NYS Tax Audit Letter: Deadlines, Response, and Appeals

A New York State tax audit letter is a written notice from the Department of Taxation and Finance asking you to verify something on your return, propose changes to your tax, or formally assess additional tax you owe. Not every letter means you owe money, but every letter carries a deadline printed on the notice, and letting that date pass can turn a routine document request into an enforceable bill with penalties and interest attached.

The first thing to do is identify which letter you have. The name at the top tells you how far the review has gone and how much time you have to act.

Which Letter Did You Receive

Request for Information (Form DTF-948 or DTF-948-O)

This is the letter most people get. The department is asking for documents to support something you claimed, such as a deduction, credit, or income figure, and the notice lists the exact line items under review.¹ It is not a determination that you owe tax. You can respond through your Individual Online Services account or by mail.²

Ignoring a Request for Information does not mean the department gives up. It means the department decides the case on whatever information it already has, which almost always produces a bill.

Statement of Proposed Audit Changes

If the review is complete and the department believes you owe more, it sends a Statement of Proposed Audit Changes laying out the adjustments, revised tax, penalties, and interest. You can sign to agree, or check that you disagree and send it back with your reasons. If you disagree, the auditor considers your response and may issue a revised statement; if you still cannot reach agreement, the case moves to a formal notice.³ One common version, Form DTF-960-E, addresses items like unreported 414(h) retirement contributions or IRC Section 125 cafeteria plan amounts that have to be added back to your New York adjusted gross income.¹

Notice of Deficiency

A Notice of Deficiency is the formal legal step that starts the enforcement clock. Once the department issues this notice under Tax Law Section 681, you have 90 days to file a challenge if you are inside the United States. Do nothing in that window and the tax is assessed and can be collected.⁴ This letter matters most. An unanswered Request for Information can still lead to proposed changes you can contest. An unanswered Notice of Deficiency becomes a final debt.

The Deadline on Your Letter

The specific date you have to respond is printed on the notice itself. For a Request for Information, missing it does not lock in agreement with the department, but it does mean the department will decide your case without your records, which almost always ends in an assessment. For a Notice of Deficiency, the 90 days is fixed by statute, and once it passes you lose your right to challenge the assessment through either the Bureau of Conciliation and Mediation Services or the Division of Tax Appeals.⁴

A separate deadline catches people off guard: if the IRS changes your federal return, you have 90 days after the final federal determination to file an amended New York return or a report of the federal changes with the department.⁵ Skip that step and you do not just risk penalties. The statute of limitations for New York to assess additional tax on that return disappears entirely.⁶

The department generally has three years from the date you filed to assess additional tax, but that limit disappears for unfiled returns and fraudulent returns, and it extends to six years for deficiencies from abusive tax avoidance transactions.⁶ Auditors sometimes ask you to sign a written agreement extending the three years when the review is running long. Signing gives the department more time to build its case; refusing can push the auditor to issue a deficiency notice on incomplete information rather than wait. Neither answer is obviously right, and this is the kind of decision worth running past a tax professional before you commit.

How to Put Your Response Together

Read the letter closely. It tells you which items are under review and which records support each one. Common requests include W-2s for wages, 1099s for freelance or investment income, receipts for itemized deductions, mileage logs, and paperwork behind credits you claimed. Pull records that match the exact tax year on the notice. Without documentation the department will disallow the claimed items, because in a New York audit you carry the burden of proving what you reported is correct; the department only has to show a discrepancy, and then it is on you to justify your position.²

If the audit involves your residency, expect a different set of questions: where you keep homes, where your family lives, and how many days you spent in New York. The department applies a 183-day rule for statutory residents (not domiciled in New York but maintaining a permanent home here and present more than 183 days) and weighs five primary factors for domicile: home, active business involvement, time, items near and dear, and family.⁷ Residency audits may include supplemental forms like AU-262.3 (Nonresident Audit Questionnaire) or AU-262.55 (Income Allocation Questionnaire).²

Complete the response form that came with the letter (usually DTF-948 or DTF-948-O for personal income tax), make sure the dollar figures on the form match your supporting documents, and put your audit case number on every page. The fastest way to submit is uploading through your Individual Online Services account.⁸ If you mail it, use certified mail with a return receipt so you have proof of timely delivery, and keep a full copy of everything you send.

Then expect to wait. The department’s own Publication 130-F says an audit can take from several days to a year or more depending on complexity and how complete your records are.⁹ If no changes are needed, you will get a letter saying so. If changes are warranted, you will get a Statement of Proposed Audit Changes.

