A taxpayer who receives a letter in the mail from the NYS Department of Taxation and Finance has reason for concern. Some notices contain critical deadlines. But not all do, and not all are bad news. Taxpayers should take complete advantage of their rights and remedies in the event of a dispute with the NYS Tax Department. We are here to help.
The attorneys at the law firm Karen J. Tenenbaum, P.C. are licensed to practice law in New York. Our firm routinely represents taxpayers before the NYS Tax Department on a variety of matters, such as:
• Individual & Business Tax Audits
• NYS & NYC Residency Audits
• Conciliation Conferences
• Voluntary Disclosures
• Sales and Use Tax
• Responsible Person Assessments
• Responsible Person Assessments against members of NY Limited Liability Companies for Sales Tax
• Warrants, Levies, and Seizures
• Installment Payment Agreements
• Offers in Compromise
An audit may arise for a variety of reasons, and some are more serious than others. Sometimes there is a matching issue between the NYS system and an item reported on the taxpayer’s return. Sometimes NYS decides to examine several returns concerning the same issue.
Whatever the reason, we understand that going through an audit is a stressful experience. No two audits are alike. We represent individuals and businesses under audit with respect to all tax types, including income tax, sales tax, withholding tax, and more. We seek to address the auditor’s concerns and reach a resolution quickly and efficiently.
Do not hesitate to call us to discuss your audit.
Do you have a primary residence outside New York State but also own or use residential property in NYS? You may be subject to a residency audit, even if you do not spend significant time in the State.
New York State residents must pay NYS income tax on all income, regardless of where it is earned, while nonresidents pay tax to NYS on only NYS source income. New York City residents must pay NYC income tax on all income, regardless of where it is earned; however, nonresidents pay no income tax to NYC, even if the income is earned in NYC.
The New York Tax Law with respect to residency is complex and nuanced, and depends on the particular facts and circumstances of each case. There are two separate and distinct ways of determining whether an individual is taxed as a resident or a nonresident:
A taxpayer will be treated as a resident if the person is domiciled in the State. The domicile test is based on several factors, and looks to determine where the taxpayer’s true home lies: What is the one place to which the taxpayer intends to return?
The burden of proof is on the party asserting a change in domicile. For example, if a taxpayer files as a NYS resident for several years, and then files as a nonresident, the burden of proof is on the taxpayer to demonstrate the domicile changed from NYS to somewhere else.
(2) Statutory Residency
A taxpayer will also be as a resident and if he is a statutory resident, which means that he:
(i) Maintains a permanent place of abode in New York, and (ii) Spends more than 183 days of the taxable year in New York.
Whether a taxpayer “maintains a permanent place of abode” has been subject to many court decisions over the years, and the definition continues to evolve. In June 2012, the NYS Department of Taxation and Finance issued updated Nonresident Guidelines in an effort to address some uncertainties in the law. The guidelines make it clear that determining whether a taxpayer “maintains a permanent place of abode” is a two-prong test: (i) physical attributes and (ii) the taxpayer’s relationship to the dwelling. To evaluate the taxpayer’s relationship to the dwelling, the State considers the following seven factors:
• Does the taxpayer own the dwelling?
• Does he/she have a legal right to the abode?
• Does the taxpayer contribute money or otherwise help to maintain the dwelling?
• What is his/her relationship with others in the dwelling, for example, family members?
• Does he/she use the address for business or governmental purposes, such as voting or car registration?
• Does he/she keep personal items there or have his/her own space?
• Does he/she use the dwelling or have access?
Regarding the 183-day rule, any part of a day spent in New York counts as a NY day, with a few exceptions. For example, if during one day a taxpayer merely drives through NYS from one state to another (e.g. New Jersey to Connecticut), and does not make any stops in NY, then the day may not be considered a NY day for statutory residency purposes.
We represent taxpayers who are subject to NYS and NYC residency examinations. Feel free to contact us to discuss your matter. For additional background information on NY residency issues, consider reading our articles on the subject.
