Tax Compliance Unit Actions

As noted previously in this series of articles on New York State’s “Taxpayer Bill of Rights,” the Tax Compliance Unit of the state’s Tax Department may take specific actions if a taxpayer with delinquent taxes fails to meet their tax obligations or negotiate a Deferred Payment Agreement. In addition, if a compromise agreement under consideration is withdrawn or rejected, the Tax Compliance Unit can take further action to collect the overdue taxes. These actions are outlined below.

Tax warrants

Tax Warrants establish a lien against a delinquent taxpayer’s real and personal property, securing the state’s position as the lien holder, and is the same as a legal judgment against the taxpayer. The warrants are public records, filed with the County Clerk’s Office and Secretary of State, and remain on file until the warrant expires or the delinquent tax obligations are paid. Additionally, once a Tax Warrant is issued, the Tax Compliance Unit is permitted to use special collection procedures against the taxpayer. The publicly recorded Tax Warrant will negatively impact a taxpayer’s overall credit rating, making it difficult for them to obtain loans or conduct real estate transactions

Tax Levy

A Tax Levy is a legal confiscation of the delinquent taxpayer’s property, most frequently bank accounts. The Tax Compliance Unit will provide the taxpayer a written notice of their intention to issue a Tax Levy, which also includes a list of property types exempt from the levy. In the case of bank accounts, the levy requires the bank holding the account to deduct funds from the taxpayer’s account, then remit the monies to the Tax Department. Third party obligations owed the taxpayer, including loans or property rental payments, can also have a levy placed on them, as can the cash in the register of a business taxpayer. The Tax Department will not place a levy on property if the estimated sale proceeds are less than the projected costs of placing the levy, then seizing the property and selling it.

Income Executions

An Income Execution is a type of Tax Levy issued against the delinquent taxpayer’s salary, subject to certain income thresholds, under which the taxpayer voluntarily remits to the Tax Department a certain percentage (maximum 10%) of their gross salary. A delinquent taxpayer’s employer could be ordered to deduct, then remit to the Tax Department, up to 10% of the taxpayer’s gross salary, should the taxpayer fail to initiate voluntary payments within 20 days from receipt of the Tax Compliance Unit’s notice. An Income Execution continues in operation until the full amount of the overdue tax liability is paid.

Property Seizures and Auction Sales

The Tax Compliance Unit will normally only confiscate and auction real or personal property, not classified as exempt, whose sale value is expected to generate revenues over and above the estimated costs for the process. During the seizure and auction sale process, a business may be closed or all merchandise removed to a separate storage facility at the sole discretion of the Tax Compliance Unit. The unit sets an auction date after confiscating the property, then informs the taxpayer of the date.

Prior to the auction, the taxpayer may recover their property by fully paying their tax obligations, including penalties and interest, plus costs incurred by the Tax Compliance Unit in confiscating the property and preparing for the auction. Conversely, the delinquent taxpayer can request that confiscated property be auctioned within 60 days or within an extended, specified length of time. The Tax Compliance Unit will assess all such requests, approving them if it is in the state’s best interest to do so.

Considering the condition of the property and related factors, the property will be auctioned and sold at fair market value in compliance with the Civil Practice Laws and Rules. After the property is sold, the Tax Compliance Unit will provide the taxpayer a full accounting of the disposition of the revenues, refunding any excess revenue above the full cost of the processing.

Offsets

Any amounts the state owes a delinquent taxpayer for goods and services provided or, in certain circumstance, tax refunds, can be used to offset the taxpayer’s overdue tax obligations. The Tax Department will provide the taxpayer written notice in advance of assessing any offset. In addition to using offsets to settle overdue tax liabilities due New York state, the funds may be sent to New York City, other states, or the IRS. A delinquent taxpayer’s federal tax refund can also be applied against their state, New York City or Yonkers overdue tax obligations under the U.S. Department of Treasury Offset Program.

Release of a Tax Levy

A Tax Levy will be released by the Tax Compliance Unit, informing the taxpayer by written notice, if:

a) taxpayer settles the overdue tax obligation or it becomes uncollectible due to the time elapsed;

b) collecting the tax obligation will be aided by release of the levy;

c) an executed Deferred Payment Agreement specifically requires the release of the levy;

d) a partial release of the property will not delay payment of the overdue obligation because the fair market value of the confiscated property exceeds the amount of the overdue taxes; or

e) taxpayer is suffering a financial hardship, as determined by the Tax Compliance Unit, because of the Tax Levy.

Release a particular Tax Levy does not prohibit re-instituting a Tax Levy if circumstances warrant it. Property erroneously levied upon may be returned intact or an equivalent amount of money paid to the taxpayer originally owning the confiscated property.

Responsible Person Assessments

Officers, directors, or employees of corporations, partnerships or sole proprietorships required to act for their business, particularly in regards to tax law compliance, can be considered a “Responsible Person” of that business. A Responsible Person may be held personally liable for the business’ debts, particularly in regards to sales and compensating use taxes, withholding tax, and the motor fuel excise tax.

A taxpayer being issued a Responsible Person Assessment has 90 days from the issuance date of the assessment challenge it through a Conciliation Conference or Petition for a Division of Appeals hearing, providing the taxpayer an opportunity to present evidence refuting the assessment. Individuals will be considered to have challenged a Responsible Person Assessment if the affected firm had already made a challenge, though individuals may want to file their own challenge.

Once a responsible person assessment is final, all collection methods available to the department can be used against the responsible person’s assets. You can be personally assessed for the full amount of the tax the business owes, even if there are other entities or persons involved who may be similarly assessed. In most cases, responsible person tax debts cannot be discharged by bankruptcy of the business.

Estate Executors’ and Transferees’ Tax Liabilities

Representatives of estates (i.e. executors, administrators, others) and transferees (i.e. recipients of estate assets) may be help personally responsible for any unpaid estate tax.

Trust Accounts

Business taxpayers owing sales and compensating use taxes or withholding taxes may be required you to set up a Trust Account at a bank in which the taxes will be deposited when received from customers or withheld from employee wages. Such trust accounts help ensure that the taxes can be paid when due.

Suspension of Revocation of a Certificate of Authority

A business’ Certificate of Authority to collect sales and compensating use taxes may be suspended or revoked by the Tax Department for the business’ “willful” failure to comply with requirements of the tax code. No new business can start nor an existing business operate in New York state without a valid Certificate of Authority and doing so subjects the business to civil and criminal penalties. The Tax Department will notify the business when a suspension or revocation proceeding is undertaken.

Representation During a Collection Activity

A taxpayer may represent themselves or designate a third party to represent their case to the Tax Department, but third parties require the taxpayer to provide a properly authorized and executed Power of Attorney.

Licenses and Collateral

A firm’s ability to conduct business can be adversely affected by suspension or revocation of their license because of unpaid tax obligations. Bonds or other collateral posted as a requirement for a business license may be forfeited and used to settle the tax obligation, requiring a new bond or collateral to be posted to continue to operate the business.

Resolving Problems or Filing Complaints

Issues that have not been resolved through normal processes can be discussed directly with Tax Department personnel. In addition, the department accepts complaints that will be investigated and analyzed.

Further advice on the New York State Taxpayer’s Bill of Rights and related issues should be sought from CPAs and professional tax preparers specializing in New York state tax matters.

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