Use your browser's "back" button to return to the text.Matter of GUCCI
DTA No. 812160; TSB-D-97(42)I
STATE OF NEW YORK-TAX APPEALS TRIBUNAL
July 10, 1997
OPINION: In her determination below, the Administrative Law Judge concluded that petitioner did have the burden of proof in this case. The Administrative Law Judge reasoned that decedent failed to protest the four statements of audit changes issued to him and, subsequently, the Division issued the Notice of Deficiency in this case from which petitioner filed a petition with the Division of Tax Appeals. In interpreting Tax Law @ 689(e) which addresses the issue of which party bears the burden of proof, the Administrative Law Judge stated that since the Notice of Deficiency was issued to decedent prior to the filing of a petition with the Division of Tax Appeals, and since decedent did not file a petition contesting the original statements of audit changes, the burden of proof did not shift to the Division in this case.
Pursuant to the preclusion order issued to petitioner by Assistant Chief Administrative Law Judge Daniel J. Ranalli, the Administrative Law Judge precluded petitioner from introducing any evidence with respect to the issue of days spent within and without New York City and State for the years 1977 through 1984.
Turning to the merits of the case, the Administrative Law Judge [*48] determined that decedent was domiciled in New York City during the years 1977 through 1984 and petitioner failed to demonstrate that decedent changed his domicile from New York City during that period. Furthermore, the Administrative Law Judge also found that decedent maintained a permanent place of abode in New York City throughout the audit period and petitioner failed to demonstrate that the decedent did not spend less than 183 days within New York City during any of the years at issue. Thus, she determined, even if petitioner had demonstrated that decedent changed his domicile during the years in question, the Division properly assessed him as a resident pursuant to Tax Law @ 605(b)(1)(B). Also, since petitioner did not establish that decedent's failure to pay the tax was due to reasonable cause and not due to willful neglect, the Administrative Law Judge sustained the penalties imposed. n exception, petitioner disagrees with the Administrative Law Judge's determination of every issue. However, petitioner does not raise any specific objection to any of the facts as found by the Administrative Law Judge. Petitioner asserts that the burden of proof is upon the Division because [*49] the Division had previously determined that the decedent was not a resident of New York for income tax purposes when it determined a deficiency which the decedent paid in full. We disagree.
In reviewing the audit workpapers in the record, it is apparent that a desk audit was performed by Charles Davies, Audit Group Manager in the Central Income Tax Section of the Audit Division, as a result of decedent filing amended Federal income tax returns for the years 1977 through 1981 as well as filing original Federal income tax returns for the years 1982 through 1984 in the summer of 1986. Decedent was contacted by the Audit Division due to the fact that he failed to report these Federal changes to New York State as is required under Tax Law @ 659. Thereafter, the Audit Division issued four statements of audit changes to decedent that reflected an allocation of income to New York State and City based upon the submission of Mr. Smith's statement as to how many days were spent working by decedent both within and without New York. We do not find, as suggested by petitioner, that Mr. Davies determined that decedent was not a statutory resident (Petitioner's brief, p. 7). It is clear from the [*50] audit workpapers that Mr. Davies focused on working days within and without New York as a basis for issuing the statement of audit changes (see, exhibit "N"). Decedent paid the amounts set forth in the four statements of audit changes. Subsequently, the New York City Department of Finance began a residency field audit of decedent which resulted in a Notice of Deficiency being issued on September 20, 1991.
Tax Law @ 682(d) provides for the issuance of a supplemental assessment, in pertinent part, as follows:
"the tax commission may, at any time within the period prescribed for assessment, make a supplemental assessment, subject to the provisions of section six hundred eighty-one where applicable, whenever it is ascertained that any assessment is imperfect or incomplete in any material respect."
The Notice at issue is a result of a determination made by Ann Murray, Associate Tax Auditor from the New York City Department of Finance, that decedent failed to prove that he changed his domicile from New York City and that he failed to show that he was not a statutory resident of New York City during the years 1977 through 1984. Petitioner filed a petition with respect to [*51] this Notice which resulted in this proceeding.
Petitioner states that the burden of proof has shifted to the Division since decedent had paid the original assessment in full. We disagree with petitioner's contention. Tax Law @ 689(e) states that the burden of proof shall be upon petitioner in all but four instances.
Petitioner relies on subparagraph (3) which states as follows: "whether the petitioner is liable for any increase in a deficiency where such increase is asserted initially after a notice of deficiency was mailed and a petition under this section filed, unless such increase in deficiency is the result of a change or correction required to be reported under section six hundred fifty-nine, and of which change or correction the tax commission had no notice at the time it mailed the notice of deficiency" (Tax Law @ 689[e][3]).
There is no dispute that the four statements of audit changes were never petitioned by decedent. As the Division argues, Tax Law @ 689(d) specifically allows the Division of Taxation to determine a greater deficiency after a petition protesting a deficiency is filed. Tax Law @ 689(e) addresses the burden of proof in such situations. Since the [*52] Notice of Deficiency at issue herein was not issued pursuant to Tax Law @ 689(d), Tax Law @ 689(e) does not apply to the facts of this case. Therefore, the burden of proof is properly upon petitioner in this proceeding.