If a taxpayer is under audit and does not agree with the auditor’s findings, then the taxpayer may seek to resolve the matter before the Bureau of Conciliation and Mediation Services (“BCMS”). BCMS is an independent bureau within the NYS Department of Taxation, and its role is limited to the impartial resolution of taxpayer disputes.
Conciliation conferences are intended to provide an impartial forum and a process that is timelier and less expensive than available through a formal hearing system. It is generally recommended that a taxpayer pursue a conciliation conference in lieu of or prior to filing a petition with the Division of Tax Appeals.
Kindly contact our office to discuss a possible conciliation conference.
We assist taxpayers who are not in compliance with past tax periods in an effort to clear up their tax problems. Examples of noncompliance include failure to file tax returns, errors or omissions with previously filed returns, or federal changes requiring changes to NYS tax returns. There is a real risk of criminal action for non-filers.
The State’s Voluntary Disclosure and Compliance program is available for qualified taxpayers who have not yet been contacted by the State with respect to the tax type and period being disclosed, if the State has not already started an investigation in the matter. Most tax types are eligible. If the State accepts the taxpayer’s application, the taxpayer must file and pay the tax and interest for the relevant periods, but all penalties are waived. As an added incentive, the taxpayer may qualify for a three-year limited look-back period and protection from criminal referral.
There are also risks associated with a voluntary disclosure, and it may not be the best course of action for some taxpayers.
Do not hesitate to call us to discuss a possible voluntary disclosure.
Sales tax is imposed on the sale of certain tangible personal property. Vendors registered to collect and remit sales tax in New York must maintain accurate records of all sales and purchases made.
If a taxpayer’s books and records are inadequate, NYS may apply a reasonable method to determine whether additional taxes are due. Such methods can include analysis of a taxpayer’s credit card receipts, cost of goods sold, etc. Penalties may be imposed for failure to maintain inadequate records.
A taxpayer could be subject to penalties and interest if additional tax is due, be subject to criminal penalties if there was a willful failure to maintain proper records, or have their Certificate of Authority revoked.
NYS imposes a high interest rate on outstanding sales tax liabilities. As of October 1, 2012, the interest rate is 14.5% if penalties are also owed on the sales tax. The rate is lower if there are no penalties.
As discussed under “Responsible Person Assessments,” sales tax liabilities may flow through to individuals held responsible for collecting and remitting the tax. A personal liability means the State could pursue the individual’s personal assets to collect on the sales tax liability, including tax, interest, and penalties.
We represent taxpayers undergoing NYS sales tax audits. We seek to reach a reasonable resolution with the State as efficiently as possible. Feel free to contact us if you or your business is subject to a NYS sales tax examination.
Individuals who are involved with a company engaged in business in New York State could become personally responsible for the business’ unpaid tax liabilities. A responsible person assessment means the State can pursue the individual’s personal assets in order to collect the business’s tax liability.
(i) Withholding Tax
NYS may pursue individuals to collect a business’s unpaid withholding tax if that person (1) had the duty to collect the tax and (2) willfully failed to perform the duty. The unpaid tax is assessed against the individual as a penalty, and is not dischargeable in personal bankruptcy.
Taxpayers assessed as a responsible person are personally liable for 100% of the unpaid withholding tax, regardless of the individual taxpayer’s percentage of ownership, and may be liable for the unpaid interest. Note, however, the individual is not liable for any penalties assessed against the company with respect to the unpaid withholding tax.
(ii) Sales Tax
NYS may pursue individuals to collect a business’s unpaid sales tax if that person had the duty to collect the tax. Taxpayers assessed as a responsible person are personally liable for 100% of the unpaid sales tax, regardless of the individual taxpayer’s percentage of ownership, and is not dischargeable in personal bankruptcy. If timely assessed, individual taxpayers are liable for tax, interest, and penalties equal to that assessed against the company.
Under New York State Tax Law, each and every limited liability company member has 100% personal responsibility for the LLC’s NYS sales tax liability, including tax, interest, and penalties, regardless of the member’s involvement with the business’s affairs, or lack thereof. This strict liability for sales tax applies to members of a LLC.
