer system or impose sanctions.
Schwelb said the Office of Administrative Hearings did have jurisdiction, since the Shumans were essentially protesting a proposed assessment. However, he agreed that the administrative law judge's orders appeared to be "totally unprecedented" and, ultimately, not allowed.
"If we were to affirm the ALJ‘s decision, that would most assuredly be a 'first' and might well, in our view, make administrative law history," the judge wrote. Administrative law judges can weigh the merits of a taxpayer's protest of their tax assessment, he said, but they can't take steps to ensure future assessments are accurate.
Schwelb said the administrative law judge also lacked authority to order the $80,000 award and to impose the daily sanctions.
The court said its order would not prejudice any future action the Shumans took in Superior Court. Although the city prevailed on appeal, the court said that, "in the interests of justice," the city couldn't recover its costs.
Judge Phyllis Thompson and Senior Judge Annice Wagner also heard the case.
The Shumans, who represented themselves, could not immediately be reached for comment. A representative of the tax office was not immediately available for comment.
A spokesman for the Office of the Attorney General, Ted Gest, said in a statement that the appeals court "properly recognized that the Office of Administrative Hearings went too far in this case by attempting to impose inappropriate and unprecedented penalties on the Office of Tax and Revenue for the regrettable but unintentional computer errors that inconvenienced District taxpayers."
Updated at 2:41 p.m.