Mayo v. N.Y. State Div. of Tax Appeals

• Decision Date: 09 May 2019
• Docket Number: 525172
• Citation: 101 N.Y.S.3d 741,172 A.D.3d 1554
• Parties: In the Matter of Myra MAYO, Petitioner, v. NEW YORK STATE DIVISION OF TAX APPEALS, Tax Appeals Tribunal, et al., Respondents.
• Court: New York Supreme Court — Appellate Division

172 A.D.3d 1554

101 N.Y.S.3d 741

In the Matter of Myra MAYO, Petitioner,

v.NEW YORK STATE DIVISION OF TAX APPEALS, Tax Appeals Tribunal, et al., Respondents.

525172

Supreme Court, Appellate Division, Third Department, New York.

Calendar Date: March 20, 2019

Decided and Entered: May 9, 2019

Myra Mayo, New York City, petitioner pro se.

Letitia James, Attorney General, Albany (Owen Demuth of counsel), for Commissioner of Taxation and Finance, respondent.

Before: Garry, P.J., Egan Jr., Devine, Aarons and Pritzker, JJ.

MEMORANDUM AND JUDGMENT

Devine, J.

Proceeding pursuant to CPLR article 78 (initiated in this Court pursuant to Tax Law § 2016 ) to review a determination of respondent Tax Appeals Tribunal partially sustaining notices of deficiency of personal income tax imposed under Tax Law article 22.

Petitioner reported tens of thousands of dollars in losses from her photography business on her federal personal income tax returns for, as is relevant here, the years 2009, 2010 and 2011. She referenced those returns in claiming the business losses on her state personal income tax returns for the same years. Her state returns were flagged by the audit division of the Department of Taxation and Finance (hereinafter the Department) as part of an inquiry into what appeared to be a pattern of individuals claiming false business losses. In January 2013, the Department issued statements of proposed audit changes for the 2009, 2010 and 2011 returns, advising that it could not verify the claimed losses and was disallowing them. The statements notified petitioner of the assessment, interest and penalty amounts due and invited her to provide an explanation with documentation "to substantiate the business loss claimed" if she disagreed with the proposed changes. She did not document the losses, and the Department issued notices of deficiency for the years of 2009, 2010 and 2011.

Petitioner challenged the notices of deficiency and petitioned the Division of Tax Appeals for a redetermination. Following a hearing, an Administrative Law Judge sustained the notices. Respondent Tax Appeals Tribunal affirmed that determination in relevant part, and this CPLR article 78 proceeding ensued.

Petitioner, as the party attacking the notices of deficiency, was required to "establish by clear and convincing evidence that the selected [audit] method and the resulting assessment was unreasonable" ( Matter of Rodriguez v. Tax Appeals Trib. of the State of N.Y., 82 A.D.3d 1302, 1306, 918 N.Y.S.2d 625 [2011], lv denied 17 N.Y.3d 702, 2011 WL 2183837 [2011] ; see Tax Law § 689[e] ; Matter of Levin v. Gallman, 42 N.Y.2d 32, 34, 396 N.Y.S.2d 623, 364 N.E.2d 1316 [1977] ; Matter of Revere v. Commissioner of Taxation & Fin., 75 A.D.3d 860, 861, 907 N.Y.S.2d 326 [2010] ). The Tribunal found that she had not done so and, as long as that "determination is rationally based and is supported by substantial evidence, it must be confirmed, even if a different conclusion would not have been unreasonable" ( Matter of Toronto Dominion Holdings [U.S.A.], Inc. v. Tax Appeals Trib. of the State of N.Y., 162 A.D.3d 1255, 1257, 77 N.Y.S.3d 800 [2018], lv denied 32 N.Y.3d 907, 2018 WL 4997608 [2018] ; see Matter of Sznajderman v. Tax Appeals Trib. of the State of N.Y., 168 A.D.3d 55, 61, 90 N.Y.S.3d 687 [2019] ).

A tax examiner testified at the administrative hearing that the notices of deficiency were mailed after "an examination of [petitioner's] return[s]" – including a review of the returns by Department staff and a spurned invitation in the statements of proposed audit changes for petitioner to document the claimed business losses – showed "a deficiency of income tax" ( Tax Law § 681[a] ). The open-ended language of Tax Law § 681(a) leaves it to the Department "to determine what specific standards and procedures [were] most suitable" in examining a given return, and the Tribunal reasonably found that language on the Department's website and in various audit documents did not demonstrate the impropriety of the method it chose here ( Matter of Mercy Hosp. of Watertown v. New York State Dept. of Social Servs., 79 N.Y.2d 197, 204, 581 N.Y.S.2d 628, 590 N.E.2d 213 [1992] ). Petitioner never documented the business losses that she claimed to have suffered, notwithstanding her obligation to maintain records "sufficient to" establish their existence ( 20 NYCRR 158.1 [a...