Tax Appeals Tribunal
State of New York
*1 IN
THE MATTER OF THE PETITION OF BERNARD AND BARBARA KANE
for Redetermination of a Deficiency
or for Refund of Personal Income Tax under
Article 22 of the Tax Law and the New York City Administrative Code for the
Year 1989.
DTA No. 815424
TSB-D-99(1)I
February 18, 1999
HEARING DECISION
Petitioners Bernard
and Barbara Kane, 16930 Silver Oak Circle, Delray Beach, Florida 33445-7011, filed an exception to the determination of the Administrative Law Judge issued on May
14, 1998. Petitioners appeared by Stephen L. Packard, Esq. The Division of
Taxation appeared by Steven U. Teitelbaum, Esq. (Gary Palmer, Esq., of
counsel).
Petitioners
filed a brief in support of their exception and a reply brief to the Division
of Taxation's brief in opposition. Oral argument was not requested.
After reviewing the
entire record in this matter, the Tax Appeals Tribunal renders the following
decision.
ISSUES
I. Whether the
Division of Taxation timely and properly issued a Notice of Deficiency to
petitioners pursuant to Tax Law § 681(a) and § 683.
II. Whether the
Division of Taxation properly determined that petitioners were resident
individuals pursuant to Tax Law § 605(b).
FINDINGS OF FACT
We find the facts as
determined by the Administrative Law Judge. These facts are set forth below.
On June 8, 1993, the
Division of Taxation ("Division") issued a Statement of Personal
Income Tax Audit Changes to Bernard and Barbara Kane ("petitioners")
at 16930 Silver Oak Circle, Delray Beach, Florida 33445. This document advised
petitioners that the Division was asserting a deficiency of New York State personal income tax in the amount of $45,561.84, plus
penalties and interest, and a deficiency of City of New York personal income
tax in the amount of $987.47, plus penalty and interest. The Statement of
Personal Income Tax Audit Changes advised petitioners that the basis for these
deficiencies was that for the year 1989, they had not established, by clear and
convincing evidence, that they intended to change their domicile from New York to Florida and were, therefore, considered New York residents subject to tax on
all income. Petitioners were further advised that they had not established,
through adequate records, that they had spent fewer than 183 days within the
State in 1989. Alternatively, their wage allocation for the year had not been
substantiated.
The Statement of Audit
Changes, in computing the deficiency which it asserts against petitioners, also
included, as an adjustment to New York State income, the sum of $76,529.00
which represents interest income on state and local bonds. A letter from
Benjamin W. Block, CPA, to Cleveland Best of the Division's Westchester
District Office, dated June 3, 1993, provided a detailed list of tax exempt
interest reported on line 8b of petitioners' Federal income tax return for
1989. Of the total amount of $116,378.00, $69,879.00 was State of Florida municipal bond interest income and $6,650.00 was State of Texas municipal bond
interest income, for a total of $76,529.00 (the balance, or $39,850.00,
represented New York municipal bond interest income which is not subject
to tax in New York). The Division's position is that if petitioners are found
to be statutory residents of New York for 1989, this $76,529.00 in interest
income is subject to New York personal income tax.
*2 On
November 18, 1993, the Division issued a Notice of Deficiency to petitioners
(the notice was addressed to petitioners at 16930 Silver Oak Circle, Delray
Beach, Florida 33445-7011) which asserted a tax deficiency of $46,549.31
($45,561.84 in State tax and $987.47 in City tax), plus penalty and interest,
for a total amount due of $76,151.82 for the year 1989.
Previously,
petitioners by their then representative, Steven M. Romm, CPA, executed a
consent extending the period of limitation for assessment of personal income
tax whereby they agreed that taxes due for the year 1989 could be assessed at
any time on or before April 15, 1994. Attached thereto was an individual power
of attorney, signed by both petitioners, which appointed Mr. Romm as their
representative for purposes of income tax for 1989. Both the consent and the
power of attorney were dated November 16, 1992.
