Speed Up Certainty in Tax Appeals by Narrowing Scope of Dispute

A common complaint about the state and local tax appeals process is that it’s far too lengthy. For business taxpayers, prolonged uncertainty can disrupt planning, hinder transactions, and complicate financial reporting.

In many cases, the mounting pressure of time and interest accrual pushes taxpayers toward settlements that are disconnected from the merits of their case. For individual taxpayers, the impact can be deeply personal—unresolved liabilities can freeze assets, complicate estate planning, or create indefinite financial anxiety.

However, taxpayers and their advisers don’t need to accept a protracted appeals process as a fait accompli. There are several strategies they may consider that can expedite tax certainty, including:

Private letter rulings and pre-filing guidance: The most efficient appeal is the one that’s never filed. When a taxpayer can foresee uncertainty before filing a return or consummating a transaction, it often makes sense to seek a private letter ruling or a comparable form of written guidance.

A PLR is a written determination issued by a tax authority that interprets and applies tax law to a taxpayer’s specific set of represented facts. While these are typically specific to the requesting taxpayer and can’t be cited as precedent by others, they’re invaluable to the requesting party. Even when formally non-precedential, this guidance clarifies the agency’s position, creates a durable record, and significantly reduces future audit friction.

To improve the chances of obtaining usable guidance, consider taking the following steps:

• Define the facts accurately and clearly. Misstated facts can strip the ruling of its value.
• Frame a narrow, answerable question. Broad requests create ambiguity, which can lead to unnecessary procedure and delay or ultimately a refusal to issue a ruling.
• Provide a succinct legal analysis. Addressing counterarguments upfront builds credibility.
• Ensure administrability. Align the requested holding with how auditors and compliance teams are likely to apply it in practice.

Tax insurance as a certainty and timing tool: This is an indemnity policy that reimburses the taxpayer for specified tax losses (often including the tax itself, interest, penalties, and defense costs) if a specific tax position for which the insurance policy is written is successfully challenged. Tax insurance has gained recent popularity in the corporate transactions and renewable energy tax credit spaces.

Beyond transactions, tax insurance can provide certainty when a taxpayer confronts a particular tax concern. For example, tax liability insurance can be put in place during the planning process, after a tax event has occurred, or during an active audit controversy.

For individuals contemplating a move out of a high-tax jurisdiction, tax insurance can guard against the risks of a potential prolonged residency audit and appeals process.

Tax insurance is also an effective tool for removing a reserve for an uncertain tax position from a balance sheet. Where pending refund claims face a prolonged process, tax insurance can help unlock liquidity and accelerate access to capital.

The same discipline that produces strong ruling requests equally applies to an insurance request. Therefore, the steps suggested under the PLR section above also should be considered when applying for tax insurance.

Streamlining the case by reducing avoidable complexity: Tribunals and courts are often poorly resourced, and tax controversies involve nuanced legal issues. Reaching a decision is rarely a simple endeavor.

Complexity requires time. Taxpayers seeking swift certainty should work to strip away unnecessary complications:

• Stipulate to the facts. By agreeing on the who, what, and where, you allow the judge to focus purely on the legal why, shortening the trial and briefing process.
• Prune secondary arguments. Avoiding “kitchen-sink” protests is critical to expediting appeals. Including weak or mediocre backup arguments creates additional work for the judge and provides the tax authority with more avenues for discovery and delay.
• Avoid procedural skirmishes. Limiting unnecessary motions and discovery disputes saves costs and time.
• Audit cooperation. During the audit phase, proactive cooperation and transparent communication can prevent a case from becoming contentious, leading to a smoother path through the administrative process.

Considering alternative avenues to a decision: Administrative tribunals generally are considered a prerequisite to state court proceedings. However, exceptions exist even in jurisdictions where administrative bodies are assumed to have exclusive jurisdiction.

For instance, cases involving facial constitutional challenges or certain actions for declaratory judgment may allow a taxpayer to bypass the administrative queue.

Taxpayers seeking a quicker decision than the administrative process allows should evaluate whether the case can be tailored to fit these exceptions. Strategic pleading may open the door to a more efficient judicial forum, allowing the taxpayer to receive a final decision sooner.

Tax certainty can be obtained through active measures—it’s a strategic objective that should be managed from the earliest stages of a transaction or audit. By seeking upfront guidance through PLRs, leveraging modern tools like tax insurance, or narrowing the scope of active disputes through stipulations and strategic pleading, taxpayers can significantly compress the timeline to certainty.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Jarrett S. Kalish is the managing member of Kalish Law LLC and previously was an administrative law judge at the New York City Tax Appeals Tribunal and tax counsel for the New York City Department of Finance.

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