                 IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Richard A. Alberti,                             :
                              Petitioner        :
                                                :
               v.                               :
                                                :
Commonwealth of Pennsylvania,                   :    Nos. 336 and 468 F.R. 2015
                     Respondent                 :    Submitted: May 7, 2018


BEFORE:        HONORABLE RENÉE COHN JUBELIRER, Judge
               HONORABLE ANNE E. COVEY, Judge
               HONORABLE CHRISTINE FIZZANO CANNON, Judge


OPINION NOT REPORTED

MEMORANDUM OPINION BY
JUDGE COVEY                                          FILED: May 31, 2018

               Richard A. Alberti (Alberti) petitions this Court for review of the Board
of Finance and Revenue’s (Board) April 30, 2015 order (May Order)1 affirming the
Board of Appeals’ (BOA) dismissal of his Petitions for Reassessment (Reassessment
Petitions) as untimely, and the Board’s July 16, 2015 order (July Order)2 affirming
the BOA’s refusal to adjust the assessments based on Alberti’s 2005 and 2006 tax
year income. The issues before the Court are: (1) whether Alberti’s appeals from his
2002 to 2004, and 2007 to 2011 tax assessments were timely filed;3 and (2) whether
Alberti’s 2005 and 2006 income from Pennsylvania lottery winnings was exempt
from personal income tax.

               Although this Court hears [appeals from Board of Finance
               and Revenue orders] in its appellate jurisdiction, it
               functions essentially as a trial court. Therefore, this Court

       1
          The Board’s April 30, 2015 order was mailed on May 8, 2015. See Alberti Br. Ex. A.
       2
          The Board’s July 16, 2015 order was mailed on July 21, 2015. See Alberti Br. Ex. B.
        3
          Although Alberti challenges the Board’s May Order in his brief to this Court, Alberti fails
to specifically address the jurisdictional issues created by his late filings. See Alberti Br. at 1-2.
               must consider a record made by the parties specifically for
               the Court rather than one certified to the Court from the
               proceedings below.[4] Furthermore, a party appealing . . .
               has the burden of proof in a de novo proceeding before this
               Court.

Armco, Inc. v. Commonwealth, 654 A.2d 1191, 1192-93 (Pa. Cmwlth. 1993) (italics
added; citations omitted).


                                          Background
               Alberti is an attorney and professional gambler. See Alberti Br. at 1, 3;
see also Commonwealth Br. at 7. On July 8, 1995, Alberti won the Pennsylvania
Super 7 lottery’s (Super 7) $25,876,090.50 jackpot, payable by John Hancock Mutual
Life Insurance Company in 25 annual installments of $995,234.25. See Alberti Br. at
3-4; see also Alberti Br. Ex. C. “In 2009, [Alberti] sold a portion of the [John]
Hancock annuity to Settlement Funding LLC for $1,062,720.00. In 2010, [Alberti]
sold the remainder of the [John] Hancock annuity to Settlement Funding LLC for
$5,451,480.00.” Alberti Br. at 4-5.
               Section 330(a) of the Tax Reform Code of 1971 (Code),5 72 P.S. §
7330(a), requires every Pennsylvania taxpayer having income for a taxable year to
file a Pennsylvania Income Tax Return (PA-40) with the Commonwealth of
Pennsylvania (Commonwealth), Department of Revenue (Department) on or before
April 15th of the following year. Alberti did not timely file state income tax returns