Petitioner continues its challenge that Tax Law @ 689(e)(3) is unconstitutional. As noted by the Administrative Law Judge, we do not have jurisdiction to address the constitutionality of a statute on its face (see, Matter of Unger, Tax Appeals Tribunal, March 24, 1994; Matter of Toothaker, Tax Appeals Tribunal, September 9, 1993; Matter of Fourth Day Enters., Tax Appeals Tribunal, October 27, 1988). As to the constitutional application of the statute, petitioner has provided no basis for concluding that taxpayers who concede the liability of an assessment are similarly situated to those who file a petition disputing an assessment. Therefore, we do not find that the application of Tax Law @ 689(e) unconstitutionally deprives petitioner of equal protection. Turning to the merits of this case, petitioner argues that the Administrative Law Judge erred in holding that decedent was a resident individual of New York City for tax purposes pursuant to Tax Law [*53] @ 605(b)(1).
Petitioner argues that "there is no cogent basis to conclude that the decedent had ever been a New York domiciliary" due to the fact that decedent never changed his domicile to New York City from Italy (Petitioner's brief, p. 12). As set forth above, the burden of proof was properly upon petitioner to prove that the Notice of Deficiency was incorrect (Tax Law @ 689[e]). The Notice was issued to petitioner on the basis that decedent was a resident individual of New York City. In an attempt to establish that this was incorrect, the burden was upon petitioner to demonstrate that decedent was domiciled outside of New York. However, there was absolutely no evidence presented to demonstrate that decedent was domiciled outside New York during the years in question. Petitioner cites to the bill of particulars as proof of certain facts. However, the bill of particulars was prepared by Kathleen Campanile who testified that she did not k ow decedent during the audit period. Furthermore, petitioner failed to introduce any documents relied on by Ms. Campanile in her preparation of the bill of particulars.
Accordingly, the statements contained therein are given little weight. As we [*54] held in Matter of Atlantic & Hudson Ltd. Partnership (Tax Appeals Tribunal, January 30, 1992): "although a determination of tax must have a rational basis in order to be sustained upon review (see, Matter of Grecian Sq. v. New York State Tax Commn., 119 AD2d 948, 501 NYS2d 219), the presumption of correctness raised by the issuance of the assessment, in itself, provides the rational basis, so long as no evidence is introduced challenging the assessment (see, Matter of Tavolacci v. State Tax Commn., 77 AD2d 759, 431 NYS2d 174; Matter of Leogrande, Tax Appeals Tribunal, July 18, 1991, confirmed Matter of Leogrande v. Tax Appeals Tribunal, 187 AD2d 768, 589 NYS2d 383, lv denied 81 NY2d 704, 595 NYS2d 398)." Where, as here, petitioner has filed to introduce any evidence to rebut the presumption of correctness, the issuance of the assessment provides the rational basis for the assessment. To hold otherwise would be in irreconcilable conflict with the principles that the Division does not have the burden to demonstrate the propriety of its assessment (see, Matter of A & J Gifts Shop v. Chu, 145 AD2d 877, 536 NYS2d 209, lv denied 74 NY2d 603, 542 NYS2d [*55] 518; Matter of Blodnick v. New York State Tax Commn., 124 AD2d 437, 507 NYS2d 536, appeal ismissed 69 NY2d 822, 513 NYS2d 1027; Matter of Scarpulla v. State Tax Commn., 120 AD2d 842, 502 NYS2d 113) and that the petitioner has a heavy burden to prove the assessment erroneous (see, Matter of Executive Land Corp. v. Chu, 150 AD2d 7, 545 NYS2d 354, appeal dismissed 75 NY2d 946, 555 NYS2d 692).
A critical factor in the determination of the issue of domicile was petitioner's failure to provide adequate or credible substantiation of decedent's change of domicile. In fact, petitioner did not introduce any documentation in this case and petitioner presented only one witness who did not even know decedent during the tax years in question. The record reveals numerous requests for documentation which were never supplied and petitioner neither submitted documentation nor provided testimony concerning decedent's intent. In ontrast to petitioner's position that decedent never changed his domicile fr omItaly, there is a letter from petitioner's representative, dated November 24, 1987, that unequivocally stated that "from 1977 to 1984, Mr. Gucci was domiciled in Palm Beach, [*56] Florida where he maintained his principal residence" (Exhibit "N," p. A59). Given the conflicting positions taken by petitioner's representative concerning decedent's domicile, we find that the lack of evidence regarding decedent's intentions necessitates the result that petitioner has failed to carry its burden of proof in this case (see, Matter of Labow, Tax Appeals Tribunal, March 20, 1997; see also, Matter of Bourne's Estate, 181 Misc 238, 41 NYS2d 336, affd 267 App Div 876, 47 NYS2d 134, affd 293 NY 785; Matter of Bodfish v. Gallman, 50 AD2d 457, 378 NYS2d 138). Accordingly, we affirm the Administrative Law Judge's determination that petitioner failed to establish that decedent was not domiciled in New York City during the years in question.