In support of its
position that the Notice of Deficiency was timely and properly issued to
petitioners, the Division submitted the affidavit of Geraldine Mahon, principal
clerk of the Case and Resource Tracking System ("CARTS") control
unit. By her affidavit, Ms. Mahon described the Division's general procedure
for processing notices of deficiency and determination prior to shipment to the
Division's mechanical section for mailing.
She
explained how she received a computer printout entitled "Assessments
Receivable, Certified Record for Non-Presort Mail" (hereinafter
"certified mail record") and the corresponding statutory notices,
each predated with the anticipated date of mailing and a certified control
number. The certified mail record for the notices issued November 18, 1993,
including the notice issued to petitioners, consisted of 15 fan-folded pages
which are connected when the document is delivered into the possession of the
U.S. Postal Service.
Ms. Mahon examined the
certified mail record issued by the Division on November 18, 1993. The
certified control numbers ran consecutively and there were no deletions. Each
of the pages consisted of 11 entries with the exception of page 15 which
contained 7 entries.
Ms. Mahon explained
that the original date printed on the certified mail record,
"11/08/93" was manually changed to "11-18-93". She stated
that the certified mail record is printed approximately 10 days in advance of
the anticipated date of mailing of the notices so that there is sufficient time
for the notices to be manually reviewed and then processed for postage by the
Mechanical Section. The handwritten change of the date was made by personnel in
the Division's mail room to conform to the actual date that the notices and
certified mail record were delivered into the possession of the U.S. Postal
Service.
Each statutory notice
is placed in an envelope by Division personnel and the envelopes
are then delivered into the possession of a U.S. Postal Service representative
who then affixes his or her initials or signature and a U.S. postmark to the certified mail record. In this case, the U.S. Postal Service
representative signed page 15 of the certified mail record, affixed a postmark
to each page of the certified mail record and circled the total number of
pieces on the certified mail record. Page 15 indicates that a Notice of
Deficiency (Notice No. L008253809) was sent to Bernard Kane, 16930 Silver Oak
Cir, Delray Beach FL 33445-7011 by certified mail using control number P 911
203 854. The U.S. postmark on each page of the certified mail record confirms
that the notice was sent on November 18, 1993.
*3 Ms.
Mahon states that in the regular course of business and as a common office
practice, the Division does not request, demand or retain return receipts from
certified or registered mail. She indicates that the procedures described in
her affidavit were the normal and regular procedures of the CARTS Control Unit
on November 18, 1993. Attached to the affidavit was a copy of the Notice of
Deficiency bearing assessment identification number L 008253809 and certified
control number P 911 203 854 which is the same certified control number that
appears next to the entry of Bernard Kane on the certified mail record. Ms.
Mahon states that the notice attached to her affidavit was a true and accurate
copy of the Notice of Deficiency mailed to petitioner Bernard Kane.
The
Division also submitted the affidavit of James Baisley, Chief Processing Clerk
in the Division's Mail Processing Center. His duties include the overall
supervision of the entire Mail Processing Center staff that delivers outgoing
mail to branch offices of the United States Postal Service. As such, he states
that he is fully familiar with the operations and procedures of the Mail Processing Center.
After a notice is
placed in the "Outgoing Certified Mail" basket in the Mail Processing Center, a member of the staff weighs and seals each envelope and places
postage and fee amounts on the letters. A mail processing clerk counts the
envelopes and verifies the names and certified mail numbers against the
information on the certified mail record. A member of the staff then delivers
the stamped envelopes to the Roessleville Branch of the United States Postal
Service in Albany, New York where the postal employee affixes his or her
signature to the certified mail record to indicate receipt thereof. In this
case, the postal employee affixed a postmark to every page of the certified
mail record, circled the total number of pieces and signed the certified mail
record to indicate that this was the total number of pieces received at the post
office. Mr. Baisley's knowledge that the postal employee circled the total
number of pieces for the purpose of indicating that 161 pieces were received at
the post office is based on the fact that the Mail Processing Center
specifically requested that postal employees either circle the number of pieces
received or indicate the total by writing the number of
pieces received on the certified mail record. The certified mail record is the
Division's record of receipt by the Roessleville Branch of the post office for
pieces of certified mail.
