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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.  

TiNY Report for March 28, 2019 (covering DTA cases issued March 21)

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This week we only have two ALJ determinations, and neither of them are on timeliness – maybe our luck has turned because it’s finally spring and we aren’t buried under 4 feet of snow anymore.  The facts aren’t a compelling read in either case, but there are a couple of moderately interesting procedural issues raised.

ALJ Determinations

Matter of Sushell Corporation; Judge: Gardiner; Division’s Rep: Robert Tompkins; Petitioners’ Rep: Richard M. Gabor; Article 9-A 

Petitioner filed a petition for…umm…give us a second…heck, we really aren’t sure.  Attached to the petition was a letter with an audit case identification number. The petition did not include a statutory notice, assessment identification number, or conciliation order. The Division sent the Petitioner a letter detailing the items missing from the petition, and gave Petitioner 30 days to correct the issue, but Petitioner didn’t. The Supervising ALJ Friedman then issued a notice of intent to dismiss the petition because it did not identify or include a statutory notice. The Petitioner responded to the notice by stating that it was an S corporation (and thus not really subject to an Article 9-A tax on its income) and that the adjustments to Petitioner’s income were made after an audit and created liabilities to Petitioner’s shareholders. Because Petitioner only included a letter and not a statutory notice and conceded that there was no tax assessment against it, but only its shareholders,  the Judge found that the DTA did not have subject matter jurisdiction and dismissed the petition.

Matter of Ahmad; Judge: Connolly; Division’s Rep: Christopher O’Brien; Petitioners’ Rep: pro se; Article 22

Petitioners filed a petition for redetermination of a deficiency or for a refund of personal income tax, after the Division audited and disallowed Petitioners’ claimed State earned income credit of $1,638, City earned income credit of $273, and Empire State child credit of $330.

On audit, the Division requested proof of self-employment business income and proof verifying the age, relationship, residency, and full time student status of the children. In response, Petitioners submitted a W-2 issued by New Saba Deli, a 1099-MISC issued by Lucky Seven Deli for $14,980, an unsigned letter on Lucky Seven letterhead stating that Mr. Ahmad had been employed there, birth certificates for their children, account statements from one school relating to one child, and documents for the other child showing that the child was a student at a different school.

The Division responded that the information provided by Petitioners was “incomplete/unverifiable” and disallowed the Empire State child credit and reduced both the State and City earned income credit to $83.10 and $13.85, respectively. The Division asserted that the business income claimed was disallowed because it could not verify the compensation on the 1099-MISC, and the letter provided by Lucky Seven Deli was unverifiable because it didn’t have the employer EIN, wasn’t signed, and did not include the title of the person who wrote it.

At the hearing, the Division introduced testimony of a Tax Technician 2 who was not the auditor on the case, but who had [slept in a Holiday Inn Express™ the night before the hearing] reviewed the audit file. He alleged that there was an inconsistency between the returns and the 1099-MISC, but, mysteriously, he would not specify the inconsistency since to do so might violate Tax Law secrecy rules. Even after it was it was pointed out (we assume by the Judge) to the Technician that Lucky Seven Deli’s returns appeared to be disclosable under Tax Law 697(e), he still refused to discuss the nature of the inconsistency.  He then stated that, with regard to the children, Petitioners’ proof was not sufficient because it did not establish that the children lived with Petitioners for six months during the year under audit.  The hearing was left open for Petitioners to submit additional proof with regard to the residency of the children, which they did, and the Division conceded that they were entitled to the Empire State child credit.

All that was left at issue was the amount of the earned income credit, and the Judge found that Petitioners met their burden of proof that they earned $14,980 for work performed at the Lucky Seven Deli.  Even with Mr. Ahmad’s limited English language skills, the Judge found his limited testimony to be credible and persuasive.  That testimony, when combined with the 1099-MISC and the Lucky Seven Deli letter, were found to be sufficient evidence to meet Petitioners’ burden of proof. The Judge seemed annoyed that Tax Technician 2 wouldn’t testify to the nature of the discrepancy when the Division could have sought an order to disclose the return, but didn’t. So the Judge granted the petition and directed the Division to refund the Petitioners earned income credit with interest.

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