Although we find that decedent was domiciled in New York City, we will address the issue of statutory residency. Tax Law @ 605(b)(1)(B) states that a resident individual is an individual defined as follows:
"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 this state, unless such individual [*57] is in active service in the armed forces of the United States."
It is undisputed that decedent maintained a permanent place of abode in New York City during the years in question. Therefore, it is necessary to determine whether petitioner established that decedent spent more than 183 days outside of New York City during each of the years 1977 through 1984. Clearly, petitioner has failed to sustain its burden of proof on this issue.
Petitioner relies wholly upon the testimony of Kathleen Campanile to establish decedent's presence within New York City for much less than the 183 days required for him to be taxed as a resident. However, as discussed above, Ms. Campanile did not know decedent until the year 1988. Therefore, her testimony is unavailing on this issue. Moreover, it is noted that Ms. Campanile claims to have relied on her review of decedent's travel records for the years in question for her knowledge of his whereabouts, yet none of this documentation was provided to the auditor or submitted into evidence in support of petitioner's position. Thus, the Administrative Law Judge properly gave Ms. Campanile's testimony little weight and correctly determined that petitioner [*58] failed to carry its burden of proof on this issue.
Petitioner further argues that the Administrative Law Judge erred in refusing to lift the preclusion order issued against it. Petitioner sought permission at the hearing to keep the record open to receive evidence it characterized as newly-discovered. However, since Assistant Chief Administrative Law Judge Ranalli had issued a preclusion order against petitioner concerning the submission of evidence on the issue of days spent within and without New York City for the audit period, the Division opposed petitioner's request. Therefore, petitioner filed a motion after the hearing with the Administrative Law Judge requesting that the preclusion order be lifted on the basis that it has newly-discovered evidence which it sought to enter into the record in this proceeding.
Pursuant to CPLR 5015(a)(2), a court may grant relief to a party from an order issued by the court, in certain circumstances, as follows: "newly-discovered evidence which, if introduced at the trial, would probably have produced a different result and which could not have been discovered in time to move for a new trial under section 4404."
For evidence to be [*59] considered newly-discovered, it must have been in existence but undiscoverable with due diligence (see, Matter of Commercial Structures v. City of Syracuse, 97 AD2d 965, 468 NYS2d 957). The evidence which petitioner characterizes as newly-discovered is the testimony of Ms. Ruby Hamra who was allegedly employed by decedent as Director of Advertising and Public Relations for Gucci Shops during the audit period. We find that petitioner has failed to demonstrate that this evidence was newly-discovered.
To be characterized as newly-discovered evidence, it must be shown that the evidence was not discoverable with due diligence. Petitioner argues in its brief that its affidavit in support of its motion clearly sets forth why decedent's executor was unable to think of Ms. Hamra earlier due to the fact that she allegedly left decedent's employ in 1986. After a review of the record, it is unfathomable that during this audit, which began in 1988, neither Mr. Smith, Mr. Rosato nor decedent sought out Ms. Hamra in an effort to determine decedent's whereabouts during the years in dispute. That Mr. Rosato in 1994 recollected that Ms. Hamra had probative documentation in her possession appears [*60] too convenient to be mere coincidence. As determined by the Administrative Law Judge and as indicated by Exhibit "N," the auditor in this case made no less than 11 requests for documents during her audit concerning the days spent within and without New York City and petitioner failed to come forward with any substantiation of decedent's whereabouts. We find that petitioner has failed to show that it exercised due diligence in discovering this evidence earlier and its motion was properly denied. Thus, we agree that the preclusion order prevents petitioner from introducing any documentation concerning the issue of days spent within and without New York City for the years in question. We note that the evidence sought to be introduced by petitioner through Ms. Ruby Hamra is strictly on the issue of day count. However, decedent has been determined to be a New York City domiciliary during the years in question. Therefore, assuming arguendo, petitioner was able to demonstrate that decedent pent less than 183 days within New York City during each of the years in issue, he is still liable for the amount set forth in the Notice of Deficiency as a resident pursuant to Tax Law @ 605(b)(1)(A). [*61]
Thus, petitioner is unable to demonstrate that this newly-discovered evidence would result in any change to the outcome of this case. With respect to the issue of penalties, petitioner did not present any evidence in support of its position, thus, penalties are sustained in full (see, Matter of Hull, Tax Appeals Tribunal, December 8, 1994; Matter of Etheredge, Tax ppeals Tribunal, July 26, 1990).
Accordingly, it is ORDERED, ADJUDGED and DECREED that:
1. The exception of Estate of Aldo Gucci is denied;
2. The determination of the Administrative Law Judge is affirmed;
3. The petition of Estate of Aldo Gucci is denied; and
4 The Notice of Deficiency No. L-003038767-1 is sustained.
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