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. 

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What About New York State’s Federal Tax Audits?

A noteworthy determination was issued earlier this month by one of the Division of Tax Appeals’ administrative law judges. Judge Bennett found in Matter of Chery that the Division of Taxation improperly denied the petitioning taxpayer’s status as a real estate professional, as reported on his federal income tax return. Consequently, the taxpayer was entitled to claim Schedule E rental losses from two rental properties – not only on his federal return, but on his New York State return as well.

This case highlights some of the hazards of a trend we’re seeing with increasing frequency: the New York State Tax Department conducting audits focused on taxpayers’ federal income tax returns. This case and others beg the question: to what extent, if any, should New York State auditors be auditing federal tax returns?

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Owe Federal Taxes? Your U.S. Passport Could Get Yanked

If you have fallen behind with the Internal Revenue Service, you now have a new concern to keep you up at night. In addition to penalties, interest, liens, and levies, under a new federal act just signed into law on December 4, 2015, the State Department could soon revoke your U.S. passport.

Congress enacted the “Fix America’s Surface Transportation Act” (FAST Act) in order to provide funds for roads, bridges, railroads, and transit systems. Buried within the FAST Act’s 490 pages, available here, though, is a provision amending the Internal Revenue Code to add a new Section 7345, authorizing the revocation or denial of a passport for “seriously delinquent” unpaid taxes.

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By the Numbers: The Annual Report of the Division of Tax Appeals and Tax Appeals Tribunal

Earlier this month, the Annual Report of the New York State Division of Tax Appeals and Tax Appeals Tribunal for fiscal 2014-15 was submitted to the governor and the heads of the Senate and Assembly. Last year, we offered our analysis of the report for fiscal 2013-14. Keeping with that tradition, there are a few things to note about this year’s report.

First and foremost: according to the numbers, it is getting tougher to win. Considerably tougher, actually. Here’s the analysis of Administrative Law Judge determinations from this year’s report, as compared to the numbers in the two prior years:

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What’s So Interesting About Interest Rates?

For those of us who regularly handle state audits, the focus is usually on the legal or factual arguments as to why no additional taxes are due. And it’s great when our clients can walk away with no additional taxes to pay. But in many cases, a “win” means negotiating a reasonable settlement of a difficult issue. In those cases, the final bill can come as a shock to taxpayers, once interest is included. Particularly with interest rates at historical lows, we expect those low rates to carry over to our tax bills. For the IRS and states that base their interest rate on the federal short-term rate or a similar metric, that’s true. The current IRS interest rate on individual underpayments and overpayments is 3%—not so bad.

But states are by no means required to follow the IRS on interest rates, although quite a few do. Some states may start with the IRS underpayment rate but then tack on a few percentage points (e.g. Virginia adds 2%). Other states, such as North Carolina (5%), Kansas (4%), Michigan (4.25%), and Oregon (4%), also keep their rates in line with overall interest rates.

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NY’s Driver’s License Suspension Program: Thousands of Miles of Open NY Road, as Seen From the Passenger Seat

New York’s driver’s license suspension program, used to encourage and enforce delinquent tax collection, is still in its infancy. Two of my colleagues wrote an informative piece about the mechanics of the program, which began in 2013, and they also detailed appeals strategies in the event a taxpayer receives a suspension notice from the New York Tax Department that wasn’t warranted.

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