"Going out of business:" final tax returns and collecting taxes due.

• Author: Shear, Jeffrey

New lines of communications with tax return preparers and more effective procedures in the collection bureau produce better compliance on final business tax returns for New York City.

A problem that is common to all business tax collectors(1) is what to do when a sole proprietor, a partnership or a corporation in their jurisdiction goes out of business. Many people initially do not understand why tax collectors should care about this issue, thinking it mean-spirited and unproductive to go after people who are broke.

The response is two-fold. First, going out of business does not necessarily mean that a business is broke. It may indicate that a business owner is retiring, changing occupations or relocating. In any of these instances, there is no inherent reason why the business should not pay its fair share of taxes. Second, all tax collectors have a responsibility to collect unpaid tax liability if possible and to classify their accounts receivable so that the government and the public can know what portion of the receivables are truly collectible. If the business files for bankruptcy, the jurisdiction's priority among other creditors is determined by law, and the amount it may collect generally is determined by a federal bankruptcy court. If the business does not file for bankruptcy, then the government, by not pursuing this outstanding liability, may be allowing other creditors to receive preferential treatment.

This article describes how the New York City Department of Finance (DOF) identified the problem of receiving final tax returns from corporations and what DOF is doing about it.

Types of Business Tax Bills

The following six types of business tax bills are referred to the DOF Collections Bureau for enforcement action.

* Nonfiling assessments are issued against taxpayers that have never filed for a particular tax but whom DOF believes, based on various types of information, should be filing. For example, a new corporation located in the city may have registered as such with the New York Department of State but may not have filed a city general corporation tax return. Similarly, a city business may be an active corporation tax filer but may be a nonfiler for the city's commercial rent tax.

* Delinquent assessments are issued against taxpayers that have stopped filing returns without a satisfactory explanation.

* Desk audit assessments are adjustments to filed returns, reviews conducted entirely at DOF's offices.

* Field audit assessments are adjustments made to filed returns by...