       4
          The facts in Board appeals are typically stipulated by the parties pursuant to Rule 1571(f)
of the Pennsylvania Rules of Appellate Procedure. On September 6, 2017, Alberti filed a proposed
stipulation of facts. On October 6, 2017, the Commonwealth “disagree[d]” with all of Alberti’s
proposed facts. Commonwealth Resp. to Proposed Stip. of Facts. Notwithstanding, the parties filed
a Joint Application for Submission of Decision on Briefs, which this Court granted on April 18,
2018. Therefore, this Court relied upon the parties’ briefs in reaching its decision.
        5
          Act of March 4, 1971, P.L. 6, as amended, added by Section 4 of the Act of August 31,
1971.
                                                 2
for tax years 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010 or 2011.6 As a
result, the Department created returns for those years based upon information it
obtained from the Internal Revenue Service (IRS). See Alberti Br. at 2.
              On October 12, 2011, the Department issued Personal Income Tax
Assessment Notices (Assessment Notice) to Alberti for tax years 2002, 2003, 2004,
2007, 2008 and 2009.7 See Commonwealth Br. Ex. A. On July 16, 2012, the
Department issued an Assessment Notice for tax year 2010. See Commonwealth Br.
Ex. A. On July 14, 2014, the Department issued an Assessment Notice for tax year
2011. See Commonwealth Br. Ex. A.
              Alberti filed the Reassessment Petitions with the BOA on October 15,
2014 (relative to the 2007 tax year); on October 16, 2014 (for the 2004, 2008, 2009
and 2010 tax years); on November 1, 2014 (relative to the 2011 tax year); and on
November 14, 2014 (for the 2002 and 2003 tax years). See Commonwealth Br. Ex.
B.   The BOA dismissed Alberti’s Reassessment Petitions as untimely.                     Alberti
appealed to the Board.          On April 30, 2015, the Board affirmed the BOA’s
determination. Alberti appealed from the Board’s May Order to this Court (No. 336
F.R. 2015).
              Alberti also failed to timely file Commonwealth income tax returns for
tax years 2005 and 2006, thereby requiring the Department to create those returns




       6
          The Department’s Assessment Notices reflect that Alberti’s Commonwealth tax returns
were received for the following tax years on the specified date: 2002 on September 27, 2011; 2003,
2004, 2005, 2007 and 2008 on September 29, 2011; 2006 on September 23, 2011; 2009 on
September 30, 2011; 2010 on July 3, 2012; and, 2011 on April 1, 2014. Alberti clarified: “The
[Department] prepared [tax] returns for [Alberti] for the [tax] years 2002 through 2011, based on
information provided by the [IRS]. Since then, [Alberti] has filed [tax] returns for all years in
question with both the Commonwealth and the IRS.” Alberti Br. at 2-3.
        7
          Section 119.14(a) of the Department’s Regulations requires taxes to “be assessed within
three years after the return was filed.” 61 Pa. Code § 119.14(a).
                                                3
based on IRS information.8 The Department initially assessed Alberti taxes based on
multiple income classes, including gambling and lottery winnings totaling
$7,452,359.00 for 2005 and $1,783,834.00 in 2006. See Commonwealth Br. at 7.
The Department’s Assessment Notices reflect that Alberti’s 2005 tax return was
eventually received on September 29, 2011, and his 2006 tax return was received on
September 23, 2011. See Commonwealth Br. Ex. A; see also Alberti Br. at 2-3.
Therein, Alberti reported that his 2005 and 2006 gambling income was $0.00. See
Alberti Br. Ex. B (July Order) at 2. After review, the Department issued a Notice of
Reopened Assessment on September 26, 2014, in which the Department reduced
Alberti’s gambling and lottery income to $5,780,071.00 for the 2005 tax year and
$819,416.00 for the 2006 tax year, and assessed him taxes in the amounts of
$298,360.64 and $44,449.44, respectively. See Commonwealth Br. at 7. Alberti
appealed to the BOA.
              The BOA requested Alberti to supply evidence to support his 2005 and
2006 income adjustments, but Alberti failed to do so. See Alberti Br. Ex. B at 2.
Thereafter, the BOA dismissed Alberti’s appeal. Alberti appealed to the Board for an
adjustment to his taxable income for both years, and also requested a reduction in his
$995,234.00 tax burden because his 1995 Super 7 lottery winnings were exempt from
personal income tax at the time he won. See Alberti Br. Ex. B at 2. “[Alberti]
acknowledged that he sold his Pennsylvania lottery annuity winnings to a third party
for cash.” Commonwealth Br. at 8. On July 16, 2015, the Board affirmed the BOA’s
determination, stating that the third-party sale was taxable income since Alberti
realized gain from the disposition of property. See Alberti Br. Ex. B at 2. Alberti
appealed from the Board’s July Order to this Court (No. 468 F.R. 2015).