Mr. Baisley states
that in the ordinary course of business and pursuant to the practices and
procedures of the Mail Processing Center, the certified mail record is picked
up by a member of his staff the following day and is delivered to the
originating office. He indicates that he reviewed the affidavit of Geraldine
Mahon as well as the certified mail record and the copy of the Notice of
Deficiency and that he can determine that on November 18, 1993, an employee of
the Mail Processing Center delivered a piece of certified mail addressed to
Bernard Kane, 16930 Silver Oak Circle, Delray Beach, FL 33445-7011 to the
Roessleville Branch of the United States Postal Service in Albany, New York in
a sealed postpaid envelope for delivery by certified mail. He could also
determine that a member of his staff obtained a copy of the certified mail
record with the postmark delivered to and accepted by the post office on
November 18, 1993 for the records of the Division's CARTS Control Unit. The
affidavit of Mr. Baisley indicates that the procedures described are the
regular procedures followed by the Mail Processing Center staff in the ordinary
course of business when handling items to be sent by certified mail and that
these regular procedures were followed on November 18, 1993 in mailing the Notice of Deficiency at issue herein.
*4 Petitioner
Bernard Kane testified that the Notice of Deficiency which the Division claims
to have sent by certified mail to petitioners on November 18, 1993 was never
received by petitioners.
Jean C. Gannon, Tax
Technician II, appeared at the hearing on behalf of the Division and testified
that on March 11, 1994, she had a telephone conversation with Steven M. Romm,
CPA, who was petitioners' representative at that time. Mr. Romm had called Ms.
Gannon in response to a telephone call from petitioner Bernard Kane who stated
that he had just received a tax bill from the Division concerning personal
income tax liability for 1989. Mr. Romm testified that he was told by Ms.
Gannon that the tax bill had been issued in error and that notices of
deficiency had not been sent out. On March 11, 1994, Mr. Romm sent a letter to
Ms. Gannon confirming his conversation with her in which he states that he was
told that no notice had been mailed to petitioners. He stated that the first
time that he received the Notice of Deficiency was in or about January 1995.
Ms. Gannon stated that
during this conversation with Mr. Romm, she checked accounts receivable
regarding this matter and it did not appear that a Notice of Deficiency had
been sent to petitioners. She informed Mr. Romm that she would further check
into the matter; a review of the Division's records revealed that the Notice of
Deficiency had been mailed to the taxpayers' last known
address on November 18, 1993, but was returned to the Division on December 15,
1993 "as undeliverable or unreceived [sic], or not accepted." Ms.
Gannon also stated that while a copy of the notice is normally sent to a
taxpayer's representative, no copy of this notice was sent to Mr. Romm despite
the fact that a power of attorney was on file with the Division.
On or about May 15,
1980, Millar Elevator Industries, Inc. ("Millar") was sold to Runter
Corporation, a subsidiary of Westinghouse Electric Corporation for a purchase
price of $12,000,000.00. Petitioner Bernard Kane, as a 25 percent shareholder
of Millar, received $3,000,000.00 as his share of the proceeds.
As a condition of the
sale, each of the four shareholders consented to a convenant not to compete by
which they agreed that for a period of five years from the date of the closing,
they would not directly or indirectly engage in the business of installing,
maintaining or modernizing elevators in the territory of Millar's business,
i.e., the City of New York and Westchester, Rockland, Nassau, Suffolk, Bergen,
Hudson, Essex, Morris, Middlesex, Somerset, Union and Fairfield counties in the
States of New York, New Jersey and Connecticut.
