...developing strong relationships with contacts in these taxing units proves to be invaluable when negotiating tax claims

Roger Cukras is a partner with law firm Ingram Yuzek Gainen Carroll & Bertolotti, LLP.  He focuses his practice on state and local taxation with a particular emphasis on New York state and city, New Jersey, Connecticut and California. He has assisted many businesses with state and local audits and has a respected reputation with state and local tax authorities. 

We recently sat down with Roger for a quick-take Q&A to learn how he achieved great results for a client facing millions of dollars in tax claims. 

Can you give us an overview of the work you do regarding tax claims? 

Cukras: When a company files for bankruptcy under Chapter 11, tax debts (including city and state taxes) are included among all debts owed by the bankruptcy estate. City and state tax departments have a limited time to file a claim for any taxes owed. New York state and city tax departments have special units to handle the filing and resolution of tax claims filed in bankruptcy proceedings. 

I’ve found that developing strong relationships with contacts in these taxing units prove to be invaluable when negotiating tax claims on behalf of my clients.

What are the specifics of the MarchFIRST story? 

MarchFIRST was a high-flying dotcom company before it filed for Chapter 11 bankruptcy. New York state and New York city filed notices of claim in the many millions of dollars. A significant portion of these claims was based on audits, so the numbers were real. Some of the state tax claims included sales tax and withholding taxes; and if left unpaid, the company’s officers could face personal liability.

I had the audit work papers from the state and city along with a volume of records of MarchFIRST. The state worked with me in sorting out how much of the employees’ total personal income taxes were fully paid for the relevant years. 

I realized from handling prior withholding tax audits that the state could make adjustment when the company established that even though it did not withhold as required, the employees nevertheless paid their state personal income taxes. 

Working with the Department of Taxation and Finance it was discovered that a vast majority of the company’s employees had filed New York personal income tax returns and had paid practically all of their personal income tax liability.  

Great, so taxes were paid. What was the problem?

Even though New York wasn’t deprived of tax dollars anywhere approaching the amount of the claims, the liability asserted in the state’s bankruptcy claims represented a penalty and not a tax deficiency. 

The state was reasonable and I successfully negotiated a significant reduction...

I worked with the state bankruptcy unit (with which we had worked out the MCI WorldCom and Global Claims bankruptcy claims). The state was reasonable and I successfully negotiated a significant reduction in the state withholding claims as well as in the remaining claims. 

In addition, in the process of working things out, the state was again reasonable and agreed not to assert personal liability against the company’s officers.