Tax Controversies in New York: Protecting Your Rights Against the IRS and State Authorities
August 26, 2025
Tax Controversies in New York: Protecting Your Rights Against the IRS and State Authorities
Facing a tax controversy can be one of the most stressful challenges for individuals and businesses. Whether you’re under IRS audit, dealing with civil tax disputes, or facing allegations of criminal tax violations, the consequences can be serious and long-lasting. Acting quickly — and with the right legal guidance — is critical.
At Auerbach Law Group, P.C., we help clients throughout New York confront tax controversies with clear strategies, strong advocacy, and a commitment to protecting both their rights and their financial future.
What Is a Tax Controversy?
A tax controversy arises whenever you have a dispute with the IRS or the New York State Department of Taxation and Finance. These disputes can take many forms, including:
- IRS or state tax audits
- Disputed tax returns or unpaid taxes
- IRS collection actions, such as liens and levies
- Civil tax violations and penalties
- Criminal tax investigations or charges
- Accusations of tax fraud or evasion
Because tax controversies often involve complex regulations and strict deadlines, working with an experienced attorney is essential.
Navigating the Complexities of Tax Disputes
Both individuals and businesses may encounter situations where the IRS or state tax authorities question filings or pursue collections. Some common examples include:
- Eggshell Audits: Highly sensitive audits where even a small error can trigger serious consequences.
- Appeals: Challenging the results of an IRS audit or other determination.
- Collections: Addressing IRS collection efforts, including liens and wage garnishments.
- Offers in Compromise (OIC): Negotiating to settle tax debt for less than the full amount owed.
- Currently Not Collectible (CNC) Status: Temporarily halting IRS collection actions if you cannot afford to pay.
- Forensic Accounting Investigations: Ensuring the accuracy of the government’s numbers and challenging inflated claims.
Without the right legal representation, taxpayers risk financial penalties, loss of assets, and — in the most severe cases — criminal charges.
Civil vs. Criminal Tax Controversies
Not all tax controversies are the same.
- Civil Tax Controversies
Typically involve unpaid taxes, penalties, or disputes over filings. The consequences often include fines, interest, and collection actions. - Criminal Tax Controversies
Involve allegations of willful misconduct, such as tax fraud, evasion, or filing false returns. These cases can lead to severe penalties, including imprisonment.
At Auerbach Law Group, we represent clients in both civil and criminal tax matters, tailoring our defense to the seriousness of your case.
How Auerbach Law Group Protects You
Our approach is thorough, strategic, and focused on achieving the best possible outcome for each client. We provide:
- Detailed case assessment to understand your unique situation
- Defense strategies tailored to civil or criminal proceedings
- Accurate financial analysis with the help of forensic accountants, when needed
- Negotiation with tax authorities to reduce penalties or settle debts
- Aggressive representation in state and federal tax disputes
With open communication and a focus on your peace of mind, our attorneys guide you through every step of the process.
Take Action Today to Protect Your Financial Future
The longer you wait to address a tax controversy, the more difficult the situation can become. Whether you’re facing an IRS audit, state tax investigation, or allegations of fraud, immediate action is your best defense.
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Filing a false tax return is a serious offense that can lead to severe penalties, including fines and imprisonment. However, individuals accused of this crime may have legal defenses that can help challenge the charges. Understanding these defenses is essential for anyone facing allegations of tax fraud. Lack of intent to deceive One of the strongest defenses in a false tax return case is proving a lack of intent. The prosecution must show that the taxpayer willfully misrepresented information. Honest mistakes, such as miscalculations or misunderstandings of tax laws, do not meet the legal standard for fraud. If errors were made without intent to deceive, this defense may apply. Reliance on a tax professional Many taxpayers seek assistance from accountants or tax preparers. If an error occurred due to a professional’s mistake, this could serve as a defense. Demonstrating reliance on a tax expert , especially if the taxpayer provided accurate information, may help argue against willful wrongdoing. Insufficient evidence The burden of proof lies with the government. Prosecutors must present clear and convincing evidence that a taxpayer knowingly submitted false information. If the evidence is weak, inconsistent, or based on assumptions rather than facts, the defense can challenge the case’s credibility. Statute of limitations Tax fraud cases have a limited time frame for prosecution. Generally, the Internal Revenue Service (IRS) has six years to bring charges for criminal tax violations. If authorities pursue a case after this period, the defense can argue that the charges should be dismissed. Correcting the mistake If a taxpayer voluntarily corrects errors before the IRS begins an investigation, it may demonstrate good faith. Filing an amended return or paying the owed amount can help reduce penalties and weaken the prosecution’s case. Allegations of filing a false tax return require a strong legal strategy. Understanding the available defenses and acting quickly can help those accused of tax fraud challenge the charges effectively.