From 1980 until 1983,
petitioner Bernard Kane had an employment contract with Runter Corporation, the
purchaser of Millar. In 1983, Jean Pierre St. Louis, Henry Schindler and
Gabriel Uzzo (all former employees of Millar) formed two corporations,
Computerized Elevator Control Corporation ("CEC") and New York Elevator Company, Inc. ("NY Elevator"). CEC's
business was to manufacture computerized elevator controls while NY Elevator
was a contractor which modernized, repaired and maintained elevators in the New York metropolitan area.
*5 In
November 1982, petitioner Bernard Kane incorporated Bernard Kane Enterprises,
Inc. ("BKE"). Petitioners were its only officers and Mr. Kane was its
sole director. Bernard Kane testified that the sole purpose of BKE was to get
customers to purchase the SWIFT equipment (elevator control equipment designed
for the modernization of existing buildings) manufactured by CEC. [FN1] From
1983 through 1985 (when the covenant not to compete expired), BKE had an office
at 315 Old Rogers Road, North Philadelphia, Pennsylvania. Bernard Kane stated that
this location was selected because it was the closest to the New York City area
without violating the covenant. His territory included 47 states excluding New York, New Jersey and Connecticut.
In 1985, Bernard Kane
became a shareholder in CEC and in NY Elevator. At the same time, he became an
employee of CEC in the areas of marketing and sales; he was not an employee of
NY Elevator. CEC sold the elevator control equipment to contractors. It did not
sell to NY Elevator. This was done automatically by means of an exclusive sale
and purchase arrangement between the sister companies.
In 1967, petitioners
built a home at 53 Eastern Avenue, Ardsley, New York at a cost
of approximately $150,000.00. Petitioners have continuously owned this house in
Ardsley; it has never been listed for sale.
From 1974 to 1976,
petitioners owned a three-bedroom condominium in Lauderdale Lakes, Florida. From 1976 to 1978, they rented an apartment at Country Club Apartments in
Tamarack, Florida. Petitioners rented a three-bedroom apartment at Woodmont
Country Club in Tamarack, Florida from 1978 to 1980. In 1980 and the early part
of 1981, they owned a three-bedroom waterfront home in Lighthouse, Florida.
Thereafter, in 1981, they moved into their present home at 16930 Silver Oak Circle,
Delray Beach, Florida which was purchased in 1980 for approximately
$300,000.00.
During 1989, Bernard
Kane was employed in sales and marketing by CEC. Attached to petitioners' 1989
nonresident income tax return was a wage and tax statement (form W-2) from CEC
of 636 11 superth Avenue, New York, New York to Bernard Kane which indicated
that he had received wages and other compensation in the amount of $534,472.50
for 1989. During that year, Bernard Kane was the only person on CEC's sales
staff outside of the New York area. In 1989, he was also an officer and a
shareholder of CEC.
Mr. Kane stated that
CEC did not require him to be in New York and, accordingly, most of his work
for the company was performed out of his Florida home and on the road in various
locations. At the hearing, when asked by his representative how often he was in
New York in 1989, his response was that "[i] ts hard
to say. I get back every three weeks, once a month." Asked how long he
would stay in New York, Mr. Kane replied, "A day or two."
In 1989, Bernard Kane
was the President of NY Elevator and owned one-third of its shares of stock.
Both CEC and NY Elevator had offices in the same building in New York City.
*6 In
1989, petitioners' son, Douglas Kane, lived in Randolph, New Jersey. His
sister, Laurie, the other child of petitioners also lived in New Jersey in
1989. Douglas Kane had previously lived in Fort Lauderdale, Florida until 1982
when he moved to New Jersey to begin his employment with Nelkan Corporation
("Nelkan"), a distributor of industrial containers located in Jersey
City, New Jersey. In 1990, he acquired 50 percent of the shares of Nelkan from
his father, petitioner Bernard Kane. The remaining shares are owned by John
Hyland.
