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Legal Memorandum: Grounds for Challenging an Assessment

Issue: Under New York law, what grounds does a taxpayer have for challenging an assessment?

Area of Law: Tax Law
Keywords: Challenging an assessment; Taxpayer; Substantial evidence
Jurisdiction: New York
Cited Cases: 249 A.D.2d 716; 408 N.Y.S.2d 54; 45 N.Y.2d 176; 104 A.D.2d 523; 671 N.Y.S. 2d 565
Cited Statutes: Tax Appeals Tribunal Rule § 1-12(d)
Date: 07/01/2006

The taxpayer may successfully challenge the “rational basis” for the assessment by showing that the “methodology used to arrive at it was inappropriate or inaccurate.”  Drebin v. Tax Appeals Tribunal, 249 A.D.2d 716, 671 N.Y.S. 2d 565, 566 (3d Dept. 1998).  In other words, the taxpayer may carry its burden of proof by showing that the audit underlying the deficiency determination was “irrational.”  Matter of Atl. & Hudson Ltd. P’ship (State Tax Appeals Tribunal, Jan. 30, 1992).  To do so, the taxpayer may rely on evidence of irrationality that appears on the face of the audit as described by the taxing authority.  Id.  This may be accomplished through evidence about the audit developed by the taxpayer at the hearing or in the inability of the taxing authority to identify the bases of the audit methodology.  Id.  “Our cases establish that the Division has the obligation, in response to the petitioner’s inquiry at the hearing, to describe the audit methodology and that the method described must be rational.”  Matter of Metzger (State Tax Appeals Tribunal, Feb. 11, 1993); see Matter of Atl. & Hudson Ltd. P’ship; Matter of Basileo (State Tax Appeals Tribunal, May 9, 1991); Matter of Fokos Lounge (State Tax Appeals Tribunal, Mar. 7, 1991). 

Thus, even though the petitioner bears the burden of proof, if challenged, the taxing authority has the obligation “through witnesses or documents, [to] be able to respond meaningfully to [petitioner’s] inquiries regarding the nature of the audit […]

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