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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 March 26, 2020 (reporting on DTA cases issued March 16 and 17)

Are you good?

Our entire TiNY writing staff (all three of us) claims to be healthy. But since we are all practicing from off-site locations this week, I cannot confirm that information. And TiNY’s lawyers (same three people) have said that confirming health information and then publishing it here is probably a HIPAA violation anyway (damned lawyers). I can confirm that I am asymptomatic, but I have put on a few pounds as a result of my new compulsory lifestyle which has morphed from a work/life balance to a work/life merger. There are upsides, of course. My 30-minute commute is now a 30-second commute. And I (finally) have a corner office worthy of the Editor-in-Chief of the TiNY Report.

I’m as busy as I’ve ever been, doing client work, tracking COVID-19 state tax developments, and getting alerts out to our clients and other interested parties. On that issue, I know they’ve got to be busy with other stuff, but, as of this writing, the Department of Taxation and Finance has not posted anything official on its website to the effect that income tax filing and payment deadlines are extended to July 15. The Director of Budget and the Governor have stated in separate press conferences that the deadline will be (or has been) extended. The Director of Budget’s statement appeared to be predicated on the assumption that state deadlines were dependent on federal deadlines, which is not the case: New York has deadlines that are distinct from the federal deadlines. And there was an email received last night by many accountants from Governor Cuomo stating “New York State's income tax filing deadline is delayed until July 15, 2020. Because New York State requires electronic filing, the date for filing state personal income taxes automatically travels with the federal filing date, which is now July 15. Further guidelines will be released soon.” I’m not sure how electronic filing controls legal filing deadlines, but I think that the that the Department of Taxation and Finance and the IRS share the same electronic filing processing platform, so it may be practical and not legal factors that are driving these statements. And the Governor’s statement, which is the most authoritative statement out there as of now, doesn’t say anything about Q1 estimated tax payments. So, until I see official guidance from the Tax Department, I’m planning on filing my New York return and paying my New York Q1 estimate on April 15. Y’all can do what you want.

There are one Decision, three Determinations and three ALJ Orders this week. Under the circumstances, this may be all we get for a while. Until next time, I hope you’ll heed Duke’s advice to his successor as Governor of American Samoa: “Be firm, fly low and stay cool” (GB Trudeau, “Doonesbury” January 10, 1976).



Matter of Yim; Division’s Rep.: Charles Fishbaum; Petitioners’ Rep.: pro se; Article 22 (by Emma Savino)

The ALJ Determination was mailed on June 27, 2019 to Petitioners via certified mail at their last known address. Petitioners filed their exception to the Determination, which was received on August 26, 2019 with a postmark of August 21, 2019. Unlike a petition, an exception must filed within 30 days from the date of mailing of the determination. Ultimately, the Tribunal found that the Determination was properly mailed to Petitioners’ last known address, and that the exception was, therefore, mailed a few weeks too late.


Matter of Battaglia; Judge Law; Division’s Rep.: Eric Gee; Taxpayer’s Reps.: Isaac Sternheim and Jacob Herskovitz; Articles 28 and 29 (by Chris Doyle) 

The Division proved both its standard mailing procedures and that they were followed when it mailed a Notice of Determination to Petitioner’s last known address on February 7, 2019. The Judge found that Petitioner’s BCMS request filed on June 7, 2019, was, therefore, a month late, granted the Division’s motion for summary determination and dismissed the petition on timeliness grounds.

Matter of Alselmi; Judge Law; Division’s Rep.: Brian Evans; Taxpayer’s Rep.: Jacqueline Kafedjian; Article 20 (by Chris Doyle)

This is a cigarette tax penalty case. These cases frustrate me because the penalty is outrageous ($2 per cigarette!), and it seems like the Division is frequently stalking the weakest gazelle in the herd. Remember the case (Matter of Snyder, TiNY’s report on the original determination here) about the 22-year-old kid who the Division whacked with a $1.26 million penalty for transporting intrastate $164,000 of unstamped Native American cigarettes from one Native American reservation to another?  I sure do.