       8
        Alberti acknowledged that the Department initially prepared his 2005 and 2006 tax returns
based on IRS information. See Alberti Br. at 2-3.
                                               4
             On November 18, 2015, this Court stayed Alberti’s appeal from the
Board’s May Order. On December 9, 2015, this Court stayed Alberti’s appeal from
the Board’s July Order.       On June 2, 2016, this Court ordered Alberti’s appeals
consolidated for purposes of filing status reports. On October 31, 2017, this Court
ordered the consolidated matters listed for argument.


                                    May Board Order
             Relative to the Board’s May Order dismissing Alberti’s Reassessment
Petitions as untimely, Alberti argued to the Board9 that the law does not prohibit his
appeals.   Section 340 of the Code provides: “Any taxpayer against whom an
assessment is made may petition the [D]epartment for a reassessment pursuant to
Article XXVII.” 72 P.S. § 7340. However, at the time the Department’s Assessment
Notices were issued, Section 2702(a) of the Code stated: “A taxpayer may file a
petition for reassessment with the [D]epartment within 90 days after the mailing date
of the notice of assessment.”10 72 P.S. § 9702(a); see also Section 344 of the Code,
72 P.S. § 7344 (“The [D]epartment may collect any tax . . . [a]fter [90] days from the
mailing of . . . the notice of assessment, if no petition for reassessment has been
filed[.]”); Section 119.10(a) of the Department’s Regulations, 61 Pa. Code §
119.10(a) (“The Department will proceed to collect any tax due . . . , unless a
taxpayer has filed a petition for reassessment within 90 days after mailing of the
notice by the Department.”).
             The Department’s Assessment Notices for the 2002, 2003, 2004, 2007,
2008, 2009, 2010 and 2011 tax years declared: “YOU HAVE THE RIGHT TO APPEAL FOR
A REASSESSMENT     . . . . AN   APPEAL CAN BE FILED       ...   ON OR BEFORE THE FILING


      9
        Alberti does not discuss or argue this issue in his brief to this Court.
      10
          The 90-day appeal period was amended to 60 days by Section 44 of the Act of October
30, 2017, P.L. 672.
                                             5
DEADLINES LISTED ABOVE.”           See Commonwealth Br. Ex. A.            The Department’s
October 12, 2011 Assessment Notices listed January 10, 2012 as the appeal deadline
for the 2002, 2003, 2004, 2007, 2008 and 2009 tax year assessments.                    See
Commonwealth Br. Ex. A. The Department’s July 16, 2012 Assessment Notice
specified October 14, 2012 as the appeal deadline for the 2010 tax year assessment.
See Commonwealth Br. Ex. A. The Department’s July 14, 2014 Assessment Notice
designated October 12, 2014 as the appeal deadline for the 2011 tax year assessment.
See Commonwealth Br. Ex. A.
              Nevertheless, Alberti filed his Reassessment Petitions on October 15,
2014 for the 2007 tax year; on October 16, 2014 for the 2004, 2008, 2009 and 2010
tax years; on November 1, 2014 for the 2011 tax year; and, on November 14, 2014
for the 2002 and 2003 tax years. See Commonwealth Br. Ex. B. Accordingly,
Alberti’s Reassessment Petitions for the 2002, 2003, 2004, 2007, 2008, 2009 and
2010 tax years were filed more than 2 years late, and his Reassessment Petition for
the 2011 tax year was filed 20 days late.11 Alberti offered no explanation for his
delayed filings.
              Relevantly,

              in Biro v. Commonwealth, 707 A.2d 1205 (Pa. Cmwlth.
              1998), this Court has recognized the well-established
              principle that ‘limitations periods are absolute conditions

