Responding to NYS Tax Department Letters: Key Steps for Taxpayers

Last week, New York State Department of Taxation and Finance published a press release explaining what taxpayers should do when they receive a letter from the Tax Department. The press release outlined several important tips that we too routinely share with clients.

First, don’t panic! Not every communication from the Tax Department will result in additional tax due or aggressive collection actions. Oftentimes, when a taxpayer receives a letter requesting information to support what is shown on their tax return, the Tax Department is merely seeking to confirm that the information shown is correct, so the return can be accurately and timely processed.

It is also important to read the letter very carefully. First, the letter will explain why it was issued. For example, the Tax Department may be looking to confirm an income or expense item, or to verify basis in property. The letter will also detail what information is being requested. To ensure that this information is available if requested by the Tax Department, taxpayers should maintain accurate and adequate records that tie to the amounts shown on their tax returns. These records should support all of the income reflected on the return, total withholding and estimated tax payments made throughout the year, and the expenses deducted on the return. Taxpayers should keep this supporting documents for at least 3 years after filing a tax return. Finally, the letter will explain how and by when the taxpayer must respond. The number one thing to keep in mind when you receive a Tax Department communication is the response date. Many letters require a response within 30 days from the date printed on the letter. In most cases, that means the taxpayer has less than 30 days to respond from the date they actually receive the letter. Failing to timely respond, or to request an extension of time to respond, could result in the Tax Department issuing additional notices or making adjustments to the taxpayer’s account or could even cause the taxpayer to lose certain procedural rights.

Remember, the worst thing you can do is ignore a letter from New York State, the Tax Department won’t go away on its own. Instead, read the letter to determine what the State is requesting, what you will have to provide, and when that information is due. Then, put together a response and timely reply to the inquiry. If you are unsure of how to respond, contact your trusted tax advisor.