TiNY Report for February 28, 2019 (covering DTA cases issued February 14 and 21)

Don’t shoot the messenger.

The DTA didn’t post any of its February 14 output until today. We called last week to inquire if any decisions, determinations or orders were going to be posted and were told that the person responsible for posting such decisions was out. I guess that person was way, way out. In any case, ALJ orders were issued on February 14^th and 21^st. One determination was issued on the 14^th and two determinations were issued on the 21^st.  Consistent with our mission, we’re reporting them within one of the date they were posted.

ALJ ORDERS

Matter of Yakoup and Asaf; Judge: Friedman; Division’s Rep: Christopher O’Brien; Petitioners’ Rep: pro se; Article 22.

A hearing was scheduled before Judge Maloney. The issue was the Division’s denial of an earned income credit.  Petitioners didn’t show for the hearing.  Judge Maloney issued a default determination on November 9.  Petitioners made a timely application to have the default determination vacated on December 5, arguing that the illness of a child compelled their absence from the hearing (the application included a note from a doctor to this effect). 

Supervising ALJ Friedman seemed a little PO’d that no attempt was made to contact the DTA prior to the hearing and for months thereafter, but nonetheless found that a sick child is a reasonable excuse for a default in this case.

He also determined that, by submitting documents regarding one of the spouse’s income for the year at issue and the birth certificates of the Petitioners’ children, Petitioners demonstrated that they may have a meritorious case.

The default was vacated and a hearing will be scheduled. 

Matter of Varshavskiy; Judge Maloney: Law; Division’s Rep: Stephanie Lane; Petitioner’s Rep pro se; Article 22.

Petitioner paid $7,000 when he requested an extension to file his 2012 tax return. It was a long, long extension. When he finally filed his return in January 2017(!), he requested that the calculated overpayment of $6,118.00 be applied to his 2013 estimated tax account.  The Division denied this request since it was not made within the later of two years from the date the 2012 tax was paid or three years from the date the 2012 return was due.  Under these two tests, one might think that the latest a return claiming a credit or refund would have needed to have been mailed was no later than October 15, 2016 (i.e. 3 years after the extended due date of Petitioner’s 2012 return).

The Division moved for summary determination on the basis that the Petitioner’s claim was too late. The Judge denied the motion finding that the proof that the Petitioner did not file a return prior to January 2017 was equivocal since one of the “certifications” from a Division employee stated that the Division found that “no such amended return(s) ha[d] been filed prior to January 30, 2017 (emphasis added)”, and that the use of the word “amended” suggested that an initial return may have been filed earlier.

DETERMINATIONS

Matter of Garcia; Judge: Russo; Division’s Rep: Amanda Hiller; Petitioner’s Rep: pro se; Tax Law § 171-v. 

The Division issued Petitioner a 60-day notice of proposed driver license suspension on June 13, 2018, stating that he must pay his New York State tax debts or his driver’s license may be suspended.  The notice informed the Petitioner when and how to respond, including an explanation of a “child support exemption” and “commercial driver’s license exemption.” The Petitioner filed his petition within the required 60-days, but did not challenge the validity of the tax assessment or the issuance of the notice.  Rather, the Petitioner simply stated that he pays $3,200 a month in child support and losing his license or having his wages garnished would affect his ability to do so. The Petitioner did not raise any of the grounds listed on the notice for challenging its validity.

The Division filed its motion for summary determination, to which the Petitioner did not respond. The ALJ deemed the lack of response as a concession that no question of fact existed. Further, the ALJ noted that the Petitioner did not challenge the notice using any of the statutorily-permitted defenses, nor did he offer any proof of his wages being garnished, so the ALJ granted the Division’s motion for summary determination.

Matter of Johnson; Judge: Russo; Division’s Rep: Amanda Hiller; Petitioner’s Rep: pro se; Tax Law § 171-v. 

This Determination is almost exactly the same as Matter of Garcia, above, and another snoozer.

The Division issued the Petitioner a 60-day notice of proposed driver license suspension on May 16, 2018, stating that he must pay his New York State tax debts or his driver’s license may be suspended.  The Petitioner timely filed his petition with the Division on July 16, 2018, however, rather than challenge the issuance or validity of the tax assessment or the issuance or receipt of the notice, he inquired as to whether he could receive a waiver because he is on permanent, full medical Social Security disability.

Again, the Petitioner did not respond to the Division’s motion for summary determination, and again the ALJ deemed this to be a concession that no question of fact existed. The ALJ also noted that the petition did not raise any of the statutory defenses, and thus granted the Division’s motion for summary determination.