The IRS issues trust fund recovery penalties (TFRPs) to hold individuals personally responsible for unpaid payroll taxes. Employers must withhold income and payroll taxes from employees’ wages and remit them to the IRS. If a business fails to do so, the IRS can assess TFRPs against responsible individuals, including business owners, officers, or employees who manage financial decisions. Determining responsibility and willfulness To impose a TFRP, the IRS must establish that the individual was responsible for collecting, accounting for, or paying employment taxes. The IRS also needs to prove that the responsible person acted willfully in failing to remit the taxes. Willfulness does not require fraudulent intent; a voluntary, conscious decision to pay other obligations before tax liabilities is enough to meet this standard. Requesting an appeal Taxpayers can challenge a TFRP assessment through an IRS appeal. After receiving a proposed assessment, the taxpayer can submit a written protest within 60 days (75 days for cases outside the U.S.). The protest should provide evidence and arguments explaining why the assessment is incorrect. This process allows taxpayers to present their case before an independent IRS appeals officer. Contesting liability in tax court If an appeal does not resolve the issue, taxpayers can challenge the assessment in the U.S. Tax Court, the Court of Federal Claims, or a U.S. District Court. To proceed in district court or the Court of Federal Claims, the taxpayer must first pay a portion of the penalty and file a refund claim with the IRS. If the IRS denies the claim or does not respond within six months, the taxpayer can file a lawsuit. Providing evidence to support the case Strong documentation is essential for disputing TFRPs. Evidence such as emails, financial records, and witness testimony can demonstrate that the individual lacked responsibility or did not act willfully. Legal counsel can help present a well-supported case to the IRS or the courts. Taxpayers facing TFRP assessments should seek guidance from professionals who are knowledgeable in tax matters. These individuals can analyze the case, gather evidence, and navigate the appeals process. Proper preparation and a strong defense increase the chances of a favorable outcome and minimize financial liability.
Cash transactions of significant amounts often draw government scrutiny due to concerns about financial misconduct. Failing to meet these legal obligations can result in serious financial and legal consequences. Authorities enforce strict regulations to ensure transparency and prevent illegal activity. Federal reporting requirements for cash transactions The Bank Secrecy Act and Internal Revenue Code require businesses to report cash transactions exceeding $10,000 . This includes payments received in a single transaction or multiple related transactions within 24 hours. The law applies to businesses, individuals, and financial institutions. Failure to comply can lead to investigations by the IRS and the Department of Justice. Criminal charges for noncompliance Failing to report cash transactions can result in severe criminal penalties. Willful violations may lead to charges of tax evasion, money laundering, or structuring transactions to avoid reporting requirements. Convictions for these offenses can carry significant fines and prison time. Potential fines and imprisonment The penalties for failing to report cash transactions vary based on intent. If a person knowingly avoids reporting, fines can reach up to $250,000 for individuals and $500,000 for corporations. In cases involving money laundering or fraud, courts can impose additional penalties. Prison sentences may range from five years for basic violations to 20 years for more serious offenses. Additional consequences of noncompliance Beyond criminal penalties, failing to report cash transactions can trigger IRS audits, asset seizures, and reputational damage. Businesses may lose operating licenses or face civil lawsuits. In many cases, federal authorities will pursue criminal charges alongside financial penalties, making compliance essential. Proper record keeping and timely filing of Form 8300 can help prevent legal issues . Consulting a tax attorney or accountant can ensure compliance with federal laws. If an error occurs, correcting it as soon as possible can reduce the risk of criminal charges. Understanding and following reporting requirements protects individuals and businesses from severe penalties.