       11
         Alberti filed his Reassessment Petitions as follows:
Tax Year             Due                Filed                   Overdue
2002         January 10, 2012 November 14, 2014               2y 10m 5d
2003         January 10, 2012 November 14, 2014               2y 10m 5d
2004         January 10, 2012 October 16, 2014                2y 9m 6d
2007         January 10, 2012 October 15, 2014                2y 9m 5d
2008         January 10, 2012 October 16, 2014                2y 9m 6d
2009         January 10, 2012 October 16, 2014                2y 9m 6d
2010         October 14, 2012 October 16, 2014                2y 2d
2011         October 12, 2014 November 1, 2014                20d
See Commonwealth Br. Exs. A, B.
                                                6
              to the right to obtain relief.’ Id. at 1206 (quoting Fed[.]
              Deposit Ins[.] Corp. v. B[d.] of Fin[.] [&] Revenue, . . . 84
              A.2d 495, 498 ([Pa.] 1951)).

Scholastic Servs. Org., Inc. v. Commonwealth, 721 A.2d 74, 76 (Pa. Cmwlth. 1998)
(emphasis added). Thus, “[i]t is well established that failure to timely appeal an
administrative agency’s action is a jurisdictional defect[.]” H.D. v. Pa. Dep’t of
Pub. Welfare, 751 A.2d 1216, 1219 (Pa. Cmwlth. 2000) (emphasis added); see also
Scholastic Servs. Consequently, “[n]either the [Board] nor this Court has the
power to alter the explicit time limitations in the [Code] based on equitable
principles.” Quest Diagnostics Venture, LLC v. Commonwealth, 119 A.3d 406, 414
(Pa. Cmwlth. 2015), aff’d, 148 A.3d 448 (Pa. 2016) (emphasis added).
              Because it is clear that Alberti’s appeals from his 2002, 2003, 2004,
2007, 2008, 2009, 2010 and 2011 tax year assessments were late-filed, the Board’s
May Order properly upheld the BOA’s dismissal of Alberti’s Reassessment Petitions
for lack of jurisdiction. Accordingly, this Court affirms the Board’s May Order.


                                  July Board Order
              Alberti asserts relative to the Board’s July Order that the Department
erroneously included his $995,234.00 lottery payment in its calculation of his taxable
income in 2005 and 2006, despite that lottery prizes were exempt from personal
income tax.     The Department rejoins that, although state lottery prizes are tax-
exempt, when Alberti sold his winnings for cash, he realized gain from the
disposition of property which was taxable, and Alberti has not supplied
documentation to the contrary.
              Effective July 21, 1983, state lottery prizes were excluded from
Pennsylvania’s personal income tax. Section 103.17 of the Department’s Regulations
states, in pertinent part:


                                           7
                Gambling and lottery winnings, other than prizes of the
                State Lottery won on or after July 21, 1983, shall be
                taxable. These consist of gains arising from gambling and
                lotteries. In calculating gains, the taxpayer may deduct
                gambling and lottery losses, other than losses incurred in
                the State Lottery on or after July 21, 1983, but may not
                deduct the costs and expenses incurred in connection with
                the gambling and lottery activity.

61 Pa. Code § 103.17. Accordingly, Alberti’s 1995 Super 7 annuity payments were
not subject to personal income tax.
                Significantly, Section 302(a) of the Code12 provides:

                Every resident individual . . . shall be subject to, and shall
                pay for the privilege of receiving each of the classes of
                income hereinafter enumerated in [S]ection 303 [of the
                Code, 72 P.S. § 7303], a tax upon each dollar of income
                received by that resident during that resident’s taxable year
                at the rate of three and seven hundredths per cent [(3.07%)].