Anyway, Petitioner in this case worked in the Holly Deli. In September 2015, investigators from the Division inspected the deli and found a bunch of untaxed cigarettes. During the inspection, Petitioner said that he was the manager of the store and had been working there for two years. The investigators handed Petitioner: (1) a notice indicating that the business’ certificate of registration to sell cigarettes was revoked, and (2) a court summons for criminal charges (this criminal case against Petitioner was eventually dismissed).

After the inspection, the Division placed the deli under surveillance. During the surveillance period, Petitioner was photographed selling untaxed cigarettes to undercover investigators on various occasions. In addition, the investigators observed and photographed what appeared to be cigarettes being moved into the apartment above the deli, and then from the apartment into the deli, presumably for sale to customers. Petitioner, however, was not photographed moving cigarettes in or out of the apartment. Eventually, the investigators obtained search warrants for both the apartment and the deli, executed those warrants on April 8, 2016, and discovered 149 cases of untaxed cigarettes in the apartment and another 62.4 cartons of untaxed cigarettes in the deli during the search. Petitioner was arrested and pled guilty to a disorderly conduct charge and paid restitution to the Division of $2,200. Almost three months after Petitioner took his plea bargain, the Division hit him with a notice for a $38,040 civil penalty for possession of untaxed cigarettes.

Following the hearing to consider the penalty, Judge Law found that Petitioner had not proven, with clear and convincing evidence, that he neither possessed nor controlled the unstamped cigarettes in the deli. The determination of possession/control was made notwithstanding the evidence that Petitioner was not the owner of the deli and the absence of any proof that Petitioner owned the cigarettes sold.

And another herd-straggler bites the dust.

Matter of Moyler; Judge Friedman; Division’s Rep.: Christopher O’Brien; Taxpayer’s Rep.: pro se; Article 22 (by Chris Doyle)

On February 4, 2019, Petitioner filed a petition challenging a Warrant filed in the Bronx County Clerk’s Office on January 10, 2019. Supervising ALJ Friedman issued a Notice of Intent to Dismiss on November 25, 2019.

The Judge found that the Division proved both its standard mailing procedures and that they . . . GOTCHA!  Not a timy.” What the Judge actually found was that the DTA is limited by law to the types of notices it is permitted to adjudicate, and the DTA does not have jurisdiction to hear a challenge to a warrant. Accordingly, the petition was dismissed, with prejudice.


Matter of CDECRE Artwork EAT LLC; Judge Law; Division’s Rep.: Osborne Jack; Taxpayers’ Rep.: Timothy Noonan; Articles 28 and 29 (by Joseph Endres)

Because this case is being litigated by my law firm, and TiNY has a policy of not editorializing on our own cases, I’m going to have to curtail my usual opinionated verbosity, and provide just the facts. Let’s see if I can do it...

Petitioner brought a motion for summary determination arguing that the Division’s pleadings confirm that the Division’s assessment against Petitioner had no basis in law. At issue was the fact that the Division asserted in its pleadings that it lacked knowledge or information sufficient to form a belief as to: (1) whether Petitioner was a “vendor,” and (2) whether Petitioner made taxable sales of tangible personal property (subject to a trade-in credit). The Division claimed these matters would be in substantial dispute at the hearing and averred that it treated Petitioner as an “agent” under Tax Law § 1101(b)(8).

Petitioner’s motion was denied because, according to the ALJ, while Petitioner’s allegation in its petition that it was a vendor is akin to an informal admission, the Division’s response to this allegation was not an admission by the Division that Petitioner was not a vendor. The ALJ viewed the issue as clearly being in dispute and incapable of being decided on the limited record. Moreover, the treatment of Petitioner as an agent under Tax Law § 1101(b)(8) was also incapable of being decided on the limited record.

Whew, I did it! Just the facts! I even refrained from mentioning how unusual it seems for the Division to assert tax against Petitioner as if it was a “vendor” without even being willing to admit that Petitioner was a vendor. Wait . . . did I just editorialize? Darn it! I was so close!

