MoFo New York Tax Insights, October 2013

DESPITE INCORRECT ADVICE FROM NYS TAX DEPARTMENT, CONFERENCE REQUEST HELD TO BE UNTIMELY

By Hollis L. Hyans

In Matter of Kevin Ryan and Paullina Simons, DTA No. 824835 (N.Y.S. Tax App. Trib., Sept. 12, 2013), the New York State Tax Appeals Tribunal affirmed the dismissal of the taxpayers' petition by the Administrative Law Judge, and found that their request for a conciliation conference was untimely, since it had not been filed within the required 30-day period to contest an assessment containing a fraud penalty.

The Department issued a Notice of Deficiency to Mr. Ryan and Ms. Simons on October 19, 2011. Although there is generally a 90-day period from the date of mailing of a Notice of Deficiency to file a request for a conciliation conference or petition for a hearing, when a Notice asserts a fraud penalty, a request or petition must be filed within 30 days of the mailing of the Notice. Tax Law §§ 170[3-a][b], [h]. In accordance with that requirement, the Notice stated on its first page that any request for a conciliation conference or petition for a hearing had to be filed by November 18, 2011. The second page also advised that if a response was not received by November 18, the Notice would become an assessment subject to collection action. The request for a conciliation conference was not mailed until November 22, 2011.

However, before the issuance of the Notice in October 2011, on June 29, 2011, Mr. Ryan and Ms. Simons had received correspondence from the Department, incorrectly advising that they would have 90 days to request review of a notice by the Bureau of Conciliation and Mediation Services ("BCMS") or the Division of Tax Appeals. The petitioners therefore argued that they were confused by the different time limitations set forth in the June 29 letter and in the Notice, and that, because they relied to their detriment on the Department's statement of the time period in the June 29 letter, the Department should be estopped from denying them a hearing.

The Tribunal set out the standard for estoppel against the government, which it found applied only in "unusual circumstances that would result in a manifest injustice to the private party." In order to invoke estoppel against the government, a taxpayer must demonstrate that a misrepresentation was made, and the government has reason to believe the party would rely on that misrepresentation; that the reliance on the misrepresentation was reasonable; and that the relying party acted to its detriment based upon the misrepresentation.

The Tribunal found that the first requirement was met: the June 29 letter was inaccurate and misleading when it clearly stated that the 90-day period would apply. The laws had changed a considerable period of time before the letter was written (in 2009 for the BCMS filing requirement, and in 2010 for the filing date in the Division of Tax Appeals), and therefore the issuance of the incorrect letter was found to be "arguably sufficiently 'reckless'... to give rise to the conclusion that the State should be estopped from enforcing the 30-day deadline."

However, the Tribunal went on to evaluate the second requirement for estoppel and determined that the petitioners' reliance on the June 29 letter was not reasonable, in light of both the statutory Notice, which explicitly provided the correct deadline, and the fact that the incorrect date in the June 29 letter is contradicted by express language in the Tax Law. Therefore, the Tribunal held that the petitioners failed to establish all of the grounds for estoppel against the Department. Their request for a conciliation conference was held to be untimely, and their petition was dismissed.

Additional Insights

Although the change in the statutory time periods for protesting Notices containing fraud penalties took effect, as the Tribunal noted, in 2009 and 2010, cases continue to arise in which this short deadline is missed. That is probably no surprise, since the facts in this case make it clear that even Department personnel have not all recognized that those changes were made. The 90-day general deadline for filing requests with either BCMS or the Division of Tax Appeals has been in place for more than 25 years, for cases that do not involve a fraud penalty, so the mistake may be understandable, but the onus is always on taxpayers to ensure that they understand and follow the jurisdictional time periods. While the pro se petitioners in this case may well have been confused by the conflicting advice they received, the burden when trying to assert estoppel against a government agency is extremely high. Here, even a letter found to have been "arguably reckless" was not sufficient to overcome the jurisdictional barrier.

CORPORATE OFFICER LIABLE FOR SALES TAX DESPITE CREDITOR'S "SWEEP ARRANGEMENT" WITH CORPORATION

By Irwin M. Slomka

A recent decision upholding the personal liability of a corporate officer for a corporation's New York sales tax liabilities is a stark reminder that such liability cannot be easily avoided, even when the corporation's creditors impede the officer's ability to pay the tax. Matter of Patrick Kieran, DTA No. 823608 (N.Y.S. Div. of Tax App., Sept. 12, 2013).

Personal liability for unpaid sales tax is imposed on any person required to collect and pay...