In 1989, Bernard Kane
was employed in a limited capacity by Nelkan. Douglas Kane stated that Bernard
Kane consulted with him regarding marketing and finance, but was not involved
in the day-to-day operation of Nelkan. No income from Nelkan was reported on
petitioners' 1989 New York return.
Douglas Kane testified
that when his father "came up", he sometimes stayed at the Randolph,
New Jersey home of Douglas and his family. On other occasions, he stayed in a
hotel or at his home in Ardsley, New York. He stated that his mother, petitioner
Barbara Kane, sometimes accompanied Bernard Kane when he came to visit.
Bernard
Kane testified that in February 1980, on the advice of their accountants,
petitioners filed a Declaration of Domicile and Citizenship in Broward County,
Florida. The document was filed at or about the time Bernard Kane sold Millar
Elevator and petitioners purchased their present home in Delray Beach, Florida.
In 1980, the parents of both petitioners and their son, Douglas and his family,
lived in Florida (during that year, Douglas's wife gave birth to twin boys).
For 1980 and years thereafter, petitioners filed their New York State income
tax returns as nonresidents.
On the nonresident
return filed for 1989, petitioner Bernard Kane reported that he worked a total
of 231 days during the year. Out of these 231 days, he indicated that 94 days
were worked outside the State and 137 were worked in New York. During the
performance of her audit of petitioners, Jean C. Gannon, Tax Technician II,
requested documentation of the days in and days out reported on the return.
Approximately 5 months after her initial request, she was provided with a
13-page computer printout consisting of a summary sheet and 12 pages
representing the whereabouts of Bernard Kane for each day of 1989. This
computer printout indicated that Mr. Kane spent 172 days in New York, 137 of
which were workdays. Ms. Gannon requested backup documentation such as tickets,
travel information, hotel bills, credit card statements or receipts, business
expense reports, etc., but no such documentation was ever provided.
When asked who
prepared the summary of days in and out of New York for 1989, petitioner
Bernard Kane stated that he believed that his accountant prepared the document
after conversations with Mr. Kane. Asked how he was able to recall his exact
whereabouts on a day-to-day basis, Mr. Kane stated that it was "the best
of my recollection, just an attempt at it." He admitted that he kept no
diary because he "was too busy just doing what I was doing to justify or
record everything that was going on."
*7 Jean
Pierre St. Louis, who along with Gabriel Uzzo and Henry Schindler formed CEC
and NY Elevator in 1983, testified that he did not know the exact whereabouts
of petitioner Bernard Kane when he was not present in the New York office. He
further stated that records were not kept by the corporations of Mr. Kane's
business travel expenses. Expense vouchers were part of the corporate records,
but no logs were maintained for trips to visit out-of-town customers.
Jean Pierre St. Louis,
Gabriel Uzzo and Henry Schindler each testified that petitioner Bernard Kane
was not involved in the day-to-day operation of CEC or NY Elevator but,
instead, spent much of his time on the road selling CEC's products to
contractors. Each also testified that Bernard Kane was present in the New York
offices of the corporations on an infrequent basis.
Elaine Sullam, a first
cousin of petitioner Barbara Kane, stated that the most the Kanes stayed up
north was four to five and one-half months per year. Sometimes petitioners
traveled together; sometimes they came separately. She stated that petitioners
kept their house in Ardsley because it was almost paid off,
was cheap to carry and gave them an inexpensive place to stay when they came up
north.
