TiNY Report for November 22, 2018 (covering DTA cases issued November 15)

Last Wednesday the DTA posted two ALJ Determinations and one ALJ Order this week.  Happy Thanksgiving to us!   

ALJ DETERMINATIONS

Matter of Globe Wholesale Tobacco Distributors, Inc.; Judge: Russo; Division’s Rep: Brian Evans; Taxpayer’s Rep: Stephen Solomon, Kenneth Moore and Roger Blane; Article 20.  There is a lot going on here, and a proper analysis of the case would be aided greatly by a multi-year calendar.  And there were extenuating circumstances, including a taxpayer-friendly policy change part-way through the period at issue.  But what it boils down to is this:  The Division started an audit of Petitioner and found additional tobacco tax due (as well as some off-setting credits).  Toward the end of the audit Petitioner hired a new representative who figured out that Petitioner had been significantly overpaying its taxes for years.  Petitioner filed refund claims, many of which were granted, but some of which were not on the basis that they were filed after the statute of limitations had run.  Petitioner argued that the time  for filing the refunds had been extended as the result of waivers for the time to assess that Petitioner had filed with the Division.  But the Judge found that the period within which to file a refund would be extended by waiver only if the waivers had been submitted prior to two years after the taxes had been paid (two years from payment is the general refund limitations period).

Petitioner also argued that the period for filing refund claims should have been extended under a Taxpayer Bill of Rights provision requiring the Division to disclose any overpayment the Division discovers during an audit (while the refund period is still open), and then extends the period within which the taxpayer must file its refund claim to 120 days after the Division discloses to the taxpayer that it discovered the overpayment.  But, in this case, “[t]he auditor testified that during the audit, the Division was not provided with any information from petitioner’s representatives or third parties that would lead the auditor to believe petitioner had overpaid its tobacco products tax.”  So the Judge found some of Petitioner’s refund claims were late and sustained the Division’s denial of them.

Matter of Majestic Deli Grocery, Inc. et ux.; Judge: Law; Division’s Rep: Robert Maslyn; Taxpayer’s Rep: Jacqueline S. Kafedjian; Articles 28 and 29.  This Thanksgiving, Petitioner must feel like the turkey that was pardoned by the President.

We’ve seen this story countless times before:  Petitioner operated a mostly-cash convenience store.  The Division found the records to be inadequate because, well, the Division almost always finds the records inadequate. So the Division resorted to an indirect audit methodology, in this case a rent-factor audit using an IRS study to project gross sales, and in turn estimate additional sales tax due and, yadda, yadda, yadda, the Judge canceled the portion of the assessment related to sales. 

Wait…what?  The assessment on sales was canceled?

These types of cases generally go bad for taxpayers, so why did this one have a happy ending?  The Judge explicitly found that the Division made appropriate requests for Petitioner’s records and that those records were inadequate.  The Judge also found that a rent factor is an appropriate indirect method to estimate gross sales.  But Judge Law found that indirect methods will not be sustained if they are not reasonably calculated to reflect the taxes actually owed, and in this instance the Division’s method failed to adequately take into account the magnitude (or really any) of Petitioner’s non-taxable sales even though the auditor knew, or should have known, that there were significant non-taxable sales.  Accordingly the Judge found that the Division’s method did not satisfy the standard for a permissible estimated audit method.  Key quote: “applying the presumption of taxability to all sales where the auditor knew the presumption did not apply is not a method reasonably calculated to reflect the taxes due.”  

ALJ ORDER

Matter of Walzer; Judge: Russo; Division’s Rep: Peter Ostwald; Taxpayer’s Rep: pro se; Article 22.  In this order the Judge denied Petitioner’s motion for reargument.  Here’s the backstory:  Petitioner filed his Petition, and then agreed to submit the case to the Judge without a hearing based on documents and briefs.  The Division moved for summary determination.  And Petitioner missed the response deadlines.  Predictably, the Judge ruled in favor of the Division and dismissed the petition.  Subsequently,  Petitioner filed his motion for reargument.

Finding that:  “Petitioner has failed to establish that the court overlooked or misapprehended the relevant facts, or misapplied any controlling principle of law” Judge Russo denied the motion for reargument.  

Takeaway: Even pro se Petitioners need to satisfy deadlines.

Comment