Recognizing the unfortunate and likely unintended consequences facing LLC members, New York State issued TSB-M-11(6)S, providing the possibility of much needed relief in this area. Under the policy described in the TSB-M, which took effect March 9, 2011, qualified LLC members would not be personally liable for penalties on the business’s unpaid sales tax. In addition, personal liability for the LLC’s unpaid sales tax and interest is limited to the extent of the member’s proportionate share, based on ownership interest or percentage of the distributive share of the LLC profits and losses, whichever is greater. LLC members are eligible for relief under the policy only if:
• Their ownership interest and percentage share of the profits and losses of the LLC are less than 50%, and
• They were not under a duty to act on behalf of the company in complying with the Sales Tax Law.
Members seeking relief must also cooperate with NYS tax authorities by identifying individuals involved in the day-to-day business affairs, to the extent reasonably possible. Of course, NYS understands passive investors may not have access to this information.
The responsible person determination is based on the particular facts and circumstances. We represent taxpayers facing such assessments and as appropriate will challenge the State’s assertion that a taxpayer was responsible. Do not hesitate to contact us if you are facing a responsible person assessment.
In order for NYS to have legal authority to pursue collection against the taxpayer’s real and personal assets on an unpaid tax, the State must first file a tax warrant. The tax warrant remains in effect until the underlying tax liability is completely satisfied, or the warrant expires. A tax warrant is public record, on file at the County Clerk’s Office and with the Secretary of State, and could adversely affect a taxpayer’s credit rating.
There is a twenty-year statute of limitations on collection in NYS and the period begins to run on the first day a tax warrant could be filed by the Tax Department. After a tax warrant is filed, NYS may proceed with collection action, including bank levies. NYS does not provide the taxpayer advance notice of issuance of a levy.
NYS may impose a levy via wage garnishment, known as an income execution. The execution is limited to ten percent of the taxpayer’s wages and remains in place until the tax liability is fully paid. NYS does not levy retirement funds or pensions.
For the more extreme cases, NYS may seize real or personal property (not exempt by law) for sale at a tax auction. During seizure, NYS tax compliance agents may change the locks and padlock the door at the taxpayer’s place or business. Alternatively, agents may remove all of the taxpayer’s merchandise and store it elsewhere until the date of sale.
Dealing with NYS collection matters can be very stressful. Kindly call us to discuss your rights and options if you are facing collection action.
Similar to the IRS, when a taxpayer owes money to NYS, there are several options for a taxpayer to address the outstanding balance. In many instances, the best procedure is to try to pay it all at once, but this may not always be feasible. An Installment Payment Agreement permits payment over time. Interest and penalties continue to accrue and it is often in the best interest of the taxpayer to consider loans from other sources before pursuing an Installment Payment Agreement. An IPA is useful for taxpayers who have adequate income, but who do not have sufficient equity to support a loan.
IPA payments are usually made by direct debit. New York State will almost always file tax warrants in conjunction with an Installment Payment Agreement. However, levy action, such as an ongoing income execution, will be suspended when an IPA is put in place.
The amount and length of an Installment Payment Agreement may depend on various factors, such as the taxpayer’s income and expenses, as well as the total amount due. Do not hesitate to contact us to discuss the feasibility of an Installment Payment Agreement.
An Offer in Compromise is a binding agreement wherein NYS agrees to accept less than the full amount due of tax, interest and penalties. By comparison, under the usual Installment Payment Agreement, full payment is made of the tax liability, but over time, with interest and penalties continuing to accrue.
In August 2011, Governor Andrew Cuomo signed into law a bill amending the NYS Offer in Compromise program. The law allows the State to consider the economic circumstances of the taxpayer and reasonable collection potential, if sufficient proof is shown by the taxpayer.
Because the State is settling for less than the full amount due, the Offer in Compromise process is thorough and often document intensive. Feel free to call us to discuss whether an Offer in Compromise is a viable collection resolution for outstanding tax liabilities.