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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 June 28, 2018 (covering DTA cases from June 21)

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Three ALJ Determinations and nothing else this week.

ALJ DETERMINATIONS

Matter of Piscopo; Judge: Bennett; Division’s Rep: Charles Fishbaum; Taxpayer’s Rep: Dean Nasca; Article 22.  Petitioner was a retired NYC firefighter who had established an IRC § 457 plan while he was still employed.  When he retired, he opted to take a lump sum distribution from the § 457 plan, which he excluded from income on the basis that the distribution was a pension payment by a state or local government.  The Division audited and reversed the claimed exclusion.  This litigation ensued.

Judge Bennett determined that the § 457 plan did not include any contributions from a New York State or local government.  Instead, the Judge found that the § 457 plan was a deferred compensation/savings plan to which Petitioner made all of the contributions.  The Judge found that, under the applicable statute and regulations, a self-funded plan is not a governmental pension, and therefore the lump-sum payment from Petitioner’s § 457 plan could not be excluded from Petitioner’s New York income.

Matter of Singh Restaurant; Judge: Bennett; Division’s Rep: David Gannon; Taxpayer’s Rep: Justin White; Articles 28 and 29.  The Ichiban Restaurant owed about $64,000 in back taxes when it engaged in a bulk sale of assets to The Kashmir Kitchen.  A member of The Kashmir Kitchen paid sales tax on the amount of the purchase price allocable to taxable assets.  The Division issued a Notice of Determination to The Kashmir Kitchen for the $64,000 owed by The Ichiban Restaurant.  A year or so later, Petitioner purchased some furniture from The Kashmir Kitchen.  Petitioner also remitted to the Division sales tax attributable to the portion of its purchase price attributable to the taxable assets sold by The Kashmir Kitchen to Petitioner.  The Division issued a Notice of Determination to Petitioner for the $18,000 of sales tax owed by The Kashmir Kitchen, which one assumes was the sales tax liability of Ichiban Restaurant remaining unpaid by The Kashmir Kitchen at the time of the sale to Petitioner. 

Judge Bennett ruled: (1) The sale of the furniture was outside of The Kashmir Kitchen’s ordinary course of business and therefore constituted a “bulk sale” under the sales tax law; (2) The mere assignment of a lease, without more, would be a bulk sale; (3) Petitioner failed to give the Division the required pre-sale notice of the pending purchase; (4) As a result, Petitioner was liable for the taxes owed by The Kashmir Kitchen. 

Matter of 3152 Restaurant; Judge: Law; Division’s Rep: Greg Jones; Taxpayer’s Rep: Richard Gabor; Award of Costs under § 3030.  Judge Law found that:   Petitioner proved it substantially prevailed in its case, its petition for costs was filed within the required 30-day time limit (this was a bit of a thing), and Petitioner satisfied the maximum net worth limitations in the statute.  However, he also found that the Division proved that its position in the audit was “substantially justified.”  According to the Judge:  “[A]s pointed out in the determination, the Division had legitimate reasons to be wary of whether all sales were being inputted into petitioner’s point of sale system based upon the auditor’s lunch order being renumbered coupled with the underreporting of sales initially found.  Petitioner’s underreporting of its sales was further evidenced by the sales reflected in its point of sale system and petitioner’s concession that sales were underreported.”  So, Petitioner’s application for costs was denied. 

FUHWAP! (sound of the palm of my right hand hitting my forehead).  If you are going to ask for costs, don’t admit you underreported!

On the other hand, I hope someone at the Department takes note of the following:  “After she provided her order number to petitioner, it produced a receipt which did not correspond to her purchase. She then provided her check amount, $37.75, and another receipt was produced. Although the receipt listed the items ordered and had the identical date listed matching what was listed on the auditor’s receipt, the produced receipt was not an exact copy. Specifically, the order number appearing on the receipt had changed from ‘742’ to ‘715.’ The auditor would not provide a copy of her guest check to petitioner’s then-representative, or seek an explanation as to why the order number had changed; nor did she do any further investigation as to whether petitioner was compressing its sales records.”  The conduct of the auditor here is pretty icky.  The auditor appears to be acting more like a prosecutor than a fact-finder.  And auditors are, in the first instance anyway, supposed to be finding facts, not building a case against the taxpayer.

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