The Importance of Procedure at the Division of Tax Appeals

If you are a regular reader of Administrative Law Judge (“ALJ”) Determinations and Orders issued at New York’s Division of Tax Appeals (“DTA”), you have probably observed the frequency with which ALJ’s dismiss petitions filed by taxpayers based on timeliness issues.  For the uninitiated, the DTA’s rules of practice and procedure, which are part New York State’s regulations governing taxation and finance, generally require that taxpayers file a petition appealing an audit determination or conciliation order within 90 days of its issuance.  Frequently, taxpayers fail to properly file their petition within this 90-day window.  And, absent very unusual circumstances, ALJs who review this issue dismiss those petitions based on these procedural failures.  Indeed, dozens of taxpayers have their petitions dismissed by ALJs each year for this very reason. 

The rules and regulations governing the DTA also require that the Tax Department’s Office of Counsel (“OOC”) serve its answer on the taxpayer or its representative within 75 days from the date the supervising ALJ acknowledges receipt of the taxpayer’s petition, or within 90 days if OOC requests and is granted an extension of time from the supervising ALJ.  Where OOC fails to serve its answer within this 75-day, or 90-day, window, the regulations require that all material allegations of facts set forth in the petition be deemed admitted.  Despite the fact that dozens of petitions get dismissed each year because of taxpayers’ timeliness issues, it is far less common, or even unheard of, for issues in a DTA case to be decided based upon the Tax Department’s failure to timely file an answer to a taxpayer’s petition.

However, on May 19, 2016, the Tax Appeals Tribunal (“the Tribunal”) issued its Decision in the Matter of Forest City Enterprises, Inc. (DTA No. 825157).  Briefly, the Forest City matter dealt with the taxpayer’s qualification for a $7M Empire Zone credit for real property tax paid.  More specifically, the Tax Department had questioned whether the taxpayer met the required employment increase factor to qualify for the credit.  In its petition, the taxpayer alleged that it had met the required employment increase factor for the relevant tax year.  The OOC received an extension to serve its answer within 90 days from the date the supervising ALJ acknowledged receipt of the taxpayer’s petition, but nonetheless served its answer after the 90-day window had expired. 

At the ALJ stage, the taxpayer sought to have its assertion regarding its employment increase factor deemed admitted, under the DTA’s rules of practice and procedure, based on OOC’s late-filed answer.  In her Determination, the ALJ decided that, though OOC had served its answer late, the taxpayer’s assertion regarding its employment increase factor was a “conclusion of law,” not a “material allegation of fact,” and thus could not be deemed admitted under the regulation.  On exception, the Tribunal found that the taxpayer’s allegation regarding its employment increase factor was factual in nature and that it should be deemed admitted based on OOC’s failure to timely file its answer.  However, because the ALJ had not ruled on the issue of whether the taxpayer made “eligible real property tax” payments under the law, the Tribunal remanded the matter to the ALJ for a supplemental determination on that issue.   

So what does this all mean?  As far as we can tell, this is the first time the Tribunal has ruled that allegations made by a taxpayer should be deemed admitted based on a late-filed answer. Though the final outcome of the Forest City matter is yet to be determined, one thing is clear: the Tribunal has sent a message that it will enforce the procedural time limits imposed under the regulations in equal measure against both taxpayers and the Tax Department. 

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