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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 9, 2019 (covering cases issued April 25 and 29 and May 2)

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Today’s cases offer four (!) Tribunal decisions, one of which is on a case litigated by our shop.  SPOILER ALERT! It did not go well (see the details below). Indeed, taxpayers were pretty much 0-9 for the week, so at least we had company.  If you know math, you’ve probably already guessed that there are also a handful of ALJ Determinations, most of which address (gag) timeliness issues. This week, in our continuing effort to educate our readers (and entertain ourselves) on both New York tax developments and pop culture references, each of our entries concludes with a quote from the American Film Institute’s “AFI’s 100 Years…100 Movie Quotes.”  Enjoy!


Matter of Montante, et. al.; Division’s Rep: Tobias Lake; Petitioner’s Rep: Chris Doyle; Article 22. 

Petitioners argued that an April 2009 law change, which had the effect of decertifying their business as a Qualified Empire Zone Enterprise, was improperly applied retroactively to January 1, 2009. The test applied by the Tribunal balanced the reliance by the Taxpayer on the pre-change law, the length of the retroactive period, and the public policy supporting the law change.  The Tribunal found that the shortness of the period of retroactivity trumped all other considerations and upheld the retroactive application of the law change. There was a lot more going on here, including the Tribunal’s first consideration of the “square corners doctrine.” But inasmuch as Petitioners (our clients) are considering an appeal of this Decision to the Third Department, I’ll leave off here. 

“After all, tomorrow is another day!” [#31, from Gone with the Wind]

Matter of Stein; Division’s Rep: Hannelore Smith; Petitioner’s Rep: Michael Tedesco; Driver’s License Suspension Tax Law Section 171-v.  

The Tribunal found that Petitioner’s inability to pay and her financial hardship are not grounds enabling the DTA to cancel a notice of proposed driver’s license suspension. Likewise, the Tribunal found that being in the process of submitting an offer-in-compromise does not result in the cancellation of a proposed license suspension. The Tribunal also held that the procedural requirements embodied in Tax Law Section 171-v provided Petitioner with the due process required by the Constitution. And the Tribunal stated that it does not have the jurisdiction to adjudicate the propriety of the Department’s rejection of an offer-in-compromise. Ultimately, the ALJ’s summary determination in favor of the Division was affirmed.

“Fasten your seatbelts.  It’s going to be a bumpy night.” [#9, from All About Eve]

Matter of Piscopo; Division’s Rep: Charles Fishbaum; Petitioner’s Rep: Dean Nasca; Article 22. 

The ALJ held that Petitioners were not entitled to exclude from income payments that they received from an IRC Section 457 plan because it was not a “public pension plan” within the meaning of Tax Law Section 612(c)(3), as defined in the regulations. The Tribunal affirmed, finding that a regulatory requirement that a public entity contribute to a plan for it to be a “public pension plan” was acceptable support for the Division’s assessment. 

There are some interesting aspects to this case. Petitioners argued that there was no rational basis for the assessment, since the explanation that came with the Proposed Statement of Audit Adjustment was:  “[O]ur records indicate that your pension and annuity income distribution from Fascore Institutional Services does not qualify as a state, local or government pension and therefore cannot be fully excluded as a state, local or government [sic].”  In response, the Tribunal had this interesting statement:  “The basis of the notice of deficiency was the Division’s interpretation of the statute and regulations as applied to the facts in this matter and was not based upon a traditional audit of books and records. Therefore, there was no evidence that petitioners could have introduced that would have shown that the notice of deficiency had no rational basis at the time of issuance.  Accordingly, it must be found that a rational basis existed for the issuance of the notice of deficiency.” (citations omitted)  A reasonable extension of the Tribunal’s rationale is that if the Division provides no support whatsoever for an assessment, it would be impossible for a petitioner to sustain an argument that the assessment lacked a rational basis. That doesn’t make sense. Taxpayers are entitled to an explanation of the foundations of the assessments against them. Tax Law Section 3003. And if the basis for the assessment is hooey or non-existent, then the Tribunal ought to find that the assessment lacks a rational basis. I am not suggesting that Petitioners here were correct on the merits, I am simply saying that the Tribunal should hold the Division to a higher standard than that implied by this decision.

But the Tribunal directed some ire toward the Division too. The Division took its sweet time to flesh out the arguments it was actually making in support of the assessment. While the Tribunal found that such delay didn’t result in prejudice to Petitioners, the Tribunal made it clear in the following passive-aggressive passage that it wasn’t pleased with the Division’s conduct: “This Tribunal does not condone the Division’s refusal to address petitioners’ arguments set forth in their response to the statement of proposed audit changes or petition, nor can we explain the Division’s refusal to mention any statute in support of its position or even its own regulation in support of its notice of deficiency until the submission of documents to the Administrative Law Judge.

"What we've got here is failure to communicate." [#11, from Cool Hand Luke

Matters of Silver Saddle Deli Grocery, Inc. & Musaed; Division’s Rep: Osborne Jack; Petitioner’s Rep: Jacqueline Kafedjian; Articles 28 and 29. 

In our summary of the ALJ Determination, we said: “Petitioners did not respond to the Division’s requests for Petitioners’ books and records. So the ALJ determined the Division reasonably concluded that Petitioners did not maintain or have available books and records sufficient to verify its sales during the audit period. As a result, the Division was entitled to use an indirect audit method – the use of a rent factor – to determine Petitioners’ sales and resulting tax liability. The Division put the statistical report on which its calculations were based on the record, and it adequately explained to Petitioners at the hearing why its use of the IRS Ratios was an appropriate method.  Petitioners presented nothing to show the rent factor method was unreasonable, so they failed to meet their burden to establish the Division’s audit method was unreasonable or that the resulting tax assessment was erroneous. Petitioners made several arguments in opposition to the Division’s audit method, with which the Judge disagreed based on the evidence in the record. The Judge sustained penalties. The Notices of Determination were sustained.

