The tax preparers say they owe no back taxes of their own. Instead, they claim in Albany County Supreme Court, they owe penalties assessed on mistakes they made in preparing others’ tax returns, which two state agencies classified as delinquent taxes and suspended their driver’s licenses.
The plaintiffs describe their penalties as “massive” – as much as $770,000 – and “unprecedented.”
The four – Evelin Jimenez, Ireline Nunez, Ana Jimenez and Leyvi Castillo – provided tax-preparation services at two firms between 2009 and 2011: Melosky Corp. and I&I General Services Corp.
Their clients were low-income residents of the Bronx who did not speak English, according to the complaint.
Evelin Jimenez says English was a second language for all four of them, none of whom was schooled as an accountant. She says they had no government-sponsored training as tax preparers, since neither New York nor the Internal Revenue Service offered any.
Jimenez claims that after a “desk audit” of their filing history as preparers, the state Department of Taxation and Finance notified them of a recurring mistake: claiming a deduction for clients for personal property rental expenses when the expenses should have been treated as a federal adjustment to income. The error resulted in clients owing less in taxes.
The department then issued the plaintiffs so-called Statements of Proposed Audit Changes, attaching a $1,000 penalty to each return having the mistake – the maximum penalty under law, Jimenez says.
When they did not respond, the statements became more formal notices of deficiency, according to the complaint, and when no protest against the notices was lodged within 90 days, the penalties became final.
For Evelin Jimenez, the penalties totaled $770,000 for 770 returns filed between 2009 and 2011. For the other three, the penalties were $432,000 for Ana Jimenez; $427,000 for Castillo and $220,000 for Nunez, according to the complaint. Castillo and Nunez worked fewer years as tax preparers.
In March and June this year, the plaintiffs received notices from the state Department of Motor Vehicles that their driver’s licenses would be suspended within weeks.
Under a law signed by Gov. Andrew Cuomo in 2013, the tax department and DMV were required to work together to suspend the licenses of drivers who were $10,000 or more behind in their taxes, according to the complaint.
The goal was to get the delinquents to pay up. Notices went out that summer to some 16,000 taxpayers.
Jimenez says that when the plaintiffs received their penalty notices for the deduction mistakes, there was a notation indicating that the “tax amount assessed” was to be “0.00.”
Subsequently, they found the same case number assigned to their penalty notices on paperwork from the DMV that cited them for back taxes.
In conversations with the tax department, Jimenez says, “Counsel set forth the position that the tax-preparer penalties authorized by Section 685(aa) of Article 22 of the tax law are not tax liabilities that can establish a predicate for the suspension of drivers’ licenses under Section 171-v of Article 8 of the tax law” – the law signed by Cuomo in 2013.
The tax department disagreed, saying the penalties should be treated as taxes owed and therefore were subject to the crackdown that suspended driver’s licenses.
“(T)he penalties imposed upon petitioners were unprecedented both in scope and in their reliance upon Tax Law Section 685 (aa)(1) to impose massive penalties upon storefront tax return preparers who allegedly repeatedly make the same mistake in the returns they have prepared,” the plaintiffs say.
They sued the tax department, the DMV and the agencies’ respective commissioners, Thomas Mattox and Barbara Fiala.
Geoff Gloak, a spokesman for the tax department, said his agency does not comment on litigation.
The plaintiffs ask the court to find that the tax-preparer penalty is not a tax liability and to vacate their driver’s license suspensions. They also seek attorneys’ fees and court fees.
They are represented by Ariele R. Doolittle with Hodgson Russ, in Albany.
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