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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 July 16, 2020 (reporting on DTA cases issued July 2 and July 9)

By on

Mea culpa, baby! Yes, your senior editor, who was in charge last week, neglected to post a summary of the solitary timy ALJ Order that hit the DTA’s website last week. There were many, many priorities in front of TiNY last week. And many, many phone calls from CPAs wondering just how one is supposed to apply New York’s “de-coupling” from the CARES Act in practice. Not an excuse . . . an explanation. We stand behind the timeliness of our publication. So feel free to contact the senior editor (at tiny@hodgsonruss.com) to request a ratable refund of the subscription fee you pay. He has agreed to pay these out of his own pocket!

There are two decisions, four determinations, and last week’s order to report on this week. I was hoping to report that the Tribunal had continued down a path away from the “only reasonable construction standard,” but . . . no.

DECISIONS

Matter of Scuderi; Division’s Rep.: Jennifer Hink-Brennan; Taxpayers’ Rep.:  pro se; Article 22 (by Chris Doyle)

The Tribunal sustained the ALJ’s determination (which we wrote about here) that Petitioners were not entitled to an Empire Zone Real Property Tax Credit since the Qualified Empire Zone Enterprise did not have an employee for at least half of the tax years at issue. The Tribunal found reasonable the Division’s interpretation of “at least half of the tax year” to require six months of consecutive 35 hours per week employment. The employee in question allegedly worked every other week for 35 hours, and thus would not have satisfied the Division’s interpretation.

On the factual question, the Tribunal found that Petitioners did not satisfy their burden of proving the employee had actually worked for 35 hours per week every other week.

On the legal question, the Tribunal stated that Petitioners could prevail only if their interpretation of the statute was the “only reasonable construction.” UNLEASH THE HOUNDS!

As I have written in the past: the “only reasonable construction” standard should never apply at the Tribunal level. I understand that reviewing courts may want to give deference to the agency responsible for administering the tax laws. But the Tribunal is the terminus of the administrative hearing process; it is at the end of the administrative process because it is presumed to have the most knowledge and experience to bring to bear on fine distinctions between competing statutory interpretations in the universe of taxation. To the extent reviewing courts defer to the Tribunal, it is because the Tribunal is presumed to deliver decisions that sustain the MOST reasonable construction of the statute. By failing to exercise its duty to sustain the most reasonable construction of tax statutes, the process cannot work as intended. I wrote a whole darn article about this that you can find here.

Not that any of this matters in this case since the Tribunal found that Petitioners’ construction of the statute was unreasonable. So, ya know, never mind. 

Matter of Taxel; Division’s Rep.: Tobias Lake; Taxpayers’ Rep.: Roger Blaine; Article 22 (by Chris Doyle)

The Tribunal had a 2-for-1 sale on Empire Zone Real Property Tax credit cases this week!

In this one, Petitioners challenged the Division’s use of county-wide “estimated effective full-value tax rates” to determine the cap on the amount of its payments-in-lieu-of taxes (“PILOTs”) that were creditable, instead of some other figure that was more applicable to the real property in question. The ALJ granted the Division’s motion for summary determination finding that only municipalities (and not taxpayers) have the ability to challenge effective full-value tax rates, and, therefore, the DTA did not have the jurisdiction to hear Petitioners’ grievance. And the Tribunal agreed with the ALJ. Once again, the Tribunal paid lip service to the “only reasonable construction” standard, although it did not seem to need it to sustain the ALJ’s summary denial of the petition.

DETERMINATIONS

Matter of Carousel Beverage Corporation; Judge Gardiner; Division’s Rep.: Lori P. Antolick; Taxpayer’s Reps.:  Mark A. Caruselle and Mark W. Caruselle; Articles 28 and 29 (by Emma Savino)

Petitioner is a licensed alcoholic beverage wholesaler licensed by the New York State Liquor Authority (“SLA”). Pursuant to Tax Law § 1136, every alcoholic beverage wholesaler licensed by the SLA that sells alcoholic beverages without collecting sales and use tax must file an annual transaction information return. The return must include the required information for each vendor in New York that the wholesaler made a sale to without collecting sales and use tax. Petitioner failed to file the information return for the period ending February 28, 2015, and Petitioner, by its representative, did not dispute this. At the hearing, Petitioner presented the testimony of its president, Mark A. Caruselle. Mark A. testified that he decided not to file the informational return because he did not think filing it electronically was secure, and he did not want the information on the internet (I’m betting this is not a guy with a Facebook). He also testified that he had requested that the Division come to Petitioner’s office and review the information requested on the return. However, the Division did not conduct a field audit or make a request for books and records. The Division issued a notice of determination dated August 17, 2016, assessing the maximum penalty. 

