24 October 2017 New York City issues guidance on reporting federal and New York State tax base adjustments The New York City (City) Department of Finance (Department) in Fin. Memo. No. 17-5 provides guidance to taxpayers subject to the Business Corporation Tax, General Corporation Tax, Banking Corporation Tax and Unincorporated Business Tax (collectively, taxpayers) on how they should report tax base adjustments to the Department, including adjustments that affect income, receipts or capital allocation.1 For tax periods beginning on or after January 1, 2015, taxpayers must report all applicable tax base adjustments on amended returns and enumerate any additional tax or refund due. In the recalculation of City tax stemming from federal or New York State (NYS) adjustments, the starting point is the amounts reported on the taxpayer's original City return, adjusted to reflect any changes that the City or taxpayer subsequently made.2 Before January 1, 2015, taxpayers were required to report all applicable tax base adjustments on City proscribed forms (i.e., Forms NYC-3360 for the General Corporation Tax, NYC-3360B for the Banking Tax and NYC-115 for the Unincorporated Business Tax). Taxpayers have 90 days to amend separate returns and 120 days to amend combined group tax returns. The 90- or 120-day period begins when: (1) the IRS or New York State Department of Taxation and Finance (DTF) makes a final adjustment to taxable income or other tax base; (2) the taxpayer signs a federal or New York state waiver; or (3) the IRS allows a tentative carryback adjustment based on a net operating loss carryback or net capital loss carryback.3 S corