The New York State Department of Taxation and Finance will begin collection action against taxpayers who fail to meet their tax liabilities. At Long Island Tax Resolution Services, we often receive frantic telephone calls from taxpayers facing NY state tax collection actions.
The following are common examples of these types of calls:
- A business owner runs into cash flow issues and delays paying payroll taxes for several months or longer.
- A freelancer can’t pay his bills and fails to arrange to pay self-employment income taxes when they are due.
- A landlord fails to pay taxes on rental properties. Tenants start receiving levy notices and refuse to pay rent, leaving the landlord facing collection actions as well as going upside down on the monthly mortgage.
If you have arrived at the point of reaching out for help, New York State has probably already begun to move forward with some type of collection action. They may have already filed tax warrants against assets and property, issued a notice of levy, or taken some other collection action.
The state must give taxpayers notice before moving forward with any collection action. You then have 90 days from the notice mailing date to challenge the findings in a deficiency or determination notice. If you fail to respond within the allotted time, the state will begin taking more extreme actions to collect the outstanding debt.
State of New York Tax Collections Actions
A Notice of Demand is the last notice you will receive before New York State starts to take more aggressive collection action. You have 21 days to address the notice or pay the full balance before the state files a warrant.
- A tax warrant effectively creates a lien against your property. It serves as a public record of tax shortage, sets the groundwork for more collection actions, and may appear on personal and corporate credit reports. The state does not give warrant information to credit reporting bureaus, but the organizations can access the information within public records.
- Tax warrants against real property (land and buildings) can last for 10 years, and warrants against personal property (assets and movable property) are valid for up to 20 years. When mistakes are made, the state will cancel the warrant. The state will also cancel a warrant if you pay all taxes due including interest and penalties
- If New York State issues a warrant and fails to receive payment, it may issue a legal order known as a levy. The state will not directly tell you before passing a levy. Levies need third parties such as banks.
The state controls these assets until you fully pay the tax debt. Certain finances are free from levy actions, including social security income, welfare, alimony, child support, benefits, and pensions.
- You need to contact the state as soon as possible to discuss resolution possibilities. While you can approach the state on your own, you may want to involve a tax representative who can effectively negotiate the terms of a settlement on your behalf. To resolve levies, you can negotiate for an installment plan, an offer in compromise, or some other form of tax relief.
- If necessary, New York State may also issue an income execution order, forcing you or your employer to directly pay a portion of wages to pay off tax debt. The state can take up to 10% of your gross income or 25% of your disposable earnings. Those under income execution orders must pay the first percentage within 20 days of receiving the notice and send in a payment after each pay cycle.
- If you fail to pay installment agreement payments on time, the state can issue and income execution. Unless you and the state agree to an alternative resolution the income execution order will remain in place. Once you fully pay the tax liability, the income execution is lifted.
- If a levy and income execution do not satisfy your tax debt, New York State may seize and sell your real and personal property. This is the final and most serious collection action the state will take to secure outstanding tax dollars (assuming the state does not take criminal action you).
The state will never close the door on you for finding a suitable resolution. If both parties agree to the payment terms, the state will return your property.
- If you and the state cannot agree on a suitable resolution, the state will keep just enough funds to cover the tax liability. The state will return any remaining funds to you.
Challenging a Notice of Deficiency or Determination
During the 90-day period after receiving a notice, you can file petition form TA-10 with the Division of Tax Appeals for an Administrative Law Judge (ALJ) hearing. You can also ask for a conciliation conference with the Bureau of Conciliation and Mediation Services by filing form CMS-1-MN.
During a tax appeal or conciliation conference, you or your tax resolution consultant has an opportunity to challenge the findings outlined in a notice. You also have the opportunity to negotiate a fair resolution while the department delays taking further collection action.
Conciliation conferences are a less formal way to resolve a challenge to a tax notice. A conferee oversees these proceedings. You will receive a proposed resolution and then have 15 days to accept or decline. If you decline the resolution, the conferee issues a Conciliation Order. The terms of this order binds both parties.
You can also file a petition for a hearing. After you file a petition, The Division of Tax Appeals in New York assigns an administrative law judge to the case who will meet with you during a pre-hearing conference.
If the judge and yourself come to an agreeable resolution, the case is closed.
If no agreement is reached the case enters the hearing phase.
Typically, the same administrative law judge will preside over both the pre-hearing conference and the hearing.
During the hearing, you can produce evidence supporting a claim against the tax liability. The judge will issue a determination within 6-9 months. Filing a petition for an appeal provides you with a way to settle the dispute or buy time to arrange a better tax resolution strategy.
If possible, reach out to a tax resolution consultant such as a US Treasury Enrolled Agent during the notice period. If you wait until the state begins taking collections actions, you may face tax warrants and liens, levies, seizures, and/or income executions.
Bankruptcy and Collection Actions
A tax resolution consultant will never advise filing for bankruptcy as a first alternative. You should always consider bankruptcy as the final alternative. Some individuals must file for bankruptcy because of much wider financial issues. Tax liabilities are just part of the overall financial difficulties.
For these individuals, the state will stop all collection actions until the bankruptcy case is settled. Bankruptcy filings may dismiss tax debt or provide individuals with a reasonable repayment plan that reduces overall debt liability.
Avoid Collection Actions at All Costs!
Many taxpayers believe that negotiating with the state is futile—a common misconception. Tax agencies prefer to work with you instead of taking legal actions against you. They only take collections actions if you fail to cooperate with them.
While New York State is willing to work with you to resolve the tax issue as quickly as possible.
The state’s sole objective is to collect as much outstanding tax debt as possible. The state will not provide you with advice on how to avoid tax problems in the future.
If you have not contacted a tax resolution consultant before the NY State tax collection actions begin, it’s not too late. Reach out to someone who is legally representing you in front of the state tax department, and give him or her all the information you have.
As a taxpayer, you have rights. A qualified tax resolution consultant will go over all the facts of your case, ensuring the state did everything properly during the notice period. If your tax returns contain any mistakes or the state made an error, you may not owe what the state says you owe.
You also have access to several forms of tax relief designed to ease the load of unexpected financial hardship.
Most taxpayers want to resolve tax problems without the risk of credit damage or asset seizure, regardless of the debt amount or financial. At Long Island Tax Resolution Services, we help you to develop strategies to deal with collection actions and to resolve tax issues permanently.
Contact us today for a free consultation, and learn more about our individualized approach to New York State tax solutions.