Tax Law § 1145(i) imposes penalties and interest for failure to file an information return under Tax Law § 1136. There are two components of the penalty: (1) a penalty for failure to file a return; and (2) a penalty for failure to provide any item of information. The Division stated that because it had no way of knowing how many items of information Petitioner failed to provide, it imposed the full penalty. However, the Judge found that since Section 1145 (i) stated that the penalties will be determined in the same manner as taxes imposed by article 28, and because the Division failed to make a request for Petitioner’s books and records as is required to determine the adequacy of a taxpayer’s records, the penalties for failure to provide items of information lacked a rational basis. So the Judge cancelled that component of the penalties. However, since Petitioner did not dispute that it failed to file the information return, the Judge sustained the $2,000 penalty for failure to file the information return. 

Matter of Varshavskiy; Judge Maloney; Division’s Rep.: Stephanie Lane; Taxpayer’s Rep.: pro se; Article 22 (by Emma Savino)

Petitioner filed an application for an automatic 6-month extension of time for the 2012 tax year on April 15, 2013, and remitted $7,000. On January 6, 2017, the Division sent Petitioner correspondence that indicated that there was no record of a personal tax return on file for the 2012 and 2013 tax year. Petitioner filed his tax return for 2012 on January 30, 2017, and requested that the refund/overpayment of $6,118.00 (i.e. most of the $7,000 payment) be applied to his estimated tax account for 2013. The return was signed and dated September 1, 2013. The Division disallowed the claimed refund because it asserted that it was filed too late.  Petitioner timely filed a petition seeking the refund claimed.

In order to file a claim for refund, Petitioner was required to file the claim within the later of 3 years from the time the return was filed or 2 years from the time the tax was paid. Petitioner’s 2012 payments were accomplished through his withholding and the $7,000 remitted with the application for extension, and they were deemed paid on April 15, 2013. However, since Petitioner filed his return on January 30, 2017, the Judge found that the claim for credit or refund was timely filed as it was filed within 3 years of the date the return was filed.

BUT, although the refund claim was timely, the Judge noted that where the refund claim is made within 3 years of the refund filing date, the refund is limited to the amounts paid during the 3 years immediately preceding the filing plus extensions (here, July 30, 2013 through January 30, 2017). Since Petitioner did not make any payments during this period (i.e. the $7,000 payment was made on April 15, 2013), the Judge determined that the amount of the credit was zero.

[Sr. ed.]  Cases like this bother me. The decision may be correct on the law. But would it be wrong for me to think that, in essence, Petitioner lent  (interest-free, no less!) New York $6,118.00 for a little less than four years, and, instead of saying “thank you,” New York has seized the money on the grounds that “possession is 9/10ths of the law”? This stinks. 

Matter of Solovay, as the Executrix of the Estate of Claire Shapiro; Judge Friedman; Division’s Rep.: Hannelore Smith; Taxpayer’s Rep.: Michael Sullivan; Article 26 (by Emma Savino)

Petitioner, as the Executrix of an estate, filed a petition that challenged the denial of a refund of estate taxes. The petition included a copy of the conciliation order which sustained the refund denial on the basis of lack of jurisdiction. Petitioner argued the denial was arbitrary, not reasonable, and should be reversed under Tax Law § 697(d). The DTA issued a notice of intent to dismiss stating that it also lacked jurisdiction and that Tax Law § 697 applied to income tax (article 22) and not estate tax (article 26).

The Judge noted that the Surrogates’ Procedure Act grants full and complete general subject matter jurisdiction to the surrogate’s court. And while Tax Law § 998 provides taxpayers with the right to protest a notice of deficiency or a notice of disallowance of a claim for refund, subpart (h) grants exclusive jurisdiction over such proceedings in the context of the estate tax to the surrogate’s court. So the Judge dismissed the petition.

Matter of Kassim and Saad; Judge Law; Division’s Rep.: Michael Trajbar; Taxpayers’ Rep.: pro se; Article 22 (by Emma Savino)

The Division issued Petitioners a Notice of Deficiency dated January 3, 2019. Petitioners filed their request for conciliation conference on August 5, 2019. BCMS issued an order dismissing the request as untimely. Petitioners then filed a timely petition, but did not respond to the Division’s motion for summary determination. The Judge found that the Division proved both its standard procedures and that they were followed when it mailed the Notice to Petitioners’ last known address on November 6, 2018. So, the Judge sustained the dismissal of Petitioners’ request for conciliation conference as untimely and granted the Division’s motion for summary determination.

ALJ ORDER

Matter of Lati and Saadia; Judge Maloney; Division’s Rep.: Charles Fishbaum; Taxpayers’ Rep.: pro se; Article 22 (by Chris Doyle)

The Division demonstrated both its standard mailing procedures and that they were followed when it mailed the Notice of Deficiency to Petitioners on January 3, 2019. Thus, when Petitioners’ prior representative filed Petitioners’ conciliation conference request via facsimile on August 5, 2019, it was, arguably, too late. However, discrepancies between the address on the Notice and the address on Petitioners’ income tax return filed immediately prior to the issuance of the Notice led the Judge to conclude that the Notice was not mailed to Petitioners’ last known address. So, in light of a lack of evidence regarding when Petitioners actually received the Notice, the Judge denied the Division’s motion for summary determination and will schedule a hearing in due course.

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