The last time NCCPAP visited Albany (about a year and a half ago) we brought this very issue to the Tax Department. Often, these correspondence audits result in such little additional tax, the client would pay us more to respond than the actual tax would be. Therefore, the client just pays the tax instead.
However, if these results were communicated to the IRS, of course the tax ramifications would be more severe and a different decision would have to be made.
Thus, we posed this question to the Tax Department. They were crystal clear on their answer. When NY audits a return, and there is an adjustment to INCOME (to Mark Stone's point) they automatically communicate the result to the IRS. However, when NY has an adjustment to New York State Itemized Deductions, they DO NOT communicate that to the IRS.
All of us in the room that day were surprised by that, but it was a pleasant surprise!
Hope that helps.
Mark L. Stone, CPA, MST
Sales Tax Defense LLC
673 Deer Park Ave
Dix Hills, NY 11746
(631) 491-1500 ext 11 :phone
(631) 491-1515 :fax