The Tribunal’s Decision, for the most part, followed the rationale of the ALJ, and thereafter affirmed the ALJ’s determination sustaining the Notices.

"Houston, we have a problem." [#50, Apollo 13]


Matter of Coleman, Judge: Law: Division’s Rep: Hannelore Smith; Petitioner’s Rep: pro se; Driver’s License Suspension Tax Law Section 171-v.  

Petitioner challenged both the proposed license suspension and the underlying assessment in this case.

The Division proved its standard mailing practices but not that they were followed when it mailed the Notice of Deficiency (“NOD”) to Petitioner’s last known address on November 7, 2017. The Division submitted an incomplete certified mailing record, so it failed to prove whether it followed its standard practices. However, the Division was able to overcome that shortcoming by placing into evidence USPS Form 3811-A showing that the NOD was actually delivered to and accepted by Petitioner on November 10, 2017, thereby starting the 90-day time limit for filing a petition on that date. Petitioner filed her petition challenging the NOD on June 11, 2018, well after the time limit for challenging the NOD had passed.

Petitioner’s challenge to the Notice of Proposed Driver License Suspension (“NOPDLS”) was timely. However, Petitioner did not allege one of the six statutory defenses to a suspension, and the ALJ found that financial hardship is not grounds for cancelling a NOPDLS. 

Given the absence of a timely petition on the NOD and the absence of properly-pled and valid defenses against the NOPDLS, the ALJ granted the Division’s motion to dismiss the petition and/or for summary determination. 

"Surely you can't be serious. I am serious … and don't call me Shirley."  [#79, from Airplane!]

Matter of Genesee Yacht Club, Judge: Law: Division’s Rep: Melanie Spaulding; Petitioner’s Rep: Patrick Pardyjak; Articles 28 and 29. 

The ALJ determined that Petitioner’s receipts from the provision of docks to its club members were “dues” and subject to sales tax. This case follows along the same lines as Youngstown Yacht Club (Tax App. Trib. 12/11/1997) that our shop litigated more than 20 years ago, although that case involved moorings instead of permanent docks. 

Of interest, Rochester Yacht Club, which is a ¼ mile down river from Petitioner, is permitted to treat its dock charges as the non-sales-taxable rental of real property under an unreported court case (“RYC”). Petitioner argued the Division ought to be collaterally estopped from asserting that Petitioner should collect and remit taxes on its docking charges under the decision in RYC. Judge Law agreed that Petitioner’s situation and that of the club in RYC seemed factually indistinguishable. But he also found that, absent unusual circumstances supporting a finding of “manifest injustice,” the doctrine of estoppel does not apply in tax cases. So, Petitioner’s members have to pay sales tax on their annual dock fees, even though the boaters in the public marina next door and the yacht club down the river are not required to collect and remit sales taxes on their annual dock fees. 

I wouldn’t be surprised if you guessed the quote for this case:  “You’re gonna need a bigger boat.” [#35, from Jaws]

Matter of Makariades, Judge: Friedman: Division’s Rep: Christopher O’Brien; Petitioner’s Rep: pro se; Article 22. 

Petitioner filed a request for conciliation conference on April 9, 2018, challenging a Notice of Deficiency dated November 20, 2017. On April 27, 2018, BCMS issued a conciliation order to Petitioner and his former representative dismissing the request as late-filed. Not wanting to disturb his string of late-filed challenges, Petitioner late-filed the petition in this matter on August 17, 2018. Supervising ALJ Friedman thereafter issued a Notice of Intent to Dismiss the case.  

The Division proved its standard mailing practices and that they were followed to mail the conciliation order to Petitioner and his representative at their last known addresses. Since Petitioner filed his petition after the 90-day deadline had passed, the case was dismissed. 

“Hasta la vista, baby.”  [#76, Terminator 2: Judgement Day]

Matter of Paris Baguette America, Judge: Friedman: Division’s Rep: Brian Evans; Petitioner’s Rep: pro se; Article 21. 

A rare Highway Use Tax case! Is this something new and different? Alas, no, it is a procedure case. 

Petitioner filed its petition on November 22, 2017. It had two formal problems: “Dylan Ahn,” who signed the petition, was not identified as an officer of petitioner, but only as an employee, and there was no Power of Attorney attached authorizing him to represent Petitioner in the case. And the Petition did not list the Article of the Tax Law at issue. The DTA sent Petitioner a letter asking it to cure the deficiencies in the petition within 30 days. Petitioner did not cure the deficiencies. So the DTA had a paralegal call Mr. Ahn to discuss the petition. Mr. Ahn said that the assessment had been paid in full and that Petitioner was not going to pursue the matter. So DTA faxed a Withdrawal of Petition form to Mr. Ahn, but the form was never completed and returned.

In light of Petitioner’s lack of response, the Supervising ALJ issued a Notice of Intent to Dismiss for failure to submit a petition in proper form. The Notice sent via certified mail to Petitioner was returned by the USPS as “unclaimed.” Thereafter, it was re-mailed to Petitioner via regular mail. But Petitioner never responded. Unsurprisingly, the Notice of Intent to Dismiss was sustained and Petitioner’s case was ordered dismissed with prejudice. 

And even though most of the cases this week are about the importance of accuracy and rule-following, we ironically end with, perhaps, the most misquoted movie line of all time: “Play it Sam. Play ‘As Time Goes By.’” [#28, from Casablanca]

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