TiNY Report for August 27, 2020 (reporting on cases issued by the DTA on August 20)

From Chris: Our TiNY writing staff is still having problems getting our reports out.  This is almost entirely the fault of the Senior Editor (a/k/a me).  TiNY occupies a low spot on my priority totem these days. And last week, I was blind-sided by the DTA when it dumped nine(!) determinations onto the website rather late in the day on Thursday. Fortunately, two were sales tax cases that I could delegate to our TiNY sales tax correspondent, Joseph Endres. But that left seven determinations for me to summarize, and those seven weren’t compelling reads. So for a while, it was “Welcome to Back Burner, NY, Pop. 7.”

As a good will gesture (and to show we care) we’ll be refunding our 12 or so readers 5% of the TiNY subscription fee they pay!

DETERMINATIONS

Matters of Aled Technologies, Inc. and Lednyak; Judge Galliher; Division’s Rep.: Elizabeth Lyons; Taxpayers’ Rep.: George Lee, III; Articles 28 and 29 (by Chris Doyle)

Aled Technologies and its responsible officer, Lednyak, (“Petitioners”) defaulted on their conciliation conference. After receiving the conciliation order dated August 17, 2018, Aled Technologies filed its petition on August 30, 2019; more than nine months too late. The responsible officer filed his petition on November 27, 2019; more than a year too late. The DTA issued a Notice of Intent to Dismiss.

The Judge found that the Division proved its standard mailing practices and that they were followed to mail the conciliation orders to Petitioners’ last known addresses on August 17, 2018. Therefore, the petitions filed on August 30, 2019, and November 27, 2019, were late, and Petitioners’ cases were dismissed.

Matter of Edhah and Ezah; Supervising ALJ Friedman; Division’s Rep.: James Passineau; Taxpayers’ Rep.: pro se; Article 22 (by Chris Doyle)

Petitioners were issued a conciliation order dated May 31, 2019. Petitioners filed their petition on November 26, 2019; about three months too late. The DTA issued a Notice of Intent to Dismiss, to which Petitioners did not respond.

The Judge found that the Division proved its standard mailing practices and that they were followed to mail the conciliation order to Petitioners’ last known address on May 31, 2019. Therefore, the petition filed on November 26, 2019, was late, and Petitioners’ case was dismissed.

Matter of Ketavongsa; Judge Connolly; Division’s Rep.: Jennifer Hink-Brennan; Taxpayer’s Rep.: pro se; Article 22 (by Chris Doyle)

Petitioner submitted private school tuition receipts and nothing else to support her claim for a child and dependent care (“CDC”) credit. The Judge found that tuition payments are not expenses qualifying for the CDC credit. So the CDC credit Petitioner claimed on her return was denied in its entirety.

Matter of Kujawa; Supervising ALJ Friedman; Division’s Rep.: Brandon Batch; Taxpayer’s Rep.: Raymond Stilwell; Articles 28 and 29 (by Chris Doyle)

Petitioner was issued a conciliation order dated January 25, 2019, sustaining a first Notice of Determination that included a fraud penalty. Petitioner was also issued a second Notice of Determination dated August 13, 2018. That second Notice also included a fraud penalty. Petitioner filed his petition on April 5, 2019, challenging both the conciliation order and the second Notice. The DTA issued a Notice of Intent to Dismiss, to which Petitioner did not timely respond.

The Judge found that the Division proved its standard mailing practices and that they were followed to mail the conciliation order on January 25, 2019, and the second Notice on August 13, 2018, to Petitioner’s last known address. The time limit for filing a petition challenging a conciliation order and a Notice is generally 90 days. However, when the Order or Notice involves a fraud penalty, the time limit is statutorily shortened to 30 days. Therefore, the petition filed on April 5, 2019, was late, and Petitioner’s case was dismissed.

Matter of Revzin; Supervising ALJ Friedman; Division’s Rep.: Mary Hurteau; Taxpayer’s Rep.: pro se; Article 22 (by Chris Doyle)

Petitioner filed a petition challenging a Notice and Demand and a Notice of Additional Tax Due. The DTA issued a Notice of Intent to Dismiss, to which Petitioner responded that he did not owe any taxes.

Finding that the Division of Tax Appeals has a limited jurisdiction that does not include challenges to Notices and Demands and Notices of Additional Tax Due, Judge Friedman dismissed the petition.

Matter of VanDee; Judge: DiFiore; Division’s Reps.: Elizabeth Lyons and Osborne Jack; Taxpayer’s Rep.: pro se; Article 20 (by Chris Doyle)

The message of this case is: “don’t cooperate.” Here’s the backstory:

Thelma (Petitioner) and Louise were driving along in Genesee County when a sheriff pulled them over for a V&T Law violation. Petitioner was driving. The deputy was making small talk like “so what do you ladies have in the cargo area?” Louise says, “I have 14 cartons of cigarettes back there.”  The deputy turns to Petitioner and asks, “Is that so?” And Petitioner ventures that there actually may be more than that. The Deputy conducted a consensual search and found 93 cartons of untaxed cigarettes and one roll of untaxed chewing tobacco. The Deputy called a Division Investigator who confirmed the contents of the truck during another consensual search. Then Petitioner signed a statement admitting she purchased Native-American branded cigarettes without paying tax multiple times over the last few years. And she confirmed that she knew she was breaking the law.

It seems like Petitioner was being very cooperative. What did it get her?

She pled guilty to disorderly conduct and paid restitution of $3,436.50, which corresponds with the tax that should have been paid on the cigarettes. 

Less than a month later, the Division sent a notice to Petitioner asserting a penalty of $44,000, which reflected the maximum penalty of $600 per carton. Petitioner filed a timely petition challenging the imposition of the maximum penalty as being “extreme.” What did the Judge say? “In imposing the penalty, the Division is not required to consider mitigating factors. Additionally, the Division of Tax Appeals does not have jurisdiction to require the Commissioner to consider mitigating factors when the statute does not provide for it (citations omitted).”

The Judge may be right, but that doesn’t mean that the Judge could not have found that imposing the maximum penalty was arbitrary and capricious.

Anyway, the message is clear: When it comes to cigarettes, there is no upside to cooperating with the Division.

From Joseph: Finally!  Our regular readers know that I handle sales and use tax cases here at TiNY. But there hasn’t been a substantive sales tax case (“timies” don’t count) issued by the Division of Tax Appeals since May! And while this week’s cases are somewhat light on core sales tax substance (each dealing with certification denials), like a kid without a date a week before the prom, I’ll take what I can get!

Matter of Apex Place Housing Development Fund Corp.; Judge DiFiore; Division’s Rep.: Stephanie Scalzo; Taxpayer’s Reps.: Paul Predmore and Cecilia Cannon; Articles 28 and 29 (by Joseph Endres)

In this case, the ALJ had to determine whether the Division properly denied Petitioner’s application for an exempt organization certificate. Obtaining certification as an exempt organization confers two primary sales and use tax benefits. The organization can make virtually all purchases tax free, and, in some instances, can even make sales without having to charge and collect sales tax. In order to qualify for these benefits, the entity must be organized and operated exclusively for “religious, charitable, scientific, testing for public safety, literary or educational purposes . . . .”

Petitioner established that it is “a charitable not-for-profit organized exclusively for the purpose of ‘developing and operating a housing project for Persons of Low Income.’” Looking to federal authority for guidance, the ALJ concluded that this qualified as a “charitable” purpose within the meaning of the exemption. However, the ALJ found that the Division correctly disallowed the certification because Petitioner ceded all control of its operations to two for-profit entities that operated the housing project to satisfy the requirements of the federal affordable housing tax credit. And because neither the federal affordable housing tax credit nor the agreement between Petitioner and the for-profit entities required that charitable purposes be satisfied, there could be no guaranty that Petitioner would be operated exclusively for charitable purposes. According to the ALJ, “[w]ithout any control, petitioner cannot ensure the furtherance of a charitable purpose and impermissibly serves private interests.”

This probably isn’t a great look for the Division since the ALJ readily acknowledged that the overall objective of providing affordable housing to low-income individuals might have been achieved upon completion of the project. And boy does New York City need affordable housing. But the ALJ clearly found Petitioner’s lack of control over the project definitive. With nothing limiting the actions of the other entities involved to charitable purposes (even if that’s the likely result of the project), the ALJ concluded that the Division properly disallowed the exempt entity certification.

Interesting COVID side note: an expedited virtual hearing was held on June 15^th in this matter. Briefs were submitted by July 24^th. The determination was issued August 20^th. That has to be some kind of record and all the more impressive in a pandemic.

Matter of Great Eagle Group, Inc.; Judge Gardiner; Division’s Rep.: Melanie Spaulding; Taxpayer’s Rep.: Timothy Wong; Articles 28 and 29 (by Joseph Endres)

There’s not much to this case. Petitioner applied for a sales tax certificate of authority (the document that legally allows businesses to collect sales tax on behalf of the State). The Division, however, denied the application. Petitioner’s sole owner and president was also the sole owner and an officer of another entity that had more than $1 million in unpaid sales and use tax assessments. This liability appears to have arisen as a result of an asset purchase that went horribly wrong. It’s always good to remember that sales tax can create successor liability when assets of a business are transferred to another entity. Without any evidence contesting that Petitioner’s sole owner was also the sole owner of an entity with substantial sales tax debts, the ALJ denied the petition and sustained the certificate denial. Certification denial is one of the mechanisms the Division uses to apply pressure to tax scofflaws to force them to address their outstanding debts.