When it comes to New York tax laws, due process is a fundamental concept, meaning: a taxpayer must be afforded the opportunity to contest an assessment. In practice, the line between proper procedure and a speedy enforcement action isn’t always straightforward. A recent decision involving a taxpayer who faced an improperly issued notice and demand without first receiving a notice of deficiency illustrates this scenario, underlining what can go wrong when proper procedural steps aren’t followed in a tax enforcement action. Unfortunately, taxpayers are not necessarily familiar with procedural requirements prolonged by the state. In recent times, our team has fought these procedural posture issues.
For businesses and individuals, the takeaway is clear: you need a knowledgeable professional who can ensure your New York state and local tax procedural rights are respected and granted. Whether you’re confronting a suspicious tax assessment or seeking to confirm that you’ve been treated fairly, working with an experienced New York sales tax professional can make all the difference.
The Beckerman Case: Key Facts
In Matter of Beckerman v. New York State Department of Taxation & Finance, Beckerman and her husband were initially indicted in 2017 for multiple years of alleged criminal tax fraud and for failing to file their personal income tax returns.
While the indictment against Beckerman herself was dismissed on speedy trial grounds, her husband ultimately pleaded guilty to a lesser offense. He agreed to pay restitution for the tax years in question.
Despite Beckerman’s exoneration in the criminal matter—and the fact that she never filed a joint return with her husband—the New York Department of Taxation and Finance issued a “notice and demand” to both her and her husband seeking payment for the same purported tax deficiencies.
Believing that this action was procedurally improper, Beckerman challenged the notice and demand, arguing that the Department should have first provided her with a notice of deficiency. Such a notice would have allowed her the opportunity to dispute the alleged tax liability before making any payment.
With no direct response to her concerns from the tax authorities, Beckerman turned to the courts. She commenced a CPLR Article 78 proceeding to assert her due process rights, specifically, the right to a proper prepayment hearing, and to ensure that her case would be considered through the correct administrative channels.
New York Tax Laws and Procedural Issues at Play
Central to the Beckerman case was the distinction between a notice of deficiency and a notice and demand under the New York Tax Law and how each affects a taxpayer’s procedural rights.
Under Tax Law § 681(a), if a taxpayer fails to file a required personal income tax return, the New York Department of Taxation and Finance (“the Department”) is authorized to estimate the taxpayer’s taxable income and issue a notice of deficiency.
This formal process triggers the taxpayer’s right to challenge the alleged deficiency before making any payment. In fact and to further support this proposition, Tax Law § 681(c) emphasizes that no assessment or collection action can be taken until this notice of deficiency is provided, ensuring that the taxpayer’s due process rights are safeguarded and protected.
On the other hand, Tax Law § 173-a(2) applies to certain scenarios where the liability is already clear, such as instances involving mathematical or clerical errors on a filed return or adjustments stemming from a federal determination. In these cases, the taxpayer’s right to a prepayment hearing is effectively removed, reflecting the state’s view that no genuine dispute exists about the underlying liability.
Tax Law §§ 651(b) and 692(b) address joint liability, particularly in cases where spouses file joint returns. Although one spouse’s actions might establish liability for both spouses under certain circumstances, these statutes still assume that any liability determination follows the proper procedures, including issuing a notice of deficiency if the liability is in dispute.
The Court’s Analysis and Decision
The Beckerman court scrutinized the Department’s decision to proceed with a notice and demand rather than a notice of deficiency. The central question was whether the Department had lawfully denied Beckerman the procedural safeguards she would have received had a notice of deficiency been issued.
Under the statutory framework, if the Department takes a route that deprives a taxpayer of a prepayment hearing, it must do so only in the narrow circumstances contemplated by Tax Law § 173-a(2).
The court found that none of those limited circumstances applied, and the court concluded that the Department had improperly bypassed the statutory notice of deficiency process. Because Beckerman had not filed a return showing a liability, and there was no federal adjustment, mathematical error, or other conditions that would justify issuing a notice and demand, she had effectively been deprived of her due process right to dispute her tax liability before payment.
As the court noted, proper issuance of a notice of deficiency is a critical threshold that ensures taxpayers receive a meaningful opportunity to be heard. Ultimately, the court vacated the notice and demand and the corresponding warrant, restoring and reestablishing Beckerman’s right to the procedural steps mandated by law. By doing so, the court affirmed that due process and statutory procedures cannot be skipped simply because one spouse pleaded guilty. Instead, the Department must follow the established statutory path, which begins with a notice of deficiency, if it seeks to hold another individual responsible for unpaid New York taxes.
How Does This Case Impact Sales Tax Due Process Rights?
Taxpayers in New York are entitled to procedural protections in the audit process. As New York State Publication 130-F outlines, taxpayers are guaranteed the following rights:
- Notice Rights:
- The right to receive an audit appointment letter.
- The right to know what records are being requested and why.
- The right to receive an explanation of audit findings.
- The right to a reasonable time to review findings.
- The right to receive a notice of determination or a Notice of Deficiency
- Representation Rights:
- The right to representation at any time during the audit.
- The right to suspend meetings to obtain representation.
- The requirement for proper Power of Attorney (Form POA-1) if a representative is involved.
- Record Review and Response Rights:
- The right to provide additional information for consideration.
- The right to have auditors analyze any new information.
- The right to have workpapers revised if appropriate.
- The right to request a conference with a supervisor in case of disagreement.
In Beckerman, the Department of Taxation and Finance failed to follow the required procedure by issuing a notice and demand without first providing a notice of deficiency. This procedural error denied her the right to dispute the liability before payment. In the sales tax context, skipping procedural safeguards undermines taxpayers’ rights and due process requirements.
For example, in the sales and use tax context, New York Tax Law Section 1138(a)(1) provides, in relevant part, that the notice of determination must be sent to the last known address in or out of the state of New York. This means that as a matter of law, a fundamental requirement of due process in a proceeding is notice, allowing the interested party to present their objections. Without notice, due process is and has been violated.
The Beckerman case reminds us that procedural fairness is paramount. Taxpayers who encounter potential violations during an audit should act promptly to protect their rights. Our New York sales tax professional will know precisely what shortcuts auditors may take to deprive taxpayers of their procedural rights. More importantly, they will understand the avenues to fight back.
We Will Defend Your New York Procedural Rights
The Beckerman decision serves as a reminder of the importance of proper procedure in New York tax matters. Due process is compromised when tax authorities bypass the statutory safeguards meant to protect taxpayers and their right to a hearing or administrative proceedings. For individuals and businesses, this outcome underlines the need to ensure that every step taken by the New York Department of Taxation and Finance is legally justified.
If you are facing a tax assessment or are unsure about your due process rights under New York’s tax laws, seeking the help of a seasoned New York tax professional can be invaluable. An experienced advisor can help you recognize procedural missteps early on, guide you through the proper channels for challenging an assessment, and ensure you receive the fair and legally mandated process you deserve. The New York Department of Tax and Finance makes mistakes – make sure your case is not one of them.
Reach out to a knowledgeable New York tax professional today and ensure your rights are fully protected.