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State and Local Tax Blog

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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 24, 2017 (covering DTA cases issued the week of August 17)

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Two ALJ Determinations and one Tribunal Decision this week.  No orders.  All were posted by the time we logged-in this morning.  Early posting appears to be the DTA’s new SOP.  As much as we really appreciate it, this is probably the last time we’ll acknowledge it since we don’t want our readers to think we are sucking-up too much.  So, now and forever, thank you DTA, for the early postings.  Keep up the good work.

ALJ DETERMINATIONS

Matter of Sarmiento; Judge Bennett; Division’s Rep: Howard Beyer; Taxpayer’s Rep: Glenn Ripa; Articles 28 & 29.  Nothing we haven’t seen before.  The Petitioner’s DTA petition was dismissed because it was not timely filed.  The Division established its mailing procedures and that they were properly followed to mail the Notice of Determination to the Petitioner’s last known address.  The Petitioner filed the DTA petition over a year after the Notice was issued, which was past the 90-day limit to file.

Matter of Quinones; Judge Bennett; Division’s Rep: Marvis Warren and Jennifer Hink-Brennan; Taxpayer’s Rep: Pro Se; Article 22.  The issue in this case was whether interest earned on District of Columbia debt instruments should’ve been included in New York taxable income under Tax Law § 612(b)(1), which is the provision for an addition modification to federal AGI to compute NY AGI for interest on state and local bonds other than those of New York.  The Petitioner owned and received interest from DC bonds, which were issued to monetize future settlement payments to be made pursuant to the Master Settlement Agreement made between several states (and DC) and the big tobacco companies in the US.  The Petitioner received interest from these bonds and excluded the interest as nontaxable from her federal and New York State income tax returns.  She argued the interest was excludable from her federal adjusted gross income and not required to be added-back to compute NY AGI because DC is not a state and the add-back is required only for interest paid on state and local government bonds.  The Judge didn’t buy the Petitioner’s argument that DC wasn’t a state because under IRC § 103 “state” includes the District of Columbia under the IRC and, thus, under Tax Law § 607(a)’s federal conformity language, DC is also a “state” for purposes of the Tax Law .  The Petitioner also argued that because the settlement payment was a result of personal injuries from tobacco smoking, the interest was excludable as nontaxable proceeds under IRC § 104(a)(2).  However, the Petitioner was not receiving damages for personal injuries, she only received the interest because she purchased DC bonds as an investment, so this argument also failed.  Ultimately, the Judge held that the Petitioner failed to meet her burden to show that the DC bond interest shouldn’t be included as taxable income.  

It is hard to argue with the result or the parts of the analysis referenced above.  However, it was also determined that the legislative intent of Tax Law § 612(b)(1) supported that interest income on bonds and obligations of DC should be included in New York adjusted gross income.   And we have some concerns about that portion of the analysis.  The statute requires that interest on bonds issued by states other than New York needs to be added-back in calculating New York AGI.  The statute is not unclear, and it requires no interpretation other than that provided by using the words in their ordinary meanings.  As far as we can tell from the decision, there was no legislative history offered indicating a legislative intent to treat DC as a state.  The Division’s self-serving TSB-M is not legislative history, nor is it evidence of what the Legislature intended.  It is nothing more than the Division’s interpretation of the law.  The Judge found that DC was a “state” under the statute based, in part, on  the “suggested legislative intent” and the “apparent legislative intent” when, other than the statutory language (which is silent on the issue) there was no actual evidence of legislative intent cited in the determination.  This is probably a “no-harm, no-foul” since it looks like the Judge arrived at the right result under the federal conformity analysis. 

TRIBUNAL DECISION

Matter of Mostovoi; Division’s Rep: Michele Milavec; Taxpayer’s Rep: Pro Se; Article 22.  The Tribunal found the ALJ properly determined the Division adequately proved its standard mailing procedures and that they were followed to mail the Notice of Deficiency to the Taxpayer’s last known address, thus the Taxpayer’s petition was not timely filed.  So, the Tribunal upheld the ALJ’s determination as properly granting the Division’s motion for summary determination on the basis that the Taxpayer did not timely file his DTA petition.

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