Tax problems can be expensive and stressful. New technology can help people follow tax rules and avoid disputes. Tools like artificial intelligence (AI) and cloud computing make it easier to track income, expenses, and payments. More businesses and individuals use these tools to stay compliant and reduce errors. As technology improves, tax reporting will become simpler and more accurate. Improving accuracy with AI AI can quickly process financial data with fewer mistakes. It can check expense reports and invoices in real-time, making sure everything follows tax rules. This accuracy helps prevent errors that could cause problems with tax authorities. AI also helps detect unusual transactions, reducing fraud risks. By using AI, businesses and individuals can confidently file their taxes, knowing their data is accurate and up-to-date. Organizing records with cloud computing Storing financial records in the cloud keeps them safe and easy to find. Cloud systems update in real-time and allow users to access information from anywhere. Better record-keeping allows people to file taxes correctly and avoid disputes. Cloud technology also allows seamless collaboration between taxpayers, accountants, and tax agencies. Automatic backups ensure records remain intact, even if a device is lost or damaged. Using real-time reporting New technology allows businesses and individuals to report financial transactions as they occur. When tax records update instantly, errors are caught and fixed immediately, preventing small mistakes from becoming big problems. Governments are also adopting real-time tax collection methods, which reduce delays and ensure smoother tax administration. The ability to instantly verify information creates transparency and trust between taxpayers and authorities. Technology helps people follow tax laws more easily and keeps tax agencies informed. As these tools become more common, tax disputes will happen less often, making the system smoother for everyone. Investing in digital tax solutions benefits both taxpayers and tax authorities, leading to fewer audits and penalties.
Online businesses continue to face changing tax collection policies as federal and state governments adjust to the growing digital economy. Lawmakers have introduced new regulations to ensure that online retailers, service providers, and digital platforms meet tax obligations. Understanding these updates is essential for businesses to stay compliant and avoid penalties. Expanding state sales tax requirements in New York New York requires online businesses to collect and remit sales tax if they meet specific economic nexus thresholds. Following the 2018 Supreme Court ruling in South Dakota v. Wayfair, Inc. , New York enacted regulations requiring remote sellers and marketplace facilitators to collect sales tax if they generate more than $500,000 in gross revenue and conduct more than 100 transactions in the state within a year. Businesses operating in New York must comply with these laws to avoid penalties and ensure proper tax reporting. Increased IRS focus on digital transactions The Internal Revenue Service (IRS) has increased oversight of digital transactions to ensure businesses report online sales and revenue accurately. Payment platforms such as PayPal, Venmo, and Stripe must report payments exceeding $600 per year to the IRS. This policy change, which lowers the previous $20,000 threshold, aims to improve tax compliance among gig workers, freelancers, and e-commerce sellers. Marketplace facilitator laws New York has enacted marketplace facilitator laws that require online marketplaces such as Amazon, eBay, and Etsy to collect and remit sales tax on behalf of third-party sellers. Under these laws, marketplace facilitators must ensure compliance with New York’s tax regulations, even if the individual sellers do not have a physical presence in the state. These laws simplify tax collection for small businesses but also introduce compliance requirements for online platforms operating within New York. Compliance challenges and business impact Online businesses must stay informed about changing tax laws to remain compliant. Failure to collect and remit taxes correctly can result in audits, fines, and legal consequences. Many companies now use automated tax software to navigate multi-state tax obligations efficiently. As e-commerce continues to grow, tax policies will likely evolve further. Businesses should monitor legislative updates to adapt to new tax collection requirements. Staying proactive ensures compliance and reduces financial risks associated with tax liabilities.
Misclassifying employees as independent contractors can cause serious tax problems for businesses. In New York, strict rules determine whether a worker is an employee or a contractor. Employers who fail to classify workers correctly risk financial penalties and other consequences. Increased tax liability Employers must pay certain taxes for employees, including Social Security, Medicare, and unemployment insurance taxes. Misclassifying workers as contractors means these taxes go unpaid , creating tax liability if the mistake is uncovered. Businesses may also face back taxes, interest, and penalties. Penalties under New York law Employers can also face harsh penalties for worker misclassification. They may owe fines for unpaid payroll taxes and violations of wage and hour laws. The New York State Department of Labor can investigate and take action against businesses that fail to comply with worker classification rules. Impact on workers’ rights Misclassification affects workers, too. Employees are entitled to benefits like overtime pay, health insurance, and workers’ compensation. Contractors do not have these protections. If misclassification occurs, employees can file complaints, leading to legal disputes and further costs for the employer. How to determine worker status The law uses specific tests to determine if someone is an employee or contractor. Factors include how much control the employer has over the worker and whether the worker operates independently. Employers should carefully review these criteria before classifying workers to avoid mistakes. Correctly classifying workers is important for avoiding costly penalties and safeguarding business operations. Employers who adhere to the law create a stable foundation for their workforce while preventing unnecessary financial and legal risks.