Matter of Express Fleet Service, Inc.; Judge: Connolly; Division’s Rep: Amanda Hiller; Petitioner’s Rep: Gregory Gottorff, Articles 28 and 29. 

The Petitioner is an S-corporation that operated an auto repair shop in Rochester, New York.  The Petitioner was wholly-owned by Gregory Gottorff (Mr. G) from the mid-1990s until October 2010.  Mr. G signed the sales tax returns as president for the entire audit period, which covered the time period from September 1, 2004 through November 30, 2010.  Mr. G then sold the business to new owners in October 2010.  We assume the business was sold by the Petitioner in an asset sale and that Mr. G still owns the Petitioner since Mr. G represented the Petitioner at the hearing (if this is wrong, we see a lot problems on the horizon). 

In June 2011, the new owners sent a complaint to the Division alleging that Petitioner had been under-paying the State and local sales and use tax liabilities.  We are told that there was some bad blood between Mr. G and the new owners.

The Division referred the complaint to the Rochester District Office of the Division’s Criminal Investigation Division (CID). The CID investigated Mr. G and found that Mr. G had under-reported gross sales by $774,994.00.  The CID then referred the matter to the Monroe County District Attorney. The DA ultimately obtained a 10-count indictment against Mr. G, and Mr. G pled guilty to one count of offering a false instrument for filing in the first degree, and one count of committing a tax fraud act in the third degree which was in satisfaction of the remaining counts. He was sentence to 5 years’ probation and agreed to pay $68,840.92 in restitution.  During Mr. G’s allocution, the ADA reiterated to Mr. G that his plea had no effect on any civil liabilities that he might have with the Department of Taxation and Finance.

On July 29, 2016, the Division issued the Petitioner a Notice of Determination, which included both sales tax fraud penalties and interest totaling $291,014.51. After a BCMS conference that sustained the Notice, the Petitioner filed a petition with the Division of Tax Appeals protesting the Notice and stating that it was protesting the “Withdraw of Plea Agreement.”  

Curiously, Mr. G was not assessed the penalty.

The Division imposed penalties under Tax Law § 1145 (a) (2) of two times the tax due, plus interest at the minimum rate of 14.5% per year, based on an underpayment of sales tax “due to fraud.” In order to impose such penalties, the Division was required to show that the Petitioner acted deliberately, knowingly and with the specific intent to violate the Tax Law and that the fraud penalties were calculated properly.

The Division sought to establish fraud by collateral estoppel by virtue of Mr. G’s guilty plea. The ALJ noted that the Tax Appeals Tribunal has applied collateral estoppel to impute the guilty plea of a sole owner to their corporation in other cases.  Mr. G previously pled guilty to tax fraud in the third degree, which requires that the person underpay a greater-than $10,000 tax liability (for less than 1 year) with the intent to evade tax or defraud the State. Since the fraudulent intent in the criminal case was identical to that which the Division needed to prove to support the penalty, and because Mr. G was the sole owner and responsible person of the Petitioner, the ALJ determined that the Petitioner was collaterally estopped from challenging that he had fraudulent intent. The ALJ also found that the Petitioner was collaterally estopped from contesting that the restitution amount was equal to the tax liability as Mr. G had agreed to pay restitution as part of his plea and waived his right to contest the amount in a restitution hearing.

Mr. G’s plea to a tax fraud act was only for one year of the audit: the period from September 1, 2009 through August 31, 2010.  So, the ALJ found that the Petitioner was collaterally estopped from contesting the fraudulent intent for only that one-year period. Still, the ALJ found that the Division met its burden of proof on the intent issue because the guilty plea was still relevant for the remainder of the audit and the under-payment of sales tax was continuous and substantial. In addition, Mr. G never gave an adequate explanation of the underpayment, other than referring to himself as a “poor bookkeeper”— an excuse the ALJ didn’t buy because the software used to track sales did all of the calculations for him.

Mr. G also alleged that the new owners falsified records to increase tax collected on sales that were exempt from tax, but the evidence produced to support the alleged falsification involved only seven transactions in an amount totaling $102.02.  And since the only other evidence of the alleged falsification was Mr. G’s testimony, the ALJ found the proof insufficient.

The ALJ found that the Division had not properly computed the fraud penalties and directed it to re-compute them so that an asserted penalty never exceeded twice the underpaid tax in any quarter.