New York Advisory Opinion TSB-A-87 (7)I: Does New York State follow the Internal Revenue Service's procedure for avoiding repetitive audits of the same issue?

Plain-English summary

Bernard and Joyce Ouziel had been audited by the IRS for 1983 on their Schedule C business expenses, and that federal audit resulted in no change to their reported tax. When New York State later notified them it would audit their personal income tax returns for 1984 and 1985 - on what appears to have been the same kind of issue - the Ouziels argued that New York should give them the same relief the IRS itself offers: under IRS procedures, a taxpayer can avoid a repeat audit if they were already audited on the same issue in either of the two prior years and nothing changed. They reasoned that because New York has reciprocal information-sharing arrangements with the IRS and generally follows IRS procedures, it should follow this one too.

The Department rejected that argument outright. It found no provision of New York law, regulation, or Department policy that adopts the IRS's repetitive-audit relief policy. Tax Law § 697(b) gives the Tax Commission broad, independent power to examine books, records, and witnesses to verify a return or estimate taxable income - a power the Department exercises on its own terms, not by borrowing federal audit-selection rules. The Department also stressed a broader point: New York is a "separate and distinct taxing authority" that, during an audit, looks at a number of state-specific issues (allocations, modifications, credits) that a federal audit would never touch. Even general cooperation with the IRS on information-sharing does not mean New York adopts every federal administrative procedure, including this one. The Department concluded there was "no basis whatsoever" for relief from the New York audit.

What this means for you

Taxpayers who passed an IRS audit and are now facing a New York audit on a similar issue

Don't assume that a clean result from an IRS audit - even one covering the exact same issue and years within the IRS's own two-year repetitive-audit window - protects you from a separate New York State audit. New York has never adopted the IRS's repetitive-audit relief policy, and this opinion confirms the Department will audit a state return even where the IRS already examined the identical issue and made no change.

Accountants and tax preparers responding to a NY audit notice

If a client raises "the IRS already looked at this and found nothing wrong" as a reason New York shouldn't audit, be aware that argument carries no legal weight under current New York law. New York's audit authority under Tax Law § 697(b) is independent of federal audit-selection procedures, and the state routinely examines items - allocation of income, New York-specific modifications, state credits - that a federal audit simply does not reach. Prepare the state audit response on its own merits rather than relying on the prior federal outcome.

Multi-state or high-income taxpayers who assume state and federal audits are coordinated

New York's reciprocal information-sharing arrangement with the IRS (routine exchange of audit results and return data) does not translate into New York adopting IRS administrative practices like repetitive-audit avoidance. Treat a state audit notice as coming from a wholly separate authority with its own examination priorities, even where the state and the IRS are in regular contact about your return.

Common questions

Q: I was already audited by the IRS on this exact issue with no change - can New York still audit me on it?
A: Yes. This opinion holds that New York State has no law, regulation, or policy adopting the IRS's practice of avoiding repetitive audits, so a clean federal audit result does not bar a New York audit of the same issue in a later year.

Q: Does New York's information-sharing relationship with the IRS mean it follows IRS audit procedures generally?
A: No. The Department acknowledged the reciprocal information arrangement but rejected the idea that it extends to adopting specific IRS administrative policies like repetitive-audit relief. New York remains "a separate and distinct taxing authority."

Q: What gives New York the authority to audit a return the IRS already examined?
A: Tax Law § 697(b), which authorizes the Tax Commission to examine books, papers, records, and witnesses to verify the correctness of a return or to estimate a taxpayer's taxable income - independent of what the IRS has already done on the same return.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1987.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a87_7i.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-87 (7) I
Income Tax
November 20, 1987

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. I870908C

On September 8, 1987, a Petition for Advisory Opinion was received from Bernard and Joyce
Ouziel, 13 Schoolhouse Lane, Great Neck, New York 11020.
The issue raised is whether New York State follows Internal Revenue Service procedures on
repetitive audits.
Petitioners were examined by the Internal Revenue Service for taxable year 1983. The items
questioned in the audit were federal Schedule C business expenses. The audit resulted in no change
in reported tax. Petitioners have now been notified that they will be audited by New York State for
personal income tax purposes for taxable years 1984 and 1985. Internal Revenue Service procedures
allow an audit to be avoided if the taxpayer was audited on the same issue in either of the two prior
years. Petitioners argue that since New York State has reciprocal information arrangements with the
Internal Revenue Service and basically follows Internal Revenue Service procedures, New York
State should follow Internal Revenue Service procedures on repetitive audits.
Section 697(b) of the Tax Law provides:
(b) Examination of books and witnesses. - (1) The tax commission for the purpose of
ascertaining the correctness of any return, or for the purpose of making an estimate of taxable
income of any person, shall have the power to examine or to cause to have examined, by any
agent or representative designated by it for that purpose, any books, papers, records or
memoranda bearing upon the matters required to be included in the return, and may require
the attendance of the person rendering the return or any officer or employee of such person,
or the attendance of any other person having knowledge in the premises, and may take
testimony and require proof material for its information, with power to administer oaths to
such person or persons.
There is no provision of New York State law, regulation or policy which adopts the Internal
Revenue Service policy regarding repetitive audits. In any event, New York State is a separate and
distinct taxing authority which would, during the course of an audit, examine a number of state
issues (e.g. allocations, modifications, credits) which would be of no concern during a federal audit.

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-87 (7) I
Income Tax
November 20, 1987

Consequently, there is no basis whatsoever for Petitioners' request for relief from a repetitive
audit.

DATED: November 20, 1987

s/ANDREW F. MARCHESE
Chief of Advisory Opinions
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.