TiNY Report for September 28, 2017 (covering DTA cases issued on September 21, 2017)

2 ALJ determinations this week and that’s it.  I had some fun with the first case.  The second case, not so much.

DETERMINATIONS

Matter of Boateng; Judge Gardiner; Division’s Rep: Michele Milavec; Taxpayer’s Rep: pro se; Articles 22, 30A & 30B.  As part of a plea deal, Petitioner agreed to repay as restitution the roughly $5.5 million he admits he embezzled.  We aren’t told in the determination where this happened, but a Google search turned up an article saying that from 2000-2005 a guy named Boateng embezzled from the Consortium for Worker Education, which is a New York City non-profit group. The timing works out, so I am thinking the CWE was the victim. I digress. 

As it turns out, Petitioner didn’t include the embezzled funds on his income tax returns. Go figure. The Judge found unpersuasive Petitioner’s arguments that the fraud penalty and interest were excessive since Petitioner wasn’t the only person involved in the fraudulent scheme, and it is only fair that the other fraudsters should bear a portion of the outstanding liability. The Judge also held that the Division had established fraud because gross income includes ill-gotten gains, the Petitioner pled guilty to multiple charges of grand larceny, etc. The Judge’s determination seems right. But as I have said in at least one other similar case, since the Division is required to prove fraud at the clear and convincing level, I am more comfortable when the facts found create a clear connection between the fraud identified and the underreporting of tax. According to the determination, the Division was required to prove “willful, knowledgeable and intentional wrongful acts or omissions constituting false representation, resulting in deliberate nonpayment or underpayment of taxes due and owing.” Based on the facts found by the Judge, it is clear that the Petitioner defrauded his former employer. But the causal connection between that fraud and his non-reporting of the embezzled funds on his tax return is not so clear. It could have been that the Petitioner thought the embezzled funds were not includable in his income because they weren’t, well, really his. Maybe he has never seen “The Untouchables.” Then again, the article my Google search produced said that the Boateng guy who embezzled from the CWE was an MBA. And an MBA ought to know some basic tax, right? But perhaps Petitioner (assuming he was the Boateng mentioned in the article) was out sick on the days that his MBA school taught tax and, you know, that you shouldn’t embezzle.

Matter of Calagiovanni; Judge Law; Division’s Rep: Tobias Lake; Taxpayer’s Rep: Maureen Fatcheric and Donald DiBenedetto; Article 22. This is another QEZE retroactivity case involving whether the Division is prohibited from applying an April 9, 2009 law change to the entire 2009 tax year. As in Matter of NRG and Matter of Hale the Judge found that the statutory changes could be applied back to the beginning of 2009. The Judge found that the legislation was not applied retroactively because Tax Law § 14 (which has been in place since the inception of the QEZE program) requires that decertifications occurring at any time during the year are treated as being effective from the beginning of the year. As we have stated previously when we reported on Matter of NRG: “[T]he law change was signed by the Governor on April 7, 2009. The Division applied it to January 1, 2009. Unless there has been a cataclysmic event that altered the space/time continuum, that is per se a retroactive application of the law change.”  ‘Nough said.  The Judge found further that even if the legislation was applied retroactively with respect to Petitioner, it was appropriate to do so under the Replan balancing test. The Replan test is a Due Process “as applied” test that determines whether retroactive application of legislation is permissibly fair with respect to a particular taxpayer. The following factors are considered under the Replan test: (1) “the taxpayer's forewarning of a change in the legislation and the reasonableness of ... reliance on the old law,” (2) “the length of the retroactive period,” and (3) “the public purpose for retroactive application”.  The Judge found that each of the factors suggested retroactive application to Petitioner was permissibly fair. But in applying the test the Judge found that the retroactivity provision in the legislation “serves a legitimate public interest”.  One would have thought that the issue had been resolved to the contrary when the Court of Appeals in James Square explicitly held that:  “The legislature did not have an important public purpose to make the law retroactive”; and “there is no cognizable valid public purpose for the retroactive effect of the 2009 Amendments… .”  

Comment