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State and Local Tax Blog

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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.  

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TiNY Report for July 18, 2019 (covering cases issued July 11)

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As of this writing, three Determinations and one ALJ Order. No “timies.” Being an author brings almighty powers. Case in point - I just created a word: timy \tīm-ē\ n. (2019): a division of tax appeals order, determination or decision involving the issue of whether a taxpayer filed their request for conciliation conference, petition for administrative law judge hearing or an exception to the tax appeals tribunal within proper time limits. pl.: timies. 

I can’t wait to get home to test my new-found, God-like powers by re-programing our universal remote control so it recognizes our new streaming-video device. Or maybe that’s a little too ambitious...


Matter of 1128 36th LLC; Judge Maloney; Division’s Rep.: Howard Beyer; Petitioner’s Rep.: Herschel Friedman; Articles 28 and 29.  Petitioner filed a refund claim seeking recovery of sales tax that it paid for security services it claimed were necessary for construction of a capital improvement to real property. Following the Division’s denial of the refund claim, Petitioner filed a petition and then made a motion for summary determination. And here’s what Judge Maloney had to say about that:

It is unclear, based upon his affidavit, as to whether or not [the affiant, who was Petitioner’s representative at the hearing] has personal knowledge of petitioner’s business activities. In addition, the documentation submitted with Mr. Friedman’s affidavit does not resolve the material issues of fact regarding the amount of sales tax petitioner allegedly paid, and its claim that the security services it purchased were a prerequisite to a capital improvement. As material and triable issues of fact exist in this matter, petitioner’s motion for summary determination must be denied.


Matter of Core-Mark Midcontinent, Inc.; Judge Russo; Division’s Rep.: Brian Evans; Petitioner’s Reps.: Stephen Solomon and Kenneth Moore; Article 20.  Petitioner overpaid its tobacco products tax. It applied for refunds, most of which were granted. One of the refund requests was filed more than two years after the return had been filed. Normally, Article 20 refund claims are required to be filed within two years of the return. However, at the time the refund claim was filed, there was a consent in place that extended the period of time for the Division to assess additional tax. Normally, a refund claim is permitted to be filed any time before six months following the expiration of an extension. 

Petitioner’s refund claim was filed while an extension of time to assess was still in effect. HOWEVER, for a consent to permit additional time for refund claims, the law requires that the consent be executed and submitted within the original two-year refund claim window. In this instance, the original consent extending the time for assessment was done timely for assessments (during the three-year-after-filing window), but not in time for refunds (during the two-year-after-filing window). The ALJ sustained the denial of the refund for the one year that was time-barred.

Matter of Massil; Judge Galliher; Division’s Rep.: James Passineau; Petitioner’s Rep.: Pro Se; Article 22.  Here’s a case that proves the adage:  “The lottery is a tax on people who are bad at math.”

Petitioner reported income of $52,263, which included $1,525 of lottery winnings. On his return, he partially offset that income with expenses of $20,805, which included the $10,356.75 cost of non-winning scratch-off lottery tickets. That’s right, his lottery tickets cost more than six times his winnings. He also claimed deductions for commuting and laundry.

The judge denied the commuting and laundry deductions on the grounds that they were unsubstantiated and were not deductible in the first place.

As for the gambling deductions, since Petitioner admitted he was not a professional gambler, his losses were “below the line” deductions (i.e. not taken into consideration in computing federal—and therefore New York—adjusted gross income). Since gambling losses are not allowed as itemized deduction in New York, they simply were non-deductible.

The judge also found that Petitioner’s claimed charitable deductions lacked substantiation. 

Matter of Piazza; Judge Connolly; Division’s Rep.: Christopher O’Brien; Petitioner’s Rep.: John Greco; Article 22. Petitioner was the sole owner of an LLC (i.e. a disregarded entity) that requested certification in the Empire Zone Program in 2001. The certificate of eligibility was issued in 2002, but bore the legend that it was effective “as of 10/25/01.” The LLC did not have any business activities in 2001. And it purchased the property for which the empire zone real property tax credit was claimed in 2002. 

Under the Empire Zone Program, the real property tax credit uses a multiplier of one for the first ten years of eligibility and then the multiplier is reduced by 20% in years 11 – 14. Petitioner treated the LLC’s first year of eligibility as 2002. The Division treated the LLC’s first year of eligibility as 2001, the year indicated on the LLC’s certificate.

The judge did a thorough job of de-bunking each of Petitioner’s arguments. First, the judge noted that the law required a multiplier of one be used for the first ten years of “the benefit period,” and thereafter reduced the multiplier by 20% in each of the following years.  In support, the judge noted that the statute defines the benefit period for business enterprises with a pre-2002 test date as being the business enterprise’s first 15 taxable years beginning on or after January 1, 2001. Since the LLC’s test date was the date in 2001 in which it was certified, and the LLC filed on the basis of a calendar year, the judge determined that the LLC’s benefit period began with the 2001 tax year. 

The judge also addressed and dismissed Petitioner’s argument that the Division should be estopped from taking the position that the benefit period started before 2002. The judge found that, in the absence of proof of a misrepresentation by the government, estoppel should not be applied.

Ultimately, the judge agreed with the Division that the benefit period started in 2001, and the notices reducing the credits were sustained.

OK, I wrote “thorough.” I didn’t write “correct.” With due respect to the judge, I continue to disagree with the application of the “only reasonable construction” standard in these cases. In my opinion, ALJs should apply the most reasonable construction to the statutes they interpret. The failure to do so irks me. Admittedly, use of the most reasonable construction standard may not have changed the result here.

With due respect to Petitioner and his representative (and with apologies for my “Monday Morning Quarterbacking”), I might have argued that the LLC’s first “taxable year” was 2002. When were the LLC’s “books and records” established? See Treas. Reg. 1.441-1(c)(1). When (if ever) did it file its first federal income tax return?

Also, according to the submitted facts, the LLC was, during the years at issue, owned 100% by Petitioner. But another fact found was that the LLC filed partnership returns on a calendar-year basis. Both these facts should not be true. An LLC owned by one person or entity is either disregarded or a C corporation. In neither case should it file a partnership return.

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