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It Could Never Happen Here-Or Could It? By A.J. Powers
In a survey conducted in January, 2008 by CEO Magazine of 600 corporate executives, NY, for the third consecutive year ranked 49 (second only to California) as the worst states for business citing as common denominators high taxes and state regulations. Imagine that you are a former small business owner who saw their great American dream dissipate while leaving you in financial ruin, and that after abandoning your dream you accepted a job and were recently informed that you no longer had a job amidst this severe economic downturn. Now imagine that you return home to your apartment only to find a Field Memorandum Notice left by a NYS Tax Compliance Agent stating that you owe thousands of dollars to NYS based on the attached Consolidated Statement of Liabilities. The notice states that unless these tax liabilities are resolved within one week from the date of the notice, that "collection action will continue without further notification to you and that this collection action may include, among other things, the docketing of a tax warrant against you with the County Clerk, levy of bank and investment accounts, income execution, and the seizure and sale of assets”.
Having never received previous notices from NYS in accordance with their Publication 125-The Collection Process, Procedures of the NYS Tax Department to Enforce Collection of Finally Fixed Tax Liabilities, he was not only confused by the abbreviations used in the notice as regards the tax liabilities claimed to be owed, he sank into a deep depression and was overcome by fear. Next, he opened up a letter, also from NYS, which stated that he owned and additional $12,500.
As it turned out, the $12,500 pertained to liabilities which were settled and for which a satisfaction had been issued by NYS for past liabilities of the corporation which were resolved months ago and for which a legal notice of satisfaction was issued; however although it was sent to the Courts, the information was never entered into the computer database in order to stop further notices of tax liabilities due. The remaining tax liabilities listed in the Field Memorandum were improperly determined computer generated assessments and in some cases pertained to returns he was not required to file. My client was so emotionally distressed when he brought these to my attention, he questioned if he lived in 21st Century America or was being subjected to strong arm tactics of a fascist totalitarian state such as the former Soviet Union or Nazi Germany. When I contacted the Field Agent, his response was that I should file tax returns (even where none are required) and provide him with proof that a debt is not owed. What he is saying is that the citizen is guilty until proven innocent.
What I find so disturbing is that in a nation where citizens are protected by the Bill of Rights that presume one’s innocence until proven guilty beyond a reasonable doubt, the collection tactics taken by NYS are based on information generated by a computer system which bypasses the State’s administrative process and denies the accused taxpayer the opportunity to defend himself by confronting his accuser and correct the inaccuracies. The writer believes that this would be the most economically efficient means of resolving the matter for both the taxpayers and the State rather than bypassing the States administrative procedures as regards notifying the taxpayer of a possible error or penalty assessment, etc. in order that the taxpayer may respond by either paying the obligation of disputing its legitimacy. However, as I will be personally resolving this dispute on behalf of the client “pro bono”, I feel I have an obligation to the public to inform them of this situation and others like it.
It is understandable that, after creating such a huge governmental entitlement state, where every program demands the creation of an agency of employees, many who are compensated at overtime rates and paid from taxpayer funds (thus further exacerbating the state budget deficit), in order to balance the budget NYS needs to cut costs while narrowing the tax gap. But narrowing the tax gap should not mean enforcing collection upon on small business owners for monies they do not owe (remember the Boston Tea Party). When I contacted the Field Agent his response was that there was nothing he could do until the taxpayer provided him with evidence proving that the indebtedness was incorrect. Now it is no secret that the average person has no way to interpret the coding of these tax assessments to determine to what they relate, or by what means to resolve the matter at hand. This leaves two options, either borrow money or forgo paying ordinary and necessary living and personal survival expenses in order to pay a tax professional to do the work for him, or face the consequences of NYS using any and all means to enforce collection of tax liabilities not owed.
It is a little known to the common man that 60% of our nation’s employment is generated through small businesses, and with unemployment increasing at alarming rates the common man is left with no choice but to live off government subsidy, lose his home or pull himself up by his bootstraps and start a small business. However, instead of encouraging entrepreneurial business development NY government seems to think that punitive remedies work better than meaningful guidance and educational resources.
In reading the recent story published in the Legislative Gazette, NYS Workers’ Compensation Board steps up its enforcement, the numbers are so staggering that I can't help but wonder based on what I have seen over the years, just how many of the stop work orders issued (which put people out of work) and fines issued were more the result of administrative errors, poor record keeping or bad advice than a mere blatant disregard of the law. If there are this many blatant violations to begin with, is someone not doing their job? NYS employment laws are difficult enough for professionals to understand, how is the poor man of the street with what he believes to be a sound business concept to understand these laws without exhausting unnecessary funds hiring a professional. Many insurance professionals lack an adequate understanding of the worker’s compensation and disability laws and merely turn it over to the State Insurance Fund to write up a policy which is often inadequate for the business owner’s needs.
The November 17, 2008 edition of HV Biz lists 104 judgments were filed against local Hudson Valley businesses just in October alone, of which 80 were obtained by the NYS Department of Taxation and Finance and the remaining 24 by the NYS Department of Labor ("DOL") and Workers Compensation Bureau ("WCB"). Some were for amounts as little as $104 leaving me to wonder what is the taxpayer’s (I.E. our government) true cost of levying judgment for a debt of $104, without even considering the cost of the banking institution and employers who receive these judgments for money that may not even be owned in the first place. And what about the damage to the person or business on whom the judgment is issued. Remember the situation above where a taxpayer was issued a notice stating that all legal remedies would be pursued to collect the debt unless it was resolved in 7 days.
The bottom line is that once the matter reaches this pint (regardless of whether or not proper administrative protocol was exercised or if the tax debt is legitimate) a business will usually pay the bill merely in order to release the lien as the cost of hiring counsel or a tax professional as an advocate would exceed the debt claimed by the Revenue Department.
For those who legitimately owe taxes and have refused to pay assessment notices I say "hook 'm and book 'm", as it is an injustice and drain on society for tax cheats and those who blatantly violate employment laws to be allowed to continue. However, where the State bypasses administrative procedure and exercises punitive measures to collect a debt (legitimate or not) without affording the businessman legal administrative rights is just wrong. If you or I send someone a bill for money they did not owe us and then obtained a court judgment lacking due service of process we could be convicted of fraud. So where is a government’s measures to extort money from potentially innocent citizens andy different.
In summary, if you owe tax, pay it! But if you receive a bill or are faced with a judgment, lien, levy, etc. for collection of taxes you don't owe, don't be afraid of fighting back and be sure to let your ELECTED local NY representative know and demand advocacy. My message to NYS government is to take affirmative action to help small businesses instead of trying to punish them and discourage small business development.
About the author. For over 30 years, Andrew Powers has served both middle income and high wealth tax individual clients and advocated for small business. Throughout his career he has served as a Tax Executive for many of the largest privately and publicly held businesses, responsible for U.S. tax compliance, research of codified and case law as well as tax planning of sophisticated transactions. He has specialized in both domestic U.S. federal and state matters as well as the U.S tax ramifications of doing business abroad. Today Mr. Powers practices alone (with assistance from colleagues who practice in specialized areas of tax law and compliance) from his office in Mahopac, N.Y. Further information is available at www.tax-power.com.