New York State continues to suspend driver’s licenses of taxpayers who owe more than $10,000 in back taxes and do not have a resolution in place. Some taxpayers who reach out to our office wonder whether a legal action challenging the State’s authority to impose the suspension could be successful.

One taxpayer recently went to court to find out. Andrew Lappner received a Notice of Proposed Driver License Suspension Referral. Included with the notice was a statement reflecting his outstanding liabilities in excess of $70,000. Mr. Lappner filed a petition to the New York State Division of Tax Appeals to protest the suspension, arguing that “medical bills and limited current income provide the basis to request a waiver of the suspension referral.”

Sounds like a potentially reasonable reason to prevent suspension, right? Let’s look at what the law says.

New York Tax Law section 171-v(5) specifies a taxpayer who receives the notice may only challenge such suspension or referral on the grounds that

i. The individual to whom the notice was provided is not the taxpayer at issue;

ii.  The past-due tax liabilities were satisfied;

iii. The taxpayer’s wages are being garnished by the department for the payment of the past-due tax liabilities at issue or for past-due child support or combined child and spousal support arrears;

iv. The taxpayer’s wages are being garnished for the payment of past-due child support or combined child and spousal support arrears pursuant to an income execution issued . . . ;

v.  The taxpayer’s driver’s license is a commercial license . . . ; or

vi. The department incorrectly found that the taxpayer has failed to comply with the terms of a payment arrangement made with the commissioner more than once within a twelve month period . . . .

The State says that “the past-due tax liabilities were satisfied” under (ii) if the taxpayer enters into an Installment Payment Agreement or an Offer in Compromise; an income execution is another possibility available under (iii). Unfortunately, for some taxpayers, perhaps like Mr. Lappner, none of these options may be feasible.

An Installment Payment Agreement requires payment in full over the length of the agreement. We see many taxpayers whose monthly income, less reasonable living expenses, is insufficient to afford the monthly payment amounts required to pay the State in full.

An Offer in Compromise may not be an option either, particularly when sales tax or withholding tax liabilities of a business flow through to the individual. For these responsible person assessments, the State is seeking payment of at least the tax amount owed (excluding penalties and interest) in an Offer in Compromise. Taxpayers with minimal equity in assets often cannot put together the funds to pay this amount.

Finally, if a taxpayer is not earning wages, then an income execution may not be possible. In this case, Mr. Lappner asked for a nine month extension to avoid suspension in order to find employment and make payment arrangements with the State. Apparently he didn’t have sufficient income to set up an income execution.

Ultimately, the court held that Mr. Lappner failed to demonstrate the requisite grounds to avoid suspension. The court stated that the specific grounds to challenge the suspension “do[] not include an extension of time, medical or financial hardship, or limited current income.”

Mr. Lappner’s situation is one that many taxpayers who are in financial distress face: None of the grounds to avoid suspension are feasible. Yet some of these taxpayers need to drive to find and maintain employment, buy groceries, etc. Sounds like an unfair paradox.

What has been the State’s response to this type of situation? Get a restricted license.

Case: In re Lappner, DTA No. 825836 (N.Y. Div. Tax App. 2014).

Submitted by Brad Polizzano on Thu, 01/29/2015 – 08:13