In 1989, the electric
bills at petitioners' Delray Beach home were as follows:
--------------------------------------------
service From to amount of Bill
--------------------------------------------
Dec. 14, 1988 Jan. 13, 1989 $293.33
--------------------------------------------
Jan. 13, 1989 Feb. 14, 1989 $411.43
--------------------------------------------
Feb. 14, 1989 Mar. 16, 1989 $419.88
--------------------------------------------
Mar. 16, 1989 Apr. 14, 1989 $364.19
--------------------------------------------
Apr. 14, 1989 May 15, 1989 $375.04
--------------------------------------------
May 15, 1989 June 14, 1989 $284.91
--------------------------------------------
June 14, 1989 July 14, 1989 $285.57
--------------------------------------------
July 14, 1989 Aug. 15, 1989 $345.28
--------------------------------------------
Aug. 15, 1989 Sep. 14, 1989 $324.76
--------------------------------------------
Sep. 14, 1989 Oct. 13, 1989 $255.09
--------------------------------------------
*8 In
1989, the telephone bills at petitioners's Delray Beach home were as follows:
-----------------------------
date of Bill current Charge
-----------------------------
Jan. 16, 1989 $55.60
-----------------------------
Feb. 16, 1989 $65.33
-----------------------------
Mar. 16, 1989 $89.80
-----------------------------
Apr. 16, 1989 $66.35
-----------------------------
May 16, 1989 $72.97
-----------------------------
June 16, 1989 $102.20
-----------------------------
July 16, 1989 $52.47
-----------------------------
Aug. 16, 1989 $52.76
-----------------------------
Sep. 16, 1989 $56.02
-----------------------------
Oct. 16, 1989 $53.35
-----------------------------
Penalties for
negligence (Tax Law § 685[b]) and for substantial underpayment of liabilities
(Tax Law § 685[p]) were imposed on the deficiency. In their reply brief,
petitioners maintain that since the Division has conceded that they were
domiciliaries of Florida for 1989, they had reasonable cause to file as
nonresidents for the year.
THE DETERMINATION OF THE
ADMINISTRATIVE LAW JUDGE
To
establish that a statutory notice was properly mailed by certified or
registered mail, in compliance with Tax Law § 681(a), the Division must provide
evidence as to its general mailing procedure for such notices and that this
procedure was in fact followed when mailing the notice in question (Matter of
MacLean v. Procaccino, 53 AD2d 965, 386 NYS2d 111; Matter of Katz, Tax Appeals
Tribunal, November 14, 1991; Matter of Novar TV & Air Conditioner Sales
& Serv., Tax Appeals Tribunal, May 23, 1991). A properly completed Postal
Service Form 3877 constitutes direct documentary evidence of the date and fact
of mailing (Matter of Air Flex Custom Furniture, Tax Appeals Tribunal, November
25, 1992).
The Administrative Law
Judge concluded, in this case, that the affidavits of Geraldine Mahon and James
Baisley describe the Division's routine procedures for processing and mailing
statutory notices such as the Notice of Deficiency issued to these petitioners.
The affidavits also attest to the veracity of the copies of the Notice of
Deficiency and the certified mail record attached thereto.
The Division also
established, the Administrative Law Judge concluded, that its routine procedure
for issuing statutory notices was in fact followed on November 18, 1993 in the
generation and issuance of this notice. The Administrative Law Judge concluded
that the certified mail record in this case was properly completed and, as
such, is substantially the same as a properly completed
Postal Form 3877 (Matter of Montesanto, Tax Appeals Tribunal, March 31, 1994).
Since the certified mail record constitutes direct documentary evidence of the
date and fact of mailing (Matter of Air Flex Custom Furniture, supra), the
Administrative Law Judge concluded that the Notice of Deficiency was properly
mailed by certified mail to petitioners at their last known address on November
18, 1993. Based on the consent executed by petitioners' representative
extending the period of limitations to April 15, 1994, the Administrative Law
Judge also concluded that the Notice of Deficiency was timely issued in
accordance with the provisions of Tax Law § 683(b)(2). Moreover, since the
Notice of Deficiency was properly sent by certified mail to petitioners at
their last known address, the Administrative Law Judge concluded that it was
unnecessary to determine whether there was actual receipt.
