New York – Use of Indirect Audit Method Upheld – Payne Avenue Pizza & Subs, Inc. (DTA 824327)

SALT Report 3124 – In the case of Payne Avenue Pizza & Subs, Inc. appeal to the NY Division of Tax, Determination DTA N. 824327; the use of indirect audit method to calculate the amount of taxable sales has been upheld in a decision dated 10/3/2013.  The “Petitioner has offered no evidence upon which a finding of reasonable cause could be made.  As the Division points out, it did not produce the source records that it was required by law to maintain.”  The Division accomplished its indirect audit by using the taxpayer’s purchase figures obtained from third-party vendors and the taxpayer itself, as well as performing a markup based on the cost of goods sold index from the 2006-2007 Restaurant Industry Operations Report.  “At the hearing, the auditor repeatedly provided the rationale for choosing to apply this method.  Meanwhile, petitioner has offered no evidence to refute this method or highlight the error of its results.  It is well settled that exactness in the outcome of the audit method is not required when the taxpayer’s failure to maintain proper records that prevents it”.  In conclusion, the taxpayer “failed to carry its burden of showing the audit to be unreasonably inaccurate or clearly erroneous.”

For Further Information:                                                    

NY Division of Tax Appeals – Payne Avenue Pizza & Subs DTA 824327