N.Y. Comp. Codes R. & Regs. tit. 20 § 536.2

Current through Register Vol. 46, No. 45, November 2, 2024

Section 536.2 - Penalty for substantial omission of tax

Tax Law, § 1145(a)(1)(vi)

(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.

N.Y. Comp. Codes R. & Regs. Tit. 20 § 536.2