Why Your Return Was Flagged

Audits are rarely random. The department cross-checks your return against income data reported by employers, banks, and brokerages, and mismatches get flagged automatically. Unusually large deductions or credits relative to reported income draw a second look, as do inconsistent details behind claims like the Earned Income Credit or Child and Dependent Care Credit. Federal audit adjustments frequently trigger a state review because New York starts from federal figures. And residency claims by high-income filers who report leaving the state are examined closely.⁷

If the Result Is a Bill

When an audit ends in tax owed, expect penalties and interest on top of the tax itself. Interest on personal income tax underpayments compounds daily; for the first quarter of 2026 the rate is 9.5% per year, and it adjusts quarterly.¹⁰ Interest keeps running during an appeal, so some taxpayers pay the disputed amount to stop the clock and pursue a refund if they win.

Penalties scale with what went wrong:

Failure to pay: 0.5% of the unpaid tax per month, up to 25%.¹¹
Substantial understatement: 10% of the underpayment if the tax you reported is short by more than 10% or $2,000, whichever is greater.¹¹
Negligence: 5% of the deficiency plus 50% of the interest attributable to the negligent portion, for careless underreporting without intent to defraud.¹²
Fraud: two times the entire deficiency, the harshest civil penalty the department imposes, applied when any part of the underpayment was intentionally fraudulent.¹²

Negligence and fraud penalties do not stack on the same deficiency. Either can sit on top of the failure-to-pay penalty, and interest runs on the combined total.

If You Disagree With the Result

After a Notice of Deficiency or Notice of Determination, you have two ways to challenge. The general deadline is 90 days from the date on the notice, but the exact date is printed on your specific letter.³

Conciliation Conference Through BCMS

The Bureau of Conciliation and Mediation Services offers an informal review without a formal hearing. Request one by filing Form CMS-1-MN online, by fax, or by mail. BCMS acknowledges the request within about 10 days and sends a written appointment notice at least 30 days before the conference. A conferee reviews your case and proposes a resolution as a consent; if you sign and return it within 15 days, the matter closes. If you disagree, the conferee issues a Conciliation Order that binds both sides unless you file a petition with the Division of Tax Appeals.¹³ Interest continues to accrue while this plays out.

Petition to the Division of Tax Appeals

The Division of Tax Appeals is independent of the Department of Taxation and Finance. You file a petition with the Supervising Administrative Law Judge in Albany, and it has to include the notice you are contesting, the errors you allege, and a copy of the notice itself.¹⁴ The statutory deadline is firm; there are no extensions. If the ALJ rules against you, further appeal runs to the Tax Appeals Tribunal and then the courts.

BCMS is faster and less formal and does not require a lawyer, and you can still petition the Division of Tax Appeals afterward if it does not resolve the matter. Going straight to a formal petition tends to happen when the stakes are high or the legal issues are complex.

Letting Someone Else Handle It

You can authorize an attorney, CPA, enrolled agent, or other individual to handle the audit for you by filing Form POA-1 (Power of Attorney) with the department. Only individuals go on the form, not firms, and the authorization lets your representative receive confidential information, agree to extensions, and negotiate adjustments.¹⁵

One quirk to know before you file: the POA-1 cannot be partially revoked. If you name two representatives and later want to remove one, the entire authorization is canceled, and you have to file a new POA-1 for the representative you want to keep.¹⁵

1
New York State Department of Taxation and Finance. Did You Receive Mail From Us
2
New York State Department of Taxation and Finance. Respond to a Letter Requesting Additional Information
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New York State Department of Taxation and Finance. Audit
4
New York State Division of Tax Appeals. Determination of John W. and Doris N. Riehm
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New York State Senate. New York Consolidated Laws Tax Law TAX 659
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New York State Senate. New York Code TAX 683 – Limitations on Assessment
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New York State Department of Taxation and Finance. Nonresident Audit Guidelines
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New York State Department of Taxation and Finance. Online Services
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New York State Department of Taxation and Finance. Publication 130-F, The New York State Tax Audit – Your Rights and Responsibilities
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New York State Department of Taxation and Finance. Interest Rates 1/01/2026 – 3/31/2026
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New York State Senate. New York Code TAX 685 – Additions to Tax and Civil Penalties
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New York State Department of Taxation and Finance. Interest and Penalties
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New York State Department of Taxation and Finance. Form CMS-1-MN Request for Conciliation Conference
14
New York Codes, Rules and Regulations. Section 3000.3 Filing of Petition
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New York State Department of Taxation and Finance. POA-1 Power of Attorney