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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 January 4, 2018 (covering DTA cases issued December 28)

By on

We greet the New Year with three ALJ Determinations and two ALJ Orders this week.  There is nothing from the Tribunal. 

THE DETERMINATIONS

Matter of 3125 Restaurant, Inc., et al; Judge: Law; Division’s Rep: Greg Jones; Taxpayer’s Rep: Richard Gabor; Articles 28 & 29.   This case involved audits of a restaurant and an adjoining café.  The auditor purchased a meal at both establishments and took a picture of her guest check both times.  When requested, the Café produced a record of the auditor’s transaction, but the Restaurant could not produce a sales record showing the same guest check number.

A reconciliation by the auditor showed that the sales reported on the Restaurant’s sales tax returns were more than the Restaurant’s bank deposits.  Based on this, the auditor concluded that sales had been under-reported.  (ed. I get how bank deposits greater than reported sales would seem to show under-reporting.  But bank deposits less than reported sales tend to show nothing meaningful, right?  No matter, as the Judge did not identify this as a problem with the audit.)  Anyway, since the auditor couldn’t find her guest check on the point-of-sale system (“POS system”) digital record, she resorted to an estimated methodology for the restaurant using a 4% rent factor that the auditor calculated by dividing prior-period rent by the prior period sales that had been agreed to in a BCMS consent for said prior period. 

The ALJ canceled the Notice against the Restaurant and its alleged responsible officer finding that under the circumstances, before resorting to an indirect methodology the Division had a duty to inquire more deeply into the reason that the auditor was unable to find her guest check in the digital record.  It turned out that during the hearing the Taxpayer showed that the POS records had been “compressed” resulting in the auditor’s transaction being re-numbered in the system.  By all accounts, there was underreporting, but in the absence of an audit having a rational basis, Judge Law felt compelled to cancel the Notices.  Further, the Judge found that the prior-period BCMS results were in the nature of settlement and it was inappropriate to use those results to project a liability in a subsequent year.

The Café audit was a little more straight-forward.  The auditor found additional unreported sales when the Café’s POS information was reconciled with its sales tax returns.  The hearing focused on the restaurant and not the Café.  Given the lack of evidence on the Café audit, the Judge determined that it was appropriate to sustain the Notices against the café and its alleged responsible officer.

Matter of Feliciano; Judge: Galliher; Division’s Rep: Linda Jordan; Taxpayer’s Rep: Pro Se; Article 8 Driver License Suspension.  If rendering determinations in the DTA is like the two-minute drill in a football game, then Judge Galliher is the master of clock management.  We already noted with admiration his sense of timing when we wrote about the same-day issuance of the S&P Global Determination and Moody’s Order in November.  In this case, he was required to determine whether to sustain a Notice of Proposed Driver License Suspension.  Even though the Taxpayer did not allege one of the statutory defenses, the Judge noted that the Tribunal had recently (on August 24) ruled that the petition challenging the Notice of Deficiency giving rise to the underlying liability had not been timely filed.  Although not explicit in the determination, we expect that the Judge recognized there would be a question whether the liability had become fixed and final as long as the Petitioner had the right to challenge the Tribunal’s decision.  In upholding the license suspension, the Judge noted “there is no claim or evidence that petitioner applied for judicial review within the time limit for doing so . . . .”  The Determination was issued four days after the deadline for filing an Article 78 petition challenging the Tribunal’s decision.  Coincidence?  Nah.

Matter of Roberts; Judge: Law; Division’s Rep: Hannelore Smith; Taxpayer’s Rep: Pro Se; Article 8  Driver License Suspension.  Judge Law never got to the merits on this one, finding that the March 24, 2107 filing date of the petition was a few days too late.  BCMS proved both its standard mailing practices and that they were followed when the BCMS Order was mailed to the taxpayer at his last known address on December 23, 2016.

THE ORDERS

Matters of Catalanotto, et al; Judge: Bennett; Division’s Rep: Stephanie Scalzo; Taxpayer’s Rep: Stuart Becker; Articles 28 & 29.   These are actually two orders, one for Alfred Catalanotto and one for Dominic Catalanotto.  Judge Bennett rescinded Notices of Intent to Dismiss in both cases.  The petitions appeared to have been filed 1,170 days after the Notices of Determination had been issued.  The Judge found that the Division proved both its standard mailing practices and that they were followed to mail the Notices of Determination to the Petitioners at their last known addresses.  However, in their responsive papers the Petitioners alleged that they had paid the taxes asserted and filed informal refund claims.  The Judge noted such a set of facts might result in the tolling of the period during which the petitions could be filed.  Given this “triable question of fact” the Judge rescinded the Notices of Intent to Dismiss and ordered the Division to file its Answers.

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