Current through Register Vol. 46, No. 12, March 20, 2024
(a)
(1) Any
person required to file a return who omits from the total amount of State and
local sales and use taxes required to be shown on a return an amount which is
in excess of 25 percent of the amount of such taxes required to be shown on the
return shall be subject to a penalty equal to 10 percent of the amount of such
omission. However, the amount of the omission shall be reduced by that portion
of the omission which is attributable to the tax treatment of any item by such
person if there is or was substantial authority for such treatment, or any item
with respect to which the relevant facts affecting the item's tax treatment are
adequately disclosed in the return or in a statement attached to the
return.
(2) If the department
determines that such omission was due to reasonable cause and not due to
willful neglect, as defined in section
2392.1 of this
Title, it shall waive all of the penalty assessed.
(b)
(1)
There is substantial authority for the tax treatment of an item only if the
weight of the authorities supporting the treatment is substantial in relation
to the weight of authorities supporting contrary positions. All authorities
relevant to the tax treatment of an item, including the authorities contrary to
the treatment, are taken into account in determining whether substantial
authority exists. The weight of those authorities is determined in light of the
pertinent facts and circumstances in the manner prescribed in paragraph (3) of
this subdivision. There may be substantial authority for more than one position
with respect to the same item. The taxpayer's belief that the authorities with
respect to the tax treatment of an item constitute substantial authority is not
taken into account in determining whether there is substantial
authority.
(2) Types of authority.
In determining whether there is substantial authority
(other than in cases described in paragraph [4] of this subdivision), only the
following will be considered authority: applicable provisions of the Tax Law
and other statutory provisions; regulations of the Commissioner of Taxation and
Finance and regulations proposed by the Commissioner of Taxation and Finance
construing such law; court cases; administrative pronouncements (including
technical memoranda); Tax Department and other official explanation of such law
and regulations; and legislative intent as reflected in bill memoranda.
Conclusions reached in treatises, legal periodicals, legal opinions or opinions
rendered by other tax professionals, and descriptions of statutes prepared
after enactment are not authority. The authorities underlying such expressions
of opinion, where applicable to the facts of a particular case, however, may
give rise to substantial authority for the tax treatment of an
item.
(3) Except as
otherwise provided in this subdivision, the weight of the authorities for the
tax treatment of an item is determined by the same analysis that a court would
be expected to follow in evaluating the tax treatment of the item. Thus, the
weight of authorities depends on their persuasiveness and relevance as well as
their source. For example, a case or a declaratory ruling having some facts in
common with the tax treatment at issue would not be considered particularly
relevant if the authority is materially distinguishable on its facts, or is
otherwise inapplicable to the tax treatment at issue. Similarly, an authority
that merely states a conclusion ordinarily would be given less weight than an
authority that reaches its conclusion by cogently relating the applicable law
to pertinent facts. There may be substantial authority for the tax treatment of
an item despite the absence of certain types of authority. Thus, a taxpayer may
have substantial authority for a position that is supported only by a
well-reasoned construction of the applicable statutory provision. However, a
position with respect to the tax treatment of an item that is arguable but
fairly unlikely to prevail in court would not satisfy the substantial authority
standard.
(4) There is substantial
authority for the tax treatment of an item if the treatment is supported by the
holding of an advisory opinion issued to the taxpayer, by the holding of an
opinion of counsel in which the taxpayer is named, or by an affirmative
statement in a tax auditor's report with respect to a prior audit of the
taxpayer ("written determinations"). The preceding sentence shall not apply,
however, if there has been a misstatement or omission of a material fact, the
facts that subsequently develop are materially different from the facts on
which the written determination was based, or authority supporting a contrary
position has arisen since the date of the written determination.
(5) For purposes of this section, there is
substantial authority for the tax treatment of an item if there is substantial
authority at the time of the relevant transaction, at the time the return
containing the item is filed or on the last day of the taxable period to which
the return relates.
(c)
(1) Disclosure is adequate with respect to
the tax treatment of an item on a return only if it is made on such return or
in a statement attached thereto.
(2) Disclosure will be adequate with respect
to an item (or group of similar items), if it takes the form of a statement
attached to the return that includes the following:
(i) a caption identifying the statement as a
disclosure under section
1145 of the Tax Law;
(ii) an identification of the item (or group
of similar items) with respect to which disclosure is made;
(iii) the amount of the item (or group of
similar items); and
(iv) the facts
affecting the tax treatment of the item (or group of similar items) that
reasonably may be expected to apprise the department of the nature of the
potential controversy concerning the tax treatment of the item (or
items).
(3) In lieu of
setting forth the facts affecting the tax treatment of an item (or group of
similar items) in accordance with paragraph (2) of this subdivision, the
taxpayer may set forth a concise description of the legal issue (or issues)
presented by such facts or a concise description of the taxpayer's legal
position (or positions) with respect to the items.
(4) Disclosure is not adequate with respect
to an item (or group of similar items) if it consists of undifferentiated
information that is not arranged in a manner that reasonably may be expected to
apprise the department of the identity of the item, its amount, and the nature
of the potential controversy concerning the item (or items). For example,
attachment of a statement claiming a refund or credit in a specific amount to a
return but furnishing no other information substantiating the basis of a refund
or credit will not constitute adequate disclosure of the issues involved in
determining the basis of such refund.