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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 February 8, 2018 (covering DTA cases issued February 1)

By on

A slow news day: Just one Tribunal decision.  

TRIBUNAL DECISION

Matter of Rubinos; Division’s Rep: Christopher O’Brien; Taxpayer’s Rep: pro se; Article 22.  On her 2010 and 2011 personal income tax returns Petitioner claimed losses related to her ownership of two businesses: a proprietorship and an S corporation.  The Tribunal sustained the ALJ’s disallowance of most of the expenses claimed by the businesses.  The Tribunal found that Petitioner had not proven the amount of the disallowed expenses or their deductibility as ordinary and necessary business expenses. 

The tribunal questioned the credibility of Petitioner’s evidence after the Tribunal determined that (among other incidences of non-standard accounting) Petitioner had claimed full depreciation on the same vehicles in both her proprietorship and her S corporation.  The Tribunal also sustained penalties.  Go figure.

And in other news…

Since it is a slow DTA day, I’d like to mention a couple of other government-produced documents I’ve read recently.  One is the PRELIMINARY REPORT (ed.:  to the Governor, from the Department of Taxation and Finance) ON THE FEDERAL TAX CUTS AND JOBS ACT (REVISED 1/23/18), which may be found at https://www.tax.ny.gov/pdf/stats/stat_pit/pit/preliminary-report-tcja-2017.pdf .  The report is a well-written and clear treatment of the federal tax law changes (many of which are very complicated) and whether they would have an impact on the State’s FISC.  The report also discusses a variety of options to blunt the trauma caused by the new limits on the SALT deduction.  The report has an agenda, but the spin is light enough that it is not too distracting.  Kudos to the Department personnel who had a hand in its writing.

I wish I could say the same for the highly-spun piece of political faux-non-fiction that is the Memorandum in Support of the Revenue Article VII Bill, which is at https://www.budget.ny.gov/pubs/archive/fy19/exec/fy19artVIIs/REVENUE-ArticleVII-MS.pdf .  Look, I get that it is a document  “in support of” a tax bill.  But it is also the Executive Branch of government trying to explain to the Legislative Branch (and indirectly, the People of New York) what tax law changes it feels are necessary to either balance the budget or cure some problem with the current statute.  I absolutely understand that the MIS is a piece of advocacy, but shouldn’t it be accurate, practical and avoid hyperbole? 

Here are just a couple of examples from the MIS that I find to be objectionable: 

  1. Saying that Part H of the Bill  “would extend the statute of limitations to allow assessments that are based on changes or corrections in an amended return” is misdirection.  In reality, it extends the statute of limitations for assessments based on anything in the tax return.  The Department already has the unlimited opportunity to audit the particulars of the issues in a refund claim.  To me, the obvious (but unstated) reason for this proposal is to dissuade taxpayers from filing valid refund claims for fear of getting an assessment.  In support of my conclusion, I note that the Division of Budget expects that this provision will net the FISC a cool $3 million in the first budget year following its enactment. 
  2. In Part N the Department wants to be able to appeal adverse Tribunal decisions.  OK.  But the MIS states:  “Judicial review presents the quickest and most efficient method of reaching finality: in the absence of judicial review, the Department’s only recourse is to seek legislation to reverse significant Tribunal decisions with which the Department disagreed as a matter of law.”  Is the take away that the Department would accept an adverse decision from an appellate court and not try to seek “corrective” legislation?  If you believe that, I have a Pipeline in Tennessee I’d like to sell you (inside joke). There are some worthwhile reasons to support giving the Department appeal rights, but efficiently achieving finality on disputed issues is not one of them.
  3. In Part O, the Executive Branch proposes to reverse the result in the Sobotka determination (ALJ 2015).  Such a law change is definitely within the purview of the executive and legislative branches.  But to say that the result in Sobotka “leads to absurd results” while not acknowledging that the proposed “legislative fix” leads to results that many would view as even more absurd is, at best, disingenuous.  And referring to it as “clarifying” the law is pure hoo-hah.  According to the only determination on point, the Department misinterpreted the clear and unambiguous language of the statute.  Why not just man-up and admit that the language doesn’t say what the Executive and the Department want it to say?  And what the heck does the following passage mean:  “Enactment of this bill is necessary to implement the FY 2019 Executive Budget because it would increase personal income tax receipts by $3 million annually beginning in FY 2021.”  Collecting an extra $3 million per year beginning in 2021 is necessary to implement the FY 2019 budget?  I suppose it could if New York invented a time machine in 2020 and then used it to send the extra money collected in 2021 back to 2019.  But I’m pretty sure New York will not invent a time machine in 2020, because if New York does so, I expect that the first thing it will fix is the current fiscal year’s $5.5 billion budget short-fall. 

Whoa.  I don’t know how sci-fi writers handle writing about time travel. I’ve been doing it for only a couple of minutes and I’m already two-tensed.  (FYI:  I can’t hear you groaning through the internet).

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