*9 Petitioners
also claimed that the Notice of Deficiency was not properly issued, because the
Division did not mail a copy of the notice to petitioners' representative until
well after the expiration of the statute of limitations. The Administrative Law
Judge noted there is no statutory requirement that a copy of the notice be
served upon a taxpayer's representative, and further, petitioners cited no
authority for the proposition that failure to timely serve a taxpayer's
representative is grounds for dismissal of the notice. In Matter of Multi
Trucking (Tax Appeals Tribunal, October 6, 1988), we held that if a taxpayer's
representative was, in fact, not served with a copy of the statutory notice, that would require a tolling of the 90-day period for
the filing of a petition seeking administrative review of the notice. The
Administrative Law Judge pointed out that in this case, petitioners were
afforded the opportunity to have an administrative hearing on all issues raised
by them despite the failure of the Division to timely serve a copy of the
Notice of Deficiency on petitioners' representative. Therefore, the
Administrative Law Judge concluded the Notice of Deficiency issued to
petitioners is not invalid or time barred based on the Division's failure to
send a copy of the notice to petitioners' representative.
While the Division, in
its brief, conceded that petitioners were not New York domiciliaries in 1989,
Tax Law § 605(b)(1)(B) also defines a "resident individual" as one
"who is not domiciled in this state but maintains a permanent place of
abode in this state and spends in the aggregate more than one hundred
eighty-three days of the taxable year in the state." There was no dispute,
the Administrative Law Judge noted, that petitioners' home in Ardsley, New York
constitutes a permanent place of abode in the State.
Here, as evidence of
days spent outside New York, petitioners submitted a computer printout,
prepared by an accountant, based on conversations with Bernard Kane. No
handwritten diary or day-to-day records were introduced. No backup
documentation of any kind, e.g., travel records or receipts, tickets, hotel
receipts, credit card invoices, etc. were submitted to substantiate Mr. Kane's testimony. While petitioners' witnesses testified that
he was not involved in the day-to-day operation of the corporations and was,
therefore, not present in the New York offices on a frequent basis, the
Administrative Law Judge found that their testimony was extremely general and
shed no light on petitioners' whereabouts on specific days in 1989.
The Administrative Law
Judge acknowledged that credible testimony can be sufficient to meet a
taxpayer's burden to establish that he was not present in New York for more
than 183 days (Matter of Avildsen, Tax Appeals Tribunal, May 19, 1994), and
that a taxpayer is not required to specifically account for his whereabouts on
every day of the period in question if he can establish a "pattern of
conduct" from which his location may be determined for any particular day
(Matter of Kern, Tax Appeals Tribunal, November 9, 1995, confirmed Matter of
Kern v. Tax Appeals Tribunal, 240 AD2d 969, 659 NYS2d 140). However, the
Administrative Law Judge noted, we have distinguished these cases from those where
testimony alone is offered as proof of whereabouts. In Matter of Miller (Tax
Appeals Tribunal, January 30, 1997), we noted that in Avildsen and Kern,
"there was other proof of the whereabouts of the petitioners for specific
days. The testimony concerning the petitioners' pattern of conduct was used to
fill in the gaps between days where the specific location of the petitioners
was known."
*10 A
business diary bolstered by credible testimony and other documents may be sufficient to substantiate days in and out (see,
Matter of Moss, Tax Appeals Tribunal, November 25, 1992). Although the computer
printout submitted by petitioners was (except for the summary sheet) entitled
"Bernard Kane 1989 NYS Diary of Days In & Out of NYS," the
Administrative Law Judge determined that the document was not, in fact, a diary
which is defined as "a record of events, transactions, or observations
kept daily or at frequent intervals" (see, Webster's Ninth New Collegiate
Dictionary 351 [emphasis added]). The Administrative Law Judge pointed out that
there is no indication as to when this document was prepared but, in any event,
it was not kept by Bernard Kane daily or at frequent intervals. The
Administrative Law Judge noted that Mr. Kane admitted that the document was
"the best of my recollection, just an attempt at it." Absent
corroborating documentary evidence, the Administrative Law Judge concluded that
the testimony of Bernard Kane, his business associates (Messrs. St. Pierre,
Schindler and Uzzo) and Ms. Sullam, standing alone, lacked sufficient
specificity to sustain petitioners' burden of proof, pursuant to Tax Law §
689(e), to show that they spent fewer than 183 days in New York during 1989.
