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State and Local Tax Blog

About This Blog

Taxes in New York (TiNY) is a blog by the Hodgson Russ LLP State and Local Tax Practice Group. The weekly reports are intended to go out within 24 hours of the Division of Tax Appeals’ (DTA) publication of new ALJ Determinations and Tribunal Decisions. In addition to the weekly reports TiNY may provide analysis of and commentary on other developments in the world of New York tax law.  

TiNY Report for August 17 (covering Division of Tax Appeals cases issued during the week of August 10)

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Once again, DTA beat me to the punch this morning, posting the two ALJ Determinations, one ALJ Order and one Tribunal Decision before I opened my browser.

The ALJ Order

Matter of Bronner; Judge Maloney; Division’s Rep: Stephanie Lane; Taxpayer’s Rep: James Druker; Article 22.  In this thorough Order involving a DTA Notice of Intent to Dismiss, the Judge finds that: (1) Petitioner, through its duly-appointed POA, Scott, filed a timely BCMS request;  (2) At the BCMS conference, Petitioner was represented by Frank.  HOWEVER, there was no POA for Frank in the DTA record; (3)  The BCMS Order dated November 10, 2016 sustaining the Notice was mailed to the taxpayer at his last address and to Frank at an address in New Jersey (i.e. the Division proved its standard mailing practices and that they were followed in this instance);    (4)  “While the Tax Law does not specifically provide for service of the Conciliation Order on a taxpayer’s representative, the Tax Appeals Tribunal has consistently held that the 90-day period for filing a petition or request for a conciliation conference is tolled if the taxpayer’s representative is not served with the statutory notice [citations omitted]”;  (5)  The Judge goes on to find that, absent a POA for Frank in the record, there is a question of fact as to whether Scott was still Petitioner’s duly-appointed representative;  And (6) Since Scott was not mailed a copy of the BCMS, it is possible that proper mailing of the BCMS order has not yet been completed.  The Judge ultimately withdrew the Notice of Intent to Dismiss and ordered the Division to file its Answer.

The ALJ Determinations

Matter of Emerald International Holdings; Judge Galliher; Division’s Rep: Greg Jones; Taxpayer’s Rep: Otu Obot (Petitioner’s President); Articles 28 and 29.  Petitioner is a liquor store.  The Desk Audit Casual Sales Unit(!) performed an audit that essentially determined Petitioner’s purchases and then divided that CoGS by an industry-survey cost of operations factor to determine audited sales.  The Division then sent a Consent form that said, in effect “sign and pay and you can always file a refund claim later.”  Petitioner signed and paid and then filed a refund claim.  Petitioner claimed the refund claim was mailed to the Casual Sales Unit (and not the Refund Unit) on March 4, 2013, but the Division alleged it did not receive that refund claim.  The Division confirmed it did receive a refund claim from Petitioner on July 14, 2014, which it denied on September 5, 2014.  Petitioner filed a timely petition that included 45 paragraphs of allegations.  The Answer filed by the Division contained 10 affirmative allegations and the following general denial:  “2. DENIES any and all of the other allegations contained in the petition, inclusive of paragraphs 1 through 45.”  Judge Galliher found that:  (1) By using regular mail to file the March 4 refund claim Petitioner bore the burden of proving delivery and the risk of non-delivery.  Since Petitioner could not prove delivery, the six-month time limit for acting on the refund claim did not begin until the July 14, 2014 refund claim had been posted;  (2)  Even if the refund claim had been filed on March 14, 2014, the Division’s failure to have acted on it within six months as required by Tax Law § 1139(b) did not mean it was deemed granted, rather, it should mean that it was deemed denied;  (3)  The Division’s general denial of the 45 paragraphs of allegations in the Petition satisfied the DTA’s requirement that the Answer contain “a specific admission or denial of each statement contained in the petition” (20 NYCRR 3000.4(b)(2));  (3) The execution of the Consent by Petitioner took the Division’s methodology off of the table (i.e. Petitioner was prohibited from arguing that the Division’s methodology was wrong and was instead required to prove the accuracy of its original returns); and (4) Petitioner did not prove that its originally-filed returns were correct.

Matter of Hale et al.; Judge Galliher; Division’s Rep: Tobias Lake; Taxpayer’s Rep: William Hunt and Clayton Hale; Article 22.  This is another case challenging the Division’s application of the QEZE de-certification law enacted on April 7, 2009, to the entire 2009 tax year.  The first case, Matter of NRG Energy (ALJ March 30, 2017), was a little light on analysis.  This Determination, however, is far more comprehensive.  What it boils down to is this:  On April 7, 2009 the Governor signed legislation enacting a law change that resulted in a bunch of businesses being de-certified as empire zone enterprises.  Subsequent legislation (styled by the Legislature as a “clarification”) made those de-certifications retroactively effective to tax years beginning on and after January 1, 2008.  In James Square Associates v. Mullen, 21 NY2d 233 (2013) the Court of Appeals held that the 2009 law could not be applied retroactively.  Judge Galliher determined that James Square prohibits only the application of the 2009 law changes to the 2008 tax year, and that de-certifications occurring in 2009 as a result of the April 2009 law change could be effective for the entire 2009 tax year.  We have a similar case working its way through the DTA process, so we are going to limit our commentary to this: we find almost any form of retroactively-effective anti-taxpayer legislation to be repugnant. 

The Tribunal Decision

Matter of Yerry; Division’s Rep: Michele Milavec and Ellen Roach; Taxpayer’s Rep: Frank Yerry; Article 22.  Christina pled guilty to one count of attempted grand larceny.  During the Q&A between Christina and the criminal court Judge, Christina admitted to having forged checks or otherwise stolen up to $208,602.70 from a neighbor.  The amount found to have been stolen was later reduced to $195,744.65.  The Division issued a Notice of Deficiency against Christina and her joint-filing spouse for New York income tax on the $195,744.65 that Christina admitted to have stolen, along with fraud penalties.  The ALJ sustained the Notice as did the Tribunal.  The Tribunal found that Christina was estopped from arguing that she did not steal $195,744.65 because of her testimony in the plea hearing.  The Tribunal said it did not matter that she had plead guilty to attempted grand larceny since the Q&A showed that she had actually taken the money.  With respect to the fraud penalty, the Tribunal said: “Here, petitioner’s guilty plea to attempted grand larceny in full satisfaction of all charges against her and the restitution order requiring her to repay the victim the fruits of her crime establish fraudulent intention and action on her part throughout the period at issue and thereby justify the imposition of a fraud penalty.”  While we are confident that the Tribunal is correct that the Division showed fraudulent conduct, we are not convinced that the proven fraud resulted "in deliberate nonpayment or underpayment of taxes due and owing".  Based on the facts found by the Tribunal, it is pretty clear to us that Christina intended to defraud her neighbor.  It is possible, however, that Christina had no idea that stolen funds were “income” required to be reported on the appropriate federal and state income tax returns.  The Tribunal took itself to task for its failure to render a decision within the expedited time limits required by Tax Law § 2008(2)(b) for fraud cases.

And in other news…

I was just about to put this TiNY Report to bed when a new Advisory Opinion hit my email.  To summarize, the Department opined that “a pellet gun to be used exclusively ‘to control varmints on a working farm’ may be purchased exempt from sales tax.”  TSB-A-17(13)S.  In the immortal words of Jean-Paul Sartre:  “Au revoir, gopher.”

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