In two separate cases, the New York State Tax Appeals Tribunal and a New York State Administrative Law Judge denied requests for relief under the special refund authority provided by Tax Law § 697(d), which authorizes personal income tax refunds for claims made after the general statute of limitations has expired if the tax was originally paid “under a mistake of facts.” Matter of Mayra Guffin, DTA No. 825752 (N.Y.S. Tax App. Trib., Sept. 18, 2014); Matter of Janet Yoell-Mirel, DTA No. 825058 (N.Y.S. Div. of Tax App., Oct. 2, 2014).

Guffin Case

Facts. In April 2008, Mayra Guffin timely filed a 2007 New York State income tax return as a nonresident, reporting over $27,000 due in personal income taxes. Her attached W-2 showed New York State wages, and that an insufficient amount of tax had been withheld.  In July 2012, Ms. Guffin filed an amended 2007 return claiming a refund, along with a corrected W-2 showing that she had actually earned no New York State wages in 2007. The Department denied the refund as untimely.

In her appeal to the New York State Division of Tax Appeals, Ms. Guffin acknowledged that she filed her refund claim after the expiration of the statute of limitations set forth in Tax Law § 687(a), which allows application for refund or credit within the later of two years after the tax was paid or three years after the return was filed.  She claimed that she was due a refund on the basis that:  (1) she did not live or work in New York State in 2007; (2) her employer erroneously issued her a W-2 reporting New York State wages, but she nonetheless  filed a return and paid tax consistent with her W-2 in order to “avoid paperwork”; (3) she relied on advice of tax professionals that she needed a corrected W-2 prior to filing an amended return; (4) she requested such a W-2 shortly after filing her initial return, but her employer was “severely delayed” in issuing a corrected W-2; and (5) she filed an amended return and claim for refund as soon as she had received the corrected W-2.

The Department filed a motion for summary determination on the grounds that her refund claim was untimely, but Ms. Guffin did not file a response. Thus, the ALJ determined that Ms. Guffin had conceded there were no issues of fact in the case and granted the Department’s motion dismissing the claim as untimely. The ALJ did not consider whether Ms. Guffin qualified for special refund authority relief, holding that she had not properly raised that issue.

The Tribunal decision. The Tribunal first concluded that Ms. Guffin had made a sufficient request for relief under the special refund authority in Tax Law § 697(d) because, under the facts she had pleaded in her original petition to the Division, special refund authority relief was the only relief for which she could have qualified. On the substance of the case, however, the Tribunal determined that Ms. Guffin was not entitled to special refund authority relief. 

Citing Tax Law § 697(d), the Tribunal stated that Ms. Guffin could only be entitled to special refund authority relief if she paid the 2007 tax “under a mistake of facts.” The Tribunal explained that, under New York State precedent, a mistake of facts is “an understanding of the facts in a manner different than they actually are,” while a mistake in law exists when there is an “acquaintance with facts as they really are, but a mistaken belief regarding the legal consequences following from those facts.” The Tribunal concluded that Ms. Guffin “did not . . . think that tax was due at the time she paid the tax, but rather proceeded under the misguided assumption that she could not take a position in contradiction of the W-2 issued by her employer.” Such an assumption, according to the Tribunal, was “clearly a mistake of law” ineligible for special refund authority relief.

Yoell-Mirel Case

Facts.  Janet Yoell-Mirel was a New York State resident in 2003. During that year, she sold real property located in New Jersey, resulting in a capital gain. At the time of the sale, no income tax was paid to the State of New Jersey and, following the advice of legal counsel, Ms. Yoell-Mirel did not file a New Jersey income tax return. In April 2004, Ms. Yoell-Mirel timely filed her 2003 New York State resident income tax return, reporting the capital gain from the New Jersey real property sale but claiming no credit for taxes paid to New Jersey, since none were paid.

After receiving letters from the New Jersey Division of Taxation in October 2007 and January 2008, which told Ms. Yoell-Mirel that she must file 2003 New Jersey income tax returns and pay appropriate tax on account of the New Jersey real property sale, in March 2008 she filed a 2003 New Jersey return and paid New Jersey tax.

During that same month, Ms. Yoell-Mirel amended her 2003 New York State return to claim a credit for the taxes she paid to New Jersey, and requested a refund. Later in 2008, the Department denied her refund claim as untimely. Subsequent audit adjustments to the basis of the New Jersey real property decreased Ms. Yoell-Mirel’s 2003 New Jersey income tax liability, which she reported in a second amended NYS return and refund request filed in July 2011. The Division did not respond to the second refund request, which was thus deemed denied six months later by operation of Tax Law § 689(c)(3). After her request for a conciliation conference was denied as untimely, Ms. Yoell-Mirel appealed to the Division of Tax Appeals contending, among other things, that she was entitled to special refund authority relief.

The decision.  The ALJ differentiated between a mistake of fact and a mistake of law in an analysis similar to that in the Guffin decison.  The ALJ concluded thatMs. Yoell-Mirel was aware in 2003 of all of the facts surrounding the sale of the New Jersey real property, but was mistaken as to which jurisdiction was entitled to tax the gain on the sale.  The ALJ concluded that this mistake was based upon an erroneous interpretation ofthe law by the taxpayer’s legal counsel, and thus Ms. Yoell- Mirel’s error on her 2003 New York State return was not a mistake of fact eligible for special refund authority relief.

Additional Insights

Special refund authority relief, outside the usual statute of limitations, is available to personal income taxpayers under Tax Law § 697(d) and to corporate franchise taxpayers under Tax Law § 1096(d).  Such relief has rarely been granted, and is often rejected on the basis that a purported mistake in fact is actually a mistake in law.  The Guffin case is a reminder that taxpayers with potential New York State tax refund claims should consider filing the claims even if all of the supporting documentation is not yet available, or else risk having the refund claims held to be time-barred.  The Yoell-Mirel case highlights the fact that, unlike IRS changes in federal taxable income after audit, which generally can be reported to New York State for purposes of requesting a refund after the statute of limitations has otherwise closed, adjustments made by other states will not reopen the New York State statute of limitations for purposes of claiming credits.