State Tax Audit and Collection Procedures: General Principles (Portfolio 1720)

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The State Tax Audit and Collection Procedures: General Principles Portfolioreviews the general planning activities taxpayers can take in advance to minimize potential tax liability or predict tax consequences, and to create opportunities for later negotiation with the taxing agency as to tax liability.




This Portfolio explores the broad statutory power behind tax agency audits and the methods states employ during audits, including the states' authority to review a taxpayer's books and records, and to issue subpoenas to the taxpayer and third parties.




Readers will gain a deeper understanding of the means a state has to secure and collect a delinquent tax once the assessment is final. The creating of a statutory lien, its force and effect, and the placing of priorities among competing state liens and federal liens, are topics also covered in the Portfolio.



Jeanne E. Gorrissen, Esq.


Jeanne E. Gorrissen, Esq., was Deputy New Jersey Attorney General representing the New Jersey Division of Taxation before State Courts (both general jurisdiction and the Tax Court) and Federal Courts (both general jurisdiction and the Bankruptcy Court). She also served as law clerk to the Hon. Charles R. Simpson at the United States Tax Court from 1973 to 1975. Jeanne has published several articles concerning the state tax aspects of bankruptcy in the Journal of State Taxation, New Jersey Lawyer, Newsletter of the Debtor–Creditor Section of the New Jersey Bar Association, and Newsletter of the Tax Section of the New Jersey Bar Association. She is also the author of 1540 T.M., State Tax Aspects of Bankruptcy, another portfolio in the Multistate Tax Portfolio Series. She served as the 1991 Chairman of the Northeastern States Government Bankruptcy Attorneys Committee. In addition, she is a regular speaker on the topic of bankruptcy for numerous conferences and seminars.




Credentials / J.D., University of Pennsylvania Law School, LL.M in Taxation, Temple University School of Law.


Table of Contents

Detailed Analysis



Introductory Material

A. Review of the Tax Agency's Publications

B. Tax Agency Rulings on Proposed Transactions

C. Advance Declaratory Judgments


Introductory Material

A. Audit Power

1. Statutory Authority

2. Review of Taxpayer Books and Records

3. Tax Agency Subpoenas to the Taxpayer

4. Third Party Subpoenas

B. Audit Methods

C. Administrative Protests and Judicial Appeals

D. Procedural Defenses to the Assessment

1. Invalid or Absent Regulation

2. Lack of Notice

3. Equitable Estoppel

4. Equitable Recoupment


Introductory Material

A. Creating the Statutory Lien

B. Force and Effect of the Statutory Lien

C. Priorities Among State Lien Holders

D. Competing Internal Revenue Service Liens


A. Non–Coercive Powers

1. Abatement of Penalties and Interest

a. Reasonable Cause for the Delinquency

b. Agency Mistake

c. Tax Amnesty Programs

2. Compromise of the Tax Debt

3. Payment Upon Sale of the Business

B. Coercive Powers

1. Levy and Seizure

a. Levy Procedure and Effect

b. Pre-Levy Notice to the Taxpayer

c. Fourth Amendment Protections

2. Personal Liability of Responsible Corporate Officers

a. Determination of the Responsible Officer

b. Effect of the Corporate Assessment

c. Notice to the Responsible Officer

3. Piercing the Corporate Veil

a. Forfeiture of the Corporate Charter

b. Disregarding Form for Substance

4. Jeopardy Assessments

5. Licenses and Security

6. Attorney General Suits

7. Set-Off From Payments Due the Taxpayer

Working Papers

Working Papers

Item Description Sheet

Worksheet 1 Pennzoil Co. v. Texaco Inc., 481 U.S. 1 (1986)


Worksheet 2 State Tax Administrations

Worksheet 3 State Tax Administration Newsletters & Publications

Worksheet 4 [Reserved]

Worksheet 5 Limitation Periods for Assessments of Corporate Income Taxes

Worksheet 6 Interest Rates on Underpayments of Tax

Worksheet 7 State Statute of Limitations for Assessments of Income Tax