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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 May 24, 2018 (covering DTA cases from May 17-18)

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This week we have one Tribunal Decision, one ALJ Determination and no Orders. 


Matter of Carroll; Division’s Rep: Christopher O’Brien; Taxpayer’s Rep: pro se; Article 22.  Petitioner claimed a child and dependent care credit on her 2013 income tax return for $3,000 she claimed to have paid a baby sitter.  During the audit Petitioner produced adequate proof that she had a dependent, but the proof of payment for child care was found lacking by the Division.  The proof of payment was a notarized letter from a person with the same last name as Petitioner stating that she babysat for Petitioner’s dependent child and was paid $250 per month (i.e. $3,000 per year).  The Division disallowed the credit.  At the hearing, Petitioner placed in evidence hand-written bi-weekly receipts for $150 for a little more than ½ the year.  But at $150 bi-weekly, the annual payment would have been around $3,900.  The ALJ sustained the denial of the credit.

The Tribunal agreed with the ALJ’s determination that Petitioner’s proof of payment fell below the requisite “clear and convincing” standard.  Both the Tribunal and the ALJ found particularly troubling the unexplained discrepancy between the evidence of the payment produced at audit and the evidence of the payment produced at the hearing.  Accordingly, the Tribunal sustained the ALJ’s Determination sustaining the disallowance of the credit.


Matter of Bayside Food Corp.; Judge: Bennett; Division’s Rep: Fran Nuara; Taxpayer’s Rep: Steven Wright; Articles 28 and 29.  ALJ Bennett granted the Division’s  motion for summary determination.  The Division proved both its standard mailing practices and that they had been followed to mail the Notice at issue to Petitioner’s last-known address on November 8, 2016.  The BCMS request challenging the notice was filed on July 10, 2017, well after the requisite 90-day time limit.


Treasury and the IRS are rattling their sabers. 

In Notice 2018-54, released yesterday, Treasury and the IRS announce their intention of issuing regulations addressing some of the SALT limitation work-around gimmicks being enacted in certain states, including New York.  Payments to charities that result in state tax credits seem centered in the reticle. 

We asked TiNY’s man-on-the-street special correspondent, Washington V. Bluestate, to comment on how New Yorkers are responding to three passages from the Notice:  

From Notice 2018-54

Typical New Yorker Responses

“Despite these state efforts to circumvent the new statutory limitation on state and local tax deductions, taxpayers should be mindful that federal law controls the proper characterization of payments for federal income tax purposes.”

Wait…You’re saying I pay a state-run charity some money, I get to take a corresponding state tax credit, and badda boom, badda bing, I get a federal tax deduction equal to the full amount of the “charitable contribution” I made?  That seems OK to me.  As for the quote, I really wasn’t listening.

“The Treasury Department and the IRS intend to propose regulations addressing the federal income tax treatment of transfers to funds controlled by state and local governments (or other state-specified transferees) that the transferor can treat in whole or in part as satisfying state and local tax obligations.” 

The Feds don’t like the whole charitable contribution thing, and yadda, yadda, yadda, there’ll be regulations.  So what’s new? 

“The proposed regulations will make clear that the requirements of the Internal Revenue Code, informed by substance-over-form principles, govern the federal income tax treatment of such transfers.”

So, if I were the Governor, I’d just go up to the IRS and say: “Hey, Uncle Sammy!  Why don’t you just put your forms over this substance.”    

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