72 P.S. § 7302(a) (emphasis added). Section 303(a)(3) of the Code lists eight classes
of taxable income, including, in relevant part:

                Net gains or income from disposition of property. Net
                gains or net income, less net losses, derived from the sale,
                exchange or other disposition of property . . . on or after
                the effective date of this amendatory act by the
                Commonwealth . . . . For the purpose of this article:
                ....
                (iii) The term ‘net gains or income’ and ‘net losses’ shall
                not include gains or income or loss derived from obligations
                which are statutorily free from [s]tate or local taxation
                under the [A]ct of August 31, 1971 (P.L. 395, No. 94) [(Act
                94)13], entitled ‘An act exempting from taxation for [s]tate


      12
           Added by Section 8 of the Act of August 4, 1991, P.L. 97.
      13
           Section 2 of Act 94 states:
                Notwithstanding the provisions of any law presently or hereafter
                enacted to the contrary, all obligations, their transfer and the income
                therefrom (including any profits made on the sale thereof), issued by
                                                  8
              and local purposes within the Commonwealth certain
              obligations, their transfer and the income therefrom
              (including any profits made on the sale thereof), issued by
              the Commonwealth . . . .

72 P.S. § 7303(a)(3)14 (italic and bold emphasis added). However, Section 7 of Act
of December 3, 1993, P.L. 473, repealed Act 94 with respect to obligations arising on
or after its effective date (i.e., February 1, 1994).              Section 103.13(j) of the
Department’s Regulations clarifies: “For purpose of determining net gains or income
from the disposition of property, gain or loss shall be recognized on the sale,
exchange or other disposition of obligations issued by the Commonwealth . . . on
or after February 1, 1994.” 61 Pa. Code § 103.13(j) (emphasis added). Therefore,
as of February 1, 1994, taxable net gains or income include income derived from
exempt obligations. Accordingly, net gains or income derived from Alberti’s 1995
lottery winnings are taxable in the years during which they are sold or
exchanged. See 72 P.S. § 7303(a)(3).
              Moreover, under the authority of Section 335 of the Code, 72 P.S. §
7335 (relating to recordkeeping requirements), the Department promulgated Section
103.17 of the Department’s Regulations, wherein it declared that “the taxpayer shall
maintain detailed records substantiating losses[, and] . . . shall have the burden of
proving losses.” 61 Pa. Code § 103.17. Despite that Alberti claimed $0.00 income in
his 2005 and 2006 PA-40s, he failed to produce documentation to substantiate any
losses in those years.



              the Commonwealth . . . shall at all times be free from taxation for
              [s]tate and local purposes within the Commonwealth . . . .

72 P.S. § 4752-2.
        14
           Notably, Section 303(a)(7) of the Code includes “[g]ambling and lottery winnings other
than noncash prizes of the Pennsylvania State Lottery[,]” in its taxable income list. 72 P.S. §
7303(a)(7). Section 7 of the Act of July 13, 2016, P.L. 526, added “noncash” to this subsection.
Thus, state lottery cash winnings became subject to personal income tax as of July 13, 2016.
                                               9
            Because Alberti’s sale of his lottery annuity to a third party represented a
taxable disposition of property, and Alberti failed to prove losses in those years, the
Board’s July Order properly upheld the BOA’s denial of Alberti’s 2005 and 2006
assessment appeals. Accordingly, this Court affirms the Board’s July Order.


                                     Conclusion
            Based on the foregoing, the Board’s orders are affirmed.


                                      ___________________________
                                      ANNE E. COVEY, Judge




                                          10
            IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Richard A. Alberti,                      :
                         Petitioner      :
                                         :
            v.                           :
                                         :
Commonwealth of Pennsylvania,            :   Nos. 336 and 468 F.R. 2015
                     Respondent          :


                                       ORDER

            AND NOW, this 31st day of May, 2018, the Board of Finance and
Revenue’s April 30, 2015 order (mailed May 8, 2015) and July 16, 2015 order
(mailed July 21, 2015) are affirmed.
            Unless exceptions are filed within 30 days pursuant to Pennsylvania
Rule of Appellate Procedure 1571(i), this Court’s order shall become final.



                                       ___________________________
                                       ANNE E. COVEY, Judge