Matter of Yoon; Judge Behuniak; Division’s Rep.: Michael Trajbar; Petitioners’ Reps.: Barry Leibowicz and Scott Ahroni; Article 22 (by Emma Savino)

The Division issued a Notice of Deficiency to Petitioners based on its conclusion that they were domiciliaries and statutory residents of New York State during each year at issue. Petitioners paid the amount assessed in the Notice in full. Then, by letter, Petitioners requested a refund of the full amount remitted. There was some disagreement as to the nature of the Division’s response, but it essentially sustained the Notice. Petitioners then filed a petition in protest of the Notice and the alleged denial of the refund. The Division served its answer and a demand for a bill of particulars with 10 numbered paragraphs. The Demand generally requested (1) the authority supporting Petitioners’ assertions regarding the adjustments the Division made to their tax filings; (2) clarity regarding the errors Petitioners alleged the Division made in assessing and calculating the interest and penalties due; and (3) the reasons Petitioners claimed the audit was invalid and defective, the notice was improperly served, and the Division lacks jurisdiction.

Petitioners, in a letter dated November 26, 2019, responded to the bill of particulars with general objections and that Division improperly determined that Petitioners were residents of New York State and City during the audit period. The next day, Petitioners filed a motion to modify or vacate the bill of particulars and restated several of the objections from their letter, as well responded to 8 of the 10 demands in the bill of particulars. The Division then filed a response withdrawing every demand made except for the 2 to which Petitioner did not respond, paragraphs 1 and 5.

The Judge noted that the Division was warranted in requesting a bill of particulars with regard to the remaining two claims made in the petition because they were broad statements. Specifically, the Division demanded that Petitioners particularize the claim that “[t]he Division improperly assessed and/or calculated penalties and/or interest in this matter.” The Judge determined that this was an appropriate demand because it was unclear whether Petitioners were challenging the calculation or the actual assessment, or both.

The Judge similarly found that it was appropriate to demand that Petitioners particularize their claim that the audit was “defective and invalid in its calculations, procedure and analysis” because it challenges every aspect of the audit without an explanation of what was, in fact, flawed.

So the Judge denied Petitioners motion to vacate or modify the bill of particulars with respect to the remaining two demands.

Matter of Frias; Judge Law; Division’s Rep.: Charles Fishbaum; Petitioner’s Rep.: Jhonatan Mondragon; Article 22 (by Emma Savino)

Petitioner filed a petition challenging a denial of refund. The Division and Petitioner cross-moved for summary determination. Judge Gardiner denied both motions. The parties agreed to have a hearing on January 17, 2019, which was adjourned and then rescheduled on March 19, 2019. But neither Petitioner nor his representative showed up. After waiting a reasonable period, Judge Gardiner granted a default judgement in favor of the Division. On May 30, 2019, Judge Gardiner issued a default determination denying the petition.

On July 1, 2019, Petitioner filed an application to vacate the default determination, which included an affidavit of Petitioner’s representative where he provided reasons as to why he was unable to attend the hearing. The reasons included that “he is an individual with a memory and learning impairment that ‘substantially limits major life activities such as working and running a business, dealing with appointments’ or organization. He added that he could not make a ‘rational action’ regarding participation in a hearing. . . . He added that ‘tax season’ is a very stressful time and severely limits his ability to make proper decision.” The Supervising Administrative Law Judge issued an order on October 24, 2019 (which we wrote about here) denying Petitioner’s application to vacate the default determination because Petitioner failed to provide an acceptable excuse for failing to appear and failed to show that the case had merit.

This time around, Petitioner filed a motion (1) to reargue, (2) to recuse Supervising Administrative Law Judge Friedman from the matter, and (3) to strike the denial at issue.

As for the motion to reargue, the Judge determined that Petitioner did not demonstrate that the order misapplied the law or overlooked any relevant facts. Rather, Petitioner simply reargued that the determination should be vacated based on his representative’s disability, which, according to the Judge, “appears to only manifest itself during tax season.”

The Judge also denied the motion for recusal because Petitioner did not allege any claims of bias or other basis of disqualification. Finally, the Judge denied Petitioner’s motion to have the refund denial stricken from the record. As noted by the Judge, if the refund claim were stricken, the DTA wouldn’t even have jurisdiction over the case. [ed. I’m not sure Petitioner’s representative thought this one through!]

In sum, all of Petitioner’s motions were denied. Still, if bringing this case to the DTA (and therefore to the attention of TiNY readers) for a second time was intended to support a finding of a lack of judgement and an absence of rational decision-making, I think the point was well-made.

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