When to Appeal an Audit

Receiving an unfavorable audit result from the New York Department of Taxation and Finance doesn’t mean you’re out of options. Understanding when to appeal and which appeal route to take can help you achieve a better outcome and potentially save thousands in taxes and penalties.

Grounds for Appealing an Audit

You should consider appealing if:

1. The Auditor Made Factual Errors

• Miscalculated income or deductions
• Failed to consider documentation you provided
• Applied incorrect tax rates or formulas
• Double-counted income or disallowed legitimate expenses

2. The Auditor Misapplied the Law

• Incorrectly interpreted tax statutes or regulations
• Applied the wrong legal standard
• Ignored relevant case law or guidance
• Made errors in residency or allocation determinations

3. You Have New Evidence

• Documents you didn’t provide during the audit
• Witness testimony supporting your position
• Expert analysis (appraisals, forensic accounting, etc.)
• Information that wasn’t available during the audit

4. The Assessment Is Disproportionate

• Penalties seem excessive given the circumstances
• The auditor didn’t consider reasonable cause
• The adjustment doesn’t reflect the actual facts

5. Procedural Violations

• The DTF didn’t follow proper audit procedures
• You weren’t given adequate time to respond
• The auditor exceeded their authority
• Notice requirements weren’t met

When NOT to Appeal

Appeals aren’t always the right strategy. Don’t appeal if:

• The audit result is correct and you have no legitimate grounds to challenge it
• The cost of appeal (attorney fees, time, stress) exceeds the potential tax savings
• You don’t have evidence supporting your position
• The assessment is small and not worth fighting

Your Appeal Options

You have two paths to appeal a NY audit:

Option 1: Bureau of Conciliation and Mediation Services (BCMS)

• Informal process
• No filing fee
• Faster resolution (6-12 months)
• Settlement-focused
• Good for factual disputes and penalty challenges

Option 2: Division of Tax Appeals (DTA)

• Formal hearing process
• No filing fee
• Longer timeline (9-18 months)
• Litigation-focused
• Better for complex legal issues

You must choose one or the other—you can’t pursue both simultaneously. However, if you start with BCMS and don’t reach a settlement, you can then proceed to DTA.

The 90-Day Deadline

Both appeal options require you to act within 90 days of the statutory notice (Notice of Deficiency or Notice of Determination). This deadline is absolute. Missing it means:

• The assessment becomes final
• You lose your right to challenge it
• The DTF can begin collection actions
• Your only option is to pay and file a refund claim

Calculating the 90 Days

The 90-day period begins on the date shown on the notice, not the date you received it. Count carefully:

• Day 1 is the day after the notice date
• Include weekends and holidays in your count
• If day 90 falls on a weekend or holiday, the deadline extends to the next business day

What Happens When You Appeal

Once you file your appeal:

• Collection activity is suspended. The DTF cannot levy your bank accounts, garnish your wages, or take other enforcement actions while your appeal is pending.
• Interest continues to accrue. If you ultimately lose the appeal, you’ll owe interest on the unpaid tax from the original due date.
• You can still settle. Even after filing an appeal, you can negotiate a settlement with the DTF at any time.

Paying Under Protest

In some cases, you may want to pay the assessed tax while your appeal is pending. This stops interest from accruing. If you win your appeal, you’ll receive a refund with interest. To preserve your appeal rights, clearly mark your payment “paid under protest” and maintain your appeal.

Strategic Considerations

Appeal if:

• The potential tax savings exceeds the cost of representation
• You have strong evidence supporting your position
• The auditor made clear errors
• Penalties are substantial and you have reasonable cause
• The issue involves a legal question that could be decided in your favor

Don’t appeal if:

• You don’t have evidence to support your position
• The assessment is correct
• The cost of appeal exceeds the benefit
• You’d rather settle and move on

Settlement During Appeals

Most appeals settle before a final decision. The DTF may be willing to:

• Reduce the assessment based on additional evidence
• Waive or reduce penalties
• Accept a compromise on disputed issues
• Agree to installment payments

Settlement negotiations can occur at any stage of the appeal process.

What If You Lose?

If you lose at BCMS, you can:

• File a petition with the Division of Tax Appeals (within 90 days of the Conciliation Order)
• Pay the assessment and file a refund claim
• Negotiate an installment agreement

If you lose at DTA, you can:

• Appeal to the Tax Appeals Tribunal (within 30 days)
• Appeal to the Appellate Division (after Tribunal decision)
• Pay the assessment

The Cost-Benefit Analysis

Before appealing, consider:

Our Evaluation Process

When clients receive unfavorable audit results, we:

• Review the audit report and supporting documentation
• Identify errors and weaknesses in the DTF’s position
• Evaluate the strength of your case
• Estimate the cost of appeal vs. potential savings
• Recommend the best appeal strategy (BCMS vs. DTA)
• Provide realistic assessment of success probability

We’ll tell you honestly whether an appeal makes sense or whether settlement or payment is the better option.

Time Is Critical

The 90-day deadline doesn’t give you much time to decide. If you’ve received a Notice of Deficiency or Notice of Determination, contact us immediately to discuss your appeal options. Waiting until day 85 leaves insufficient time to prepare a strong appeal.