A New York City Administrative Law Judge dismissed a case brought by Deutsche Bank AG seeking interest on a misplaced $30 million refund check, finding that the New York City Tax Appeals Tribunal lacked jurisdiction to hear the matter. Matter of Deutsche Bank AG, TAT(H)10-7(BT) (N.Y.C. Tax App. Trib., Admin. Law Judge Div., Feb. 19, 2013).

Deutsche Bank filed its 2004 New York City bank tax return, claiming an overpayment of about $48 million, $18 million of which it directed to be applied to the following year’s estimated tax payments, with the balance of $30 million to be refunded. The Department accepted the filing, applied the credit, and claimed to have mailed a refund check in June 2005. Almost four years later, Deutsche Bank realized that it had never received the refund, and contacted the Department, which issued a replacement check. No interest was included. Deutsche Bank filed a “refund claim” with the City’s Department of Finance, seeking interest running from the due date of the return to the date of the replacement check. On February 20, 2009, the Department of Finance issued a Notice of Disallowance of the “refund claim,” which stated that “there is ‘[n]o interest due on replacement refunds,’” and advised Deutsche Bank of its right to protest the denial within two years by requesting a Conciliation Conference or a hearing before the Tax Appeals Tribunal.

Initial Determination. On March 12, 2010, Deutsche Bank protested the Notice of Disallowance in the City’s Tax Appeals Tribunal, challenging the denial of a “refund” of the interest that it computed to be $9 million. The Department of Finance sought dismissal of the case on the basis that Deutsche Bank had not timely requested the “refund.” Matter of Deutsche Bank AG, TAT(H)10-7(BT) (N.Y.C. Tax App. Trib., Admin. Law Judge Div., Sept. 22, 2011) (“Deutsche Bank I”). The ALJ rejected the Department’s argument, finding that the failure to pay interest did not place the taxpayer in a “refund” situation, and since the Administrative Code provided no statute of limitations for claiming overpayment interest on replacement checks, the action was governed by the general six-year statute of limitations in CPLR § 213.1 for claims “for which no limitation is specifically prescribed by law.”

Deutsche Bank could not argue that the Department was estopped from denying it a remedy by the language in the Notice advising the Bank of its appeal rights, since estoppel cannot create rights that are not provided by statute.

However, in his Order in Deutsche Bank I, the ALJ had provided the Department of Finance with a roadmap to relief. In a footnote, the ALJ noted that the Department had taken no steps to withdraw the Notice of Disallowance, and never claimed that the denial constituted a final agency action subject to the CPLR’s Article 78 four-month limitation period, which would have required Deutsche Bank to have filed an action in state court within four months of February 29, 2009, the date the Notice of Disallowance was issued, rather than the six-year period otherwise found applicable.

New Decision. It should have come as no surprise to Deutsche Bank, that after the Order in Deutsche Bank I was issued, the Department of Finance withdrew its Notice of Disallowance, stating that the Notice had been “issued in error” and was a “nullity.” Also taking its cue from the ALJ, the Department filed a new motion urging dismissal on jurisdictional grounds, and this time it was successful, convincing the ALJ that no remedy existed in the Tax Appeals Tribunal.

The ALJ cited ABC Radio Network v. State of New York Dept. of Taxation and Finance, 294 A.D.2d 213 (1st Dept. 2002), a case involving the computation of interest on an overpayment discovered by the State’s Department of Taxation and Finance on audit. In ABC Radio Network, shortly after the taxpayer was notified of the overpayment, it sent a letter to the State inquiring as to the computation of the interest, contending that interest should be computed from the date its returns were filed, under Tax Law § 1088(a)(2). The State treated ABC Radio Network’s inquiry letter as the date of the refund claim and computed interest from that date. Ten months after the refund was issued (with interest only from the date of the inquiry letter), ABC Radio Network sued the State in New York Supreme Court (New York’s trial court) for additional interest, running from the original due date of the return to the date of the inquiry letter. The trial court awarded the taxpayer the additional interest, and rejected the State’s arguments that the case should have been dismissed, either on the basis that the taxpayer had failed to exhaust administrative remedies, or that it was barred by the four-month statute of limitations applicable to CPLR Article 78 proceedings. On appeal, the First Department reversed, and dismissed the case on the basis that the four-month statute of limitations did apply and had run. The First Department did not address the substantive issue.

In the instant case, the ALJ concluded that once the City withdrew its Notice there was “no petitionable notice and no claim that may be pursued administratively,” since the Tax Appeals Tribunal could only hear appeals from specific notices as provided by statute. The ALJ also found that Deutsche Bank could not argue that the Department was estopped from denying it a remedy by the language in the Notice advising the Bank of its appeal rights, since estoppel cannot create rights that are not provided by statute, and also because any reliance by Deutsche Bank on the language in the Notice of Disallowance would not have been reasonable in light of ABC Radio Network. Relying on ABC Radio Network, the ALJ further held that an Article 78 proceeding was the only available option for Deutsche Bank, although the time to bring an Article 78 action had long since expired. The Department’s motion to dismiss was granted.

Additional Insights

The case reminds taxpayers that failure to confirm timely receipt of tax refunds can have costly interest implications. If a refund is expected, prompt inquiries should be made if the check does not arrive. Effective September 19, 2001, New York State legislation was enacted requiring taxpayers to whom an overpayment has been disclosed by the Department of Taxation and Finance to file a refund claim within 120 days. Tax Law § 3004-a. The City’s Administrative Code has no analogous provision.

The case also reminds taxpayers and their advisors that instructions regarding remedies set forth in notices sent by the taxing agency can turn out to be elusive or simply incorrect.