Advising clients about NYS tax liability: What you missed from the NYSSCPA Annual Tax Conference

As the New York State Department of Taxation and Finance (NYSDTF) ramps up collection efforts against delinquent taxpayers, tax professionals must be prepared to advise their clients about what to do. Several collection tactics were highlighted in Tenenbaum Law’s presentation on New York State Tax Collections at the NYSSCPA, Nassau Chapter, Annual All-Day Tax Conference. Here are a few takeaways for those who missed the event.

1. Collateral sanctions against delinquent taxpayers. New York State can impose various collateral sanctions against taxpayers who owe back taxes. As discussed on our website, the driver’s license suspension program is one of these collateral sanctions. Another one is that New York can refuse to issue a Sales Tax Certificate of Authority or can revoke an existing Sales Tax Certificate of Authority of a delinquent taxpayer. During the last fiscal year, the State revoked 56 certificates of authority and refused to issue many more. This has a big impact because a Sales Tax Certificate of Authority is a prerequisite for a Lottery license, Liquor license or Cigarette license.

Some taxpayers attempt to get around this by getting a Certificate of Authority in a family member’s name. However, note that it is a felony to fraudulently obtain a Certificate of Authority.

2. New York Voluntary Disclosure Program. What do you do when a taxpayer walks through the door and tells you that they haven’t filed their returns or paid their taxes in years? New York State has a Voluntary Disclosure Program to entice taxpayers back into the system. This program allows non-filers to come forward and avoid not only criminal prosecution but also steep late filing and late payment penalties. The program also allows “under” filers to come forward and amend their tax returns, likewise avoiding criminal prosecution and late payment penalties. The program covers all taxes administered by the NYSDTF.   

Generally, taxpayers who have not filed or paid for 20 years or more must file and pay six years of taxes. Other eligible taxpayers may request a limited look-back period and will only have to file and pay taxes for the three most recent delinquent years.

The main catch is that you must beat the state to the punch and come forward before the State comes after you. If you are already under audit or investigation, you cannot participate.  Otherwise, you need only disclose the taxes you owe, enter an agreement to pay those taxes, and continue to pay your taxes in the future. However, if the terms of the agreement are violated, all bets are off, and the State can use any disclosed information against you and pursue civil and criminal penalties.

Responsible Person Liability and Installment Payment Agreements. If a company is paying its outstanding taxes under an Installment Payment Agreement, can the individual tax refund of a “responsible person” be seized? The answer is yes. Under New York law, certain employees of a company can be personally liable for taxes that the corporation failed to pay. That means the individual’s tax refund can be seized even if the company is paying its tax debt under an installment payment agreement.

On a different note, tax professionals should also be aware that this is the first year that NYS’ Office of Professional Responsibility is using the tax preparer penalties that were already codified in the tax law. The Office is going after “ghost preparers,” – i.e., preparers who are not identified on the face of the return.  So far, they have issued penalties to 7 preparers of whom 3 have formally protested. The preparer penalties generally include:

• Failure to register: $50 per return for commercial preparers;
• Failure to sign: $250 per return up to $10,000 in the first year, and thereafter $500 per return with no annual cap; and
• Failure to e-file: $50 per return.

For more information, see a summary of the regulations on the NYSDTF website.

If you or your client are facing an audit or have received a collection notice, contact us for a consultation.