Accordingly, the Administrative Law Judge concluded that the Division properly determined
that petitioners were resident individuals for personal income tax purposes for
the year 1989.
Tax Law § 612(b)(1)
provides that in computing New York adjusted gross income of a resident
individual, there must be added to Federal adjusted gross income, interest income on obligations of any state other than New
York. Accordingly, the Administrative Law Judge concluded that the Division
correctly added $76,529.00 in municipal bond interest income from Florida and
Texas to petitioners' New York income.
Finally, the
Administrative Law Judge canceled all negligence penalties under Tax Law §
685(b), since he concluded petitioners' underpayment of tax was not due to
negligence or willful disregard of the statute. The Administrative Law Judge
also concluded that there was reasonable cause for abatement of penalties for
substantial underpayment of tax under Tax Law § 685(p), but otherwise sustained
the Notice of Deficiency issued to petitioners on November 18, 1993.
ARGUMENTS ON EXCEPTION
Petitioners take exception
to the Administrative Law Judge's conclusion that the Notice of Deficiency was
properly issued to petitioners. They also take exception to the Administrative
Law Judge's conclusion that petitioners were resident individuals for personal
income tax purposes for the year 1989. Petitioners urge that the Administrative
Law Judge erred in concluding that there was no corroborating documentary
evidence of the fact that they spent fewer than 183 days in New York during
1989.
Petitioners argue on
exception, as they did below, that the Division's usual procedure
is to mail a copy of a taxpayer's Notice of Deficiency to the taxpayer's
representative. The Division admits that the notice in this case was not mailed
to the taxpayer's representative. Therefore, petitioners argue, this
establishes that the Division did not follow their usual mailing procedure in
this case and, therefore, the Division did not establish proper mailing of the
notice.
*11 Petitioners also continue to argue that there is no explanation for
the handwritten change in the date on the first page of the certified mail
record attached to Ms. Mahon's affidavit. They argue further that there is no
substantiation of the identity of the Postal Service employee who signed page
24 of the certified mail record. These defects, petitioners argue, render the
affidavits of Mr. Baisley and Ms. Mahon of no significance.
Petitioners also argue
that the weight of the evidence establishes that they are not statutory
residents.
In opposition, the
Division states that the Administrative Law Judge correctly concluded that the
notice was properly issued to petitioners and that petitioners failed to
establish that they spent fewer than 184 days within New York during 1989.
Accordingly, the Division requests that the determination of the Administrative
Law Judge be sustained in all respects.
OPINION
We find that the
Administrative Law Judge fully and correctly addressed all of the issues raised
by petitioners. While petitioners submitted documentary evidence in an attempt
to corroborate the testimony of their witnesses, we agree with the
Administrative Law Judge that the documentation submitted does not provide the
necessary detail to demonstrate petitioners' whereabouts on specific dates in
1989 and, thus, is insufficient to carry petitioners' burden of proof. After
reviewing the entire record in this matter, we conclude that petitioners have
not directed us to any authority which justifies modifying the determination
below in any respect. We, therefore, affirm that determination for the reasons
stated therein.
Accordingly, it is
ORDERED, ADJUDGED, and DECREED that:
1. The exception of
Bernard and Barbara Kane is denied;
2. The determination
of the Administrative Law Judge is affirmed;
3. The petition of
Bernard and Barbara Kane is granted to the extent of canceling the penalties
imposed, but in all other respects is denied; and
4. The Notice of
Deficiency issued to petitioners on November 18, 1993 is modified in accordance
with paragraph "3" above, but is otherwise sustained.
DATED: Troy, New York
