Tax Chiefs Combine Increased Enforcement with Tolerance

Tax Chiefs Combine Increased Enforcement with Tolerance

By Jay Dismukes and Simon Eskow

Tax authorities from the tri-state area last month emphasized their departments’ efforts to step up enforcement, improve customer service, increase efficiency, and, in New York’s case, bring taxes closer to parity, while underscoring the need to work well with practitioners.

“It’s really our relationship with the practitioner community that allows us to be as good as we can be,” Harold Fox, deputy director of the New Jersey Division of Taxation, said. He added that events such as the Jan. 8 Foundation for Accounting Education’s Tri-State Taxation Conference, in which he and several other government officials gave presentations, are crucial to fostering that relationship.

Fox and New York City Department of Finance Commissioner Martha Stark described how their departments have had to “do more with less” in a time of fiscal restraint, forcing them to become more creative, encourage compliance and focus their attention on specific kinds of enforcement to pursue.

Fox described his department’s effort to crack down on some corporate business tax abuse, particularly a few thousand companies, for instance, that paid less than the statutory tax minimum or reported a net operating loss in violation of the two-year suspension rule. Much of the division’s future enforcement will focus on these issues, he said.

While the division fine-tunes its enforcement efforts, it will also undertake initiatives to improve efficiency in order to make reporting less onerous to business. Fox said the division will make it easier for corporations to withdraw or dissolve by considering the date it receives such forms as the date the corporation is dissolved, as opposed to the date the forms get processed.

The division will also change its billing procedure by giving two estimates on a tax bill: one for the bill itself and a second for the bill plus penalties for late payment.

Balancing Act

Stark reviewed the efforts of her department since she became New York City tax commissioner two years ago. A bribery scandal involving more than a dozen of the city’s property tax assessors preceded her arrival. That case, she said, served as an example of the department’s need to focus on communication with taxpayers, customer service and voluntary compliance.

“It’s absolutely critical to accomplish this that we demystify what we do,” Stark said.

For example, the department revised the Byzantine process of valuating property, Stark said, adding that it was this sort of complexity that led to the bribery scandal. The department now assigns assessors by property type, as opposed to geographic region, and minimizes contact between the assessors and building owners.

Stark also heralded a recent tax amnesty as an effective revenue generator.

But a large part of the department’s initiatives have gone to “leveling the playing field” among the city’s diverse taxpayers. She said the department is setting its sights on some Wall Street firms that have “whittled down their tax liability to a shamefully low level,” and on closing a loophole in the real estate investment trust, which likely will generate $10 million in revenues.

She also said the department reached a memorandum of understanding with the state and the Internal Revenue Service to share information on common tax dodges, and is seeking to modernize the tax code to reform the unincorporated business tax.

Farther North

New York State Tax Commissioner Andrew Eristoff outlined his department’s three major goals: improved processing, better customer service and increased voluntary compliance.

The department is very serious about corporate tax planning abuses, said Eristoff, who encouraged the audience members who have business clients “with similar circumstances ... to come forward to initiate a dialog with us while we are still in the holiday mood.” He added that the department has noticed a “substantial amount of noncompliance” with the withholding tax audit program, again advising voluntary disclosure for executives who have thus far flown under the radar.

Eristoff also addressed Line 56, in which there was great interest, noting that leaving the line blank does not make the return more likely to be audited. The audit division, rather, relies on information from outside sources such as U.S. customs, he said.

Conference attendees were also treated to their very own consultation with Richard Nicholson, peppering the deputy commissioner of the Connecticut Department of Revenue Services with questions specific to their own practices. In addition to clarifying sales tax nexus issues, Nicholson touched on domicile status, which he noted are “the most difficult cases to deal with.”

Sponsored by the New York State Society of CPAs’ New York, Multistate and Local Taxation Committee, chaired by Mark H. Levin, the Tri-State Tax Conference, chaired by Alan J. Preis, took place at the New York Helmsley Hotel in Manhattan.