Washington, DC

A tax notice from the IRS or the District's Office of Tax and Revenue (OTR) starts a short clock. What you do before it runs out decides where your dispute will be heard, and whether you must pay the tax first. Have a Washington, DC tax attorney read the notice against your records while you still have time to choose.

Whiteford Tax Defense represents individuals and businesses across the District in both kinds of dispute. Michael March leads the practice and handles these matters personally, from civil audits and collection defense through criminal tax exposure.

The District runs its own tax system, with its own tax agency, hearing office, and courts. A dispute can pass through as many as four agencies and courts. Three of them sit within a mile of each other in Judiciary Square. Picking the right one at the right time is a fight of its own, settled before anyone argues about the tax itself.

Living in Maryland or Virginia does not always put you out of OTR's reach. If you keep a place to live in the District for a total of 183 days or more in a year, you can count as a DC resident.

Two routes to contest a District assessment

When OTR sends a proposed assessment, you have 30 days to protest it at the Office of Administrative Hearings, under D.C. Code § 47-4312. You do not have to pay the tax first. While a timely protest is open, OTR cannot issue a final assessment.

A jeopardy assessment shortens the window. The District makes one immediately when it believes delay would put assessment or collection at risk. You then have five business days to protest under D.C. Code § 47-4451(b), which borrows the § 47-4312 procedures but not the 30-day deadline.

If you let the proposed assessment become final, your remaining route is an appeal to the Superior Court Tax Division within six months. That appeal requires paying first.

The first route closes the second. Under § 47-4312(c), filing an OAH protest is an election: a binding choice of OAH as the exclusive forum for the challenges it raises. It is also an irrevocable waiver of the right to litigate them anywhere else. Only judicial review of the OAH order survives.

You also cannot sue to stop the District from assessing or collecting a tax. Section 47-3307 bars that kind of suit. Courts read it to bar declaratory relief as well, such as a ruling that a tax is invalid.

The bar has one narrow exception. It covers the rare case where the District could not prevail under any circumstances and the taxpayer faces irreparable injury with no adequate remedy at law. In practice, no reliable court shortcut gets around either route.

When the District's time limits pause

OTR's deadlines to assess and collect can pause. Under § 47-4303, the three-year assessment period (§ 47-4301) and the ten-year collection period (§ 47-4302) both stop running when OTR issues a notice of proposed audit changes. That lasts 90 days or until a proposed assessment issues, whichever comes first. The clocks stop again during OAH proceedings and while a court bars collection.

Both periods can also be extended by written agreement under §§ 47-4301(e) and 47-4302(b). OTR routinely asks for one near the end of an audit. Signing it is a strategic decision, not a formality.

DC residency audits

D.C. Code § 47-1801.04(42) defines a District resident in two ways. You are a resident if you were domiciled in DC at any time during the tax year. You are domiciled here if you moved to or lived in DC intending to stay indefinitely. You are also a resident, even without domicile, if you kept a place of abode (a place to live) here for 183 days or more in total. That second test drives most residency disputes.

It catches people who never thought of themselves as District taxpayers:

• a Bethesda or Arlington filer who kept a Capitol Hill apartment
• a consultant on a multi-year assignment in DC
• a couple who bought in DC before selling their suburban home

Absence for temporary or transitory purposes does not break domicile. So if you leave the District without setting up a new domicile elsewhere, you generally remain a DC resident.

A narrow exception covers four groups in federal service. Unless they are domiciled here at some point in the year, they are not District residents:

• elected federal officers
• legislative-branch staff who remain bona fide residents of their member's home state
• Senate-confirmed presidential appointees who serve at the President's pleasure
• Justices of the Supreme Court

Residency cases turn on records. The ones that matter include leases, utility use, voter and vehicle registration, ties to doctors and other professionals, and day counts kept at the time rather than rebuilt later. The legal test is physical presence in the new place plus intent to abandon the old domicile. You carry the burden of proving the change.

The unincorporated business franchise tax

The District taxes unincorporated businesses, meaning any trade or business not run by a corporation. Under D.C. Code § 47-1808.03, the tax is 8.25% of taxable income, with a minimum of $250, or $1,000 when District gross receipts exceed $1 million. Section 47-1808.04 allows a $5,000 exemption. No return is required unless gross income exceeds $12,000, under § 47-1805.02(6).

The people who carry on the business are jointly and severally liable for the tax under § 47-1808.05. That means each of them can be made to pay the whole amount. So an assessment against a partnership is also an assessment against its partners.

Disputes over this tax almost always come down to an exclusion. The personal service exclusion in D.C. Code § 47-1808.01 has two conditions, and a business must meet both. More than 80% of its gross income must come from personal services the owners or members perform themselves. And capital must not be a material income-producing factor.

The District reads the exclusion narrowly, as an exception to a broad tax base. The key questions are usually whether the income comes from the owners' own services rather than from non-owner employees, and what role capital plays.

A second exclusion covers a business that arises solely from buying, holding, or selling stocks, securities, or commodities for its own account. That exclusion does not cover:

• dealers who hold them as stock in trade or inventory
• debt instruments acquired in the ordinary course of business
• certain REIT and partnership interests that are not publicly traded

Both exclusions turn on documented facts: where the revenue comes from and what part capital plays. That is why these cases are worth building before the protest deadline, not after.

Criminal tax charges under District law

District criminal tax offenses are in Chapter 41 of Title 47, and the dollar amount sets their grade. Under § 47-4101, a willful attempt to evade or defeat a tax is a felony when the tax exceeds $10,000. It carries up to 10 years in prison. At $10,000 or less, it is a misdemeanor carrying up to 180 days. Amounts from a single scheme or systematic course of conduct may be added together to reach the felony threshold.

Failing to collect or pay over a tax, under § 47-4102, is graded the same way. Willfully failing to pay, file, keep records, or supply information is a misdemeanor under § 47-4103, carrying up to 180 days.

Who prosecutes depends on the grade, under D.C. Code § 23-101. The Attorney General for the District of Columbia brings misdemeanor cases in Superior Court by information, a charge filed without a grand jury. The United States Attorney for the District of Columbia brings felony tax cases in the name of the United States.

A District case can run alongside a federal investigation. An admission you make to resolve a civil OTR audit can end up in a criminal case. Courts may bar that use if the government pursued the civil matter only to build its criminal case, or hid a prosecution it was already considering. If criminal exposure is possible, plan the civil and criminal sides together from the first contact.

Meet Michael

Michael March

Partner, Co-Chair Tax Section

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