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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 December 7, 2017 (covering DTA cases issued November 30)

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There was a pleasantly-light load of two ALJ Orders this week to help us get back on our normal “within-24-hours” schedule.  Both are from Judge Connolly.

The Orders

Matter of Gerd Plus Inc.; Judge: Connolly; Division’s Rep: Melanie Spaulding; Taxpayer’s Rep: pro se; Articles 28 and 29.  On April 25, 2017, Petitioner filed (via facsimile!) its BCMS request challenging a Notice of Determination dated April 8, 2016.  BCMS dismissed the request on timeliness grounds.  Petitioner filed its timely ALJ petition challenging the BCMS Order, and the Division moved for a pre-answer summary determination on the grounds that Petitioner did not initiate its BCMS request within the requisite 90 days.  Through the customary affidavits, the Division proved both its normal mailing procedures and that they were followed in this instance.  The pro se Petitioner failed to respond to the motion.  So, of course, the Judge denied the motion and directed the Division to submit its Answer.

Wait . . . What?

As it turns out, the proof offered by the Division was insufficient to show that the address used to mail Petitioner’s copy of the Notice was Petitioner’s “last known address” because the name used on Petitioner’s copy of the Notice was “Gerd Plus Inc. Edible Arrangements” and the name shown in the certified mailing record was “Gerd Plus, Inc.”  So, Judge Connolly determined there was a question of fact as to whether the Division used Petitioner’s last known address.

In addition, a copy of the Notice was also mailed to Petitioner’s representative at a Port Washington address.  However, as the Division submitted no proof that the Port Washington address was the correct address for the representative, the Judge determined that this created an independent question of fact supporting denial of the Division’s summary determination motion. 

Comment:  I imagine that it would be easy for the DTA to simply “go through the motions” when faced with uncontested motions to dismiss based on timeliness.  That the Judges and the Tribunal apply consistently-demanding analytical standards even on uncontested timeliness motions is commendable.   

Matter of Von Elten; Judge: Connolly; Division’s Rep: Ellen Roach; Taxpayer’s Rep: Dean Nasca; Application for Costs under Tax Law § 3030.   Petitioners filed returns claiming deductions for job expenses.  The returns were audited by Desk Audit, which sent out letters saying: “[a]fter reviewing your income tax return, we're unable to verify the amounts you claimed as itemized deductions. We've recomputed your return using the allowable standard deduction. You should receive an adjusted refund in approximately 60 days.”  Less than ten days later, Desk Audit issued reduced refunds (or account adjustment notices).  At BCMS, Petitioners provided documentation supporting the deductions claimed, and signed a Consent under which Petitioners would receive the originally-claimed refunds.  Subsequently, Petitioners made timely applications for costs.  Judge Connolly denied Petitioner’s requests for costs on a few grounds.  The Judge found that Petitioners provided no “special factors” for using an hourly rate for fees in excess of the statutory $75 hourly rate.  In addition, the Judge found that Petitioners failed to prove that they had a net worth less than $2 million at the time the BCMS matters commenced.  And the Judge found that:  “Because petitioners failed to respond to the Division’s requests for information in support of the claimed itemized deductions, the Division was substantially justified in adjusting petitioners’ refund amounts by initially disallowing the claimed itemized deductions.”  

We do not dispute that denial of the application was the right move.  But we disagree with the Judge’s finding that the Division was “substantially justified” in adjusting Petitioner’s refund claim.  The trigger giving Petitioners the ability to mount a challenge for which costs and fees could be reimbursed was the Division’s issuance of letters stating that it had denied a portion of  Petitioners’ refunds.  Based on the facts found, these letters appear to be the first correspondence sent by the Division regarding the issue, and the actual adjusted refunds (or account adjustments) were processed before Petitioners had any meaningful opportunity to respond.  Admittedly, after the adjustments had been made Petitioners had the opportunity to provide documentation.  But not before the adjustments were made.  In my view, the “shoot-first-and-then-ask-questions” adjustments by the Division were the epitome of unjust.  I would view the matter differently if the Division had made legitimate pre-adjustment attempts to obtain documentation from the Petitioners.  In the absence of such pre-adjustment attempts, I view the adjustment as unjustified per se.  But  inasmuch as there were other reasons to deny the application for costs, this would not have influenced the result.

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