Taxpayer’s Guide to NYS Tax Problems & Resolutions

If you live, work, or run a business in New York, you must understand the state’s tax rules and obligations. The Department of Taxation and Finance (DTF) administers and collects individual and business taxes for the State of New York, and if you’re not compliant with their requirements, you may incur penalties or face involuntary collection actions.

A New York tax attorney such as the Law Offices of Stephen B. Kass, PC can help you find solutions for your state tax challenges. To help you get started, this guide outlines some of the most common tax problems and resolution options in New York State.

New York Tax Problems and Challenges

Unpaid State Taxes

Taxpayers may face unpaid state taxes in the following situations:

• They file an individual or business tax return but do not pay the balance due.
• They fail an audit and incur a tax liability.
• The IRS or DTF makes changes to a tax return that lead to a tax liability.

If you have unpaid taxes, the DTF will assess interest on your balance. You will also incur a late payment penalty of 0.5% for every month you are late, and this penalty can get up to 25% of your tax liability. The DTF will seize your NY state tax refunds, and if you don’t owe any money to the IRS, the DTF can also seize your IRS tax refunds.

Penalties

In addition to charging late payment penalties, the DTF may also assess the following penalties:

• Late filing penalty – 5% of the tax due per month, up to 25%.
• Incorrect tax calculation penalty – 10% of the unreported tax if you underreported tax by the greater of $2,000 or 10% of your correct tax liability.
• Negligence penalties – 5% of the tax underreported due to negligence and 50% of the interest due to the underpayment.
• Fraud penalties – 200% of the underreported tax.
• Frivolous return penalties – $5,000 plus any of the above penalties if applicable.

Tax Audits

The DTF may audit your personal or business state tax returns, and the agency may also initiate an audit if you didn’t file a return. The department will contact you by mail if you have been selected for an audit. Generally, you only need to mail information to the DTF during the audit, but in some cases, the auditor may request an in-person meeting.

During the audit, you will be asked to provide documents to support the income, credits, and deductions claimed on your state tax returns. The department also does residency audits to determine if taxpayers are full or part-time NYS residents. These audits look at information related to where you live and your primary abode.

Tax Warrants

A tax warrant is a lien against your real and personal property. If you don’t pay your state taxes, the DTF can file a warrant against you. Tax warrants last for 20 years or until the tax debt has been paid in full. A warrant gives the department the legal authority to move forward with wage garnishments and property seizures are outlined below. Warrants are also public records that can destroy your ability to borrow money or sell assets easily.

Income Executions

An income execution in New York is when the DTF garnishes your wages for unpaid taxes. The DTF starts by sending you a notice asking you to voluntarily send in a portion of your wages. You can send in 10% of your gross wages (before taxes and deductions) or 25% of your disposable wages.

If you don’t comply, the DTF will send the execution order to your employer. Then, your employer will deduct the payment from your wages every pay period and send the funds to the DTF. The garnishment will continue until the tax debt is paid in full. Note that in New York, it is illegal for your employer to fire you due to wage garnishments.

Driver’s License Suspension

The DTF can tell the DMV to take away your driver’s license if you owe $10,000 or more in state taxes. You can avoid losing your license if the following apply:

• You have a commercial driver’s license.
• Your wages are currently being garnished.
• You pay court-ordered child support.
• You are on public assistance benefits or receive SSI.

Before taking your license, the department will send you a notice that gives you 60 days to make payment arrangements.

Seizures and Levies

Once the DTF issues a tax warrant, they can seize your real and personal property and auction it off to cover your tax debt. They can also seize bank accounts, investment accounts, and money owed to you by third parties such as rent payments or accounts receivables.

There is only a small amount of property exempt from seizure, such as clothing, school books, and tools of the trade. Although it’s rare, in some cases, the state may even be able to seize your primary residence.

If the DTF is seizing business assets, they may change the locks and deny you access to your business. They can also take all of the money out of your cash register.

New York City Taxes

In addition to dealing with taxes on the state level, many New York individuals and business owners must also deal with local tax jurisdictions. In particular, New York City has its own income tax as well as several unique taxes for businesses that operate in the city.

New York State Tax Resolution Options:

Installment Payment Agreements

You can apply for a payment plan online for individual or business taxes owed to the DTF if you meet the following criteria:

• Owe $20,000 or less
• Can pay off the balance in 36 or fewer monthly payments

If you owe more or need more time to pay, you must contact the department directly to request a payment plan. Depending on the situation, you may be able to get up to six years to pay. However, you will generally need to file a DTF-5 Statement of Financial Condition which is a 10-page form that asks details about all of your personal and business finances.

While you are on a payment plan, the DTF will continue to add interest and penalties to your balance. The DTF may also file a warrant until the tax liability is paid in full.

Offer in Compromise (OIC)

The State of New York may be willing to settle tax liabilities for less than owed through its offer-in-compromise program. Individuals and businesses may qualify if they are bankrupt or insolvent. Individuals can also qualify if payment in full would create financial hardship.

Individuals can apply online if they owe $15,000 or less. Otherwise, individuals and businesses should apply by filing Form DTF 4.1 (Offer in Compromise for Fixed and Final Liabilities) along with Form DT-5. These forms give the DTF an extremely detailed picture of your financial situation, and the DTF uses this information to determine whether or not to accept your offer.

To put it simply—the DTF wants to ensure that your offer is the most that you can afford to pay when taking into account all of your assets and disposable income.

Hardship Status

If you’re experiencing financial hardship, you may want to look into the DTF’s offer-in-compromise program. The IRS will stop collection actions against taxpayers who qualify for currently not collectible status, but unfortunately, New York State does not offer a comparable program.

Note that if the suspension of your driver’s license is causing financial hardship, you can request to get it back by filing Form DTF-5.1 (Application for Undue Economic Hardship Exemption from Driver’s License Suspension Program).

Innocent Spouse Relief

Normally, both spouses are liable for the taxes due on a jointly filed NY tax return. However, the department realizes that there are situations where it would be unfair to hold one spouse liable for the other spouse’s tax liability. In particular, if your spouse underreported the tax due without your knowledge, you may be able to get relief through the state’s innocent spouse program. To apply, file Form IT-285 (Request for Innocent Spouse Relief).

If the DTF takes your tax refund for a debt owed by your spouse, you can file Form IT-280 (Nonobligated Spouse Allocation) to request your portion of the refund. However, you must submit this form within 10 days of the time you receive DTF-160 (Account Adjustment Notice). Ideally, to protect your refund, you should simply file the IT-280 when you file your tax return.

Protests, Disputes, and Reviews

You have the right to dispute certain actions taken by the DTF. Depending on the situation, you may be able to dispute the following:

• Requests for information
• Changes to your state tax refund
• Tax deficiency and determination notices
• Bills issued after field audits
• Department errors

You only have the right to protest certain actions, and you must do so by the deadline on the notice. However, you almost always have the right to request a review. A tax attorney can help you understand the correct procedures if you want to dispute a tax assessment, collection action, or department decision.

Voluntary Disclosure Program

If you have unfiled returns and unpaid taxes, you may be able to avoid penalties and legal consequences through the DTF’s voluntary disclosure program. The program covers all of the taxes administered by the DTF including individual income tax, corporate income tax, and sales tax.

To qualify, you must reach out to the department before they contact you. If you’re under audit or have already received notices about the unfiled returns, you do not qualify.

Even if you didn’t file in an attempt to evade taxes, the department will not pursue criminal tax evasion charges against you. The DTF will also protect your privacy in these situations unless you break one of the terms of the voluntary disclosure program.

Why Work With Stephen B. Kass

If you are dealing with unpaid taxes, NY tax or residency audits, NYC taxes, collection actions, or any other tax issues, consider contacting the Law Offices of Stephen B. Kass, PC.

Stephen B. Kass is an experienced New York tax attorney who can help you deal with the IRS and the New York Department of Taxation and Finance. He has extensive experience helping clients reduce penalties, negotiate settlements, and resolve tax disputes. He can help you find the right solution for your tax problems.

You do not need to live in fear or worry about your tax issues any longer. Instead, contact us to get help and guidance today. Don’t risk facing unwanted collection actions or incurring more penalties or interest. Resolve your tax problems by reaching out to a knowledgeable NY attorney today.