New York—Personal Income Tax: Tax Preparer Penalty Properly Imposed

30 December 2019

For New York State personal income tax purposes, a tax preparer was properly subject to penalties because she failed to provide a reasonable basis for the improper tax position claimed with respect to her clients’ returns. Generally, a tax preparer penalty is imposed if a preparer (1) takes an improper reporting position; (2) resorts to nondisclosure of such position; and (3) provides no reasonable basis for the particular tax treatment or reporting position. In this matter, the Division of Taxation’s (division’s) audits showed that tax returns the preparer filed on behalf of her client established no proof of entitlement to the claimed deductions including capital losses and other gains or losses. Further, the preparer could not have reasonably believed that the claimed reporting position for the losses was more likely than not the proper tax treatment. Therefore, the division imposed the penalty on the preparer. The preparer argued that the applicable statute under which the notice of deficiency was mailed to her had expired and repealed on July 1, 2015, and the division could not legally enforce the penalty. However, it was noted that the tax returns at issue were for the 2014 tax year and the repeal of penalty provision did not affect the actions of the preparer or the penalty imposed.

Additionally, the preparer failed to establish by clear and convincing evidence that the division erroneously imposed the penalty. The preparer did not consult any authority, other than internet research, to determine the appropriate treatment of her clients’ losses. Further, none of the clients provided any documentation to the preparer in support of their claimed losses. Therefore, the division correctly determined that the preparer could not have reasonably believed that the tax position claimed was more likely than not the proper treatment. Accordingly, the taxpayer’s protest was denied.

Almonte, New York Division of Tax Appeals, Administrative Law Judge Unit, DTA No. 827891, December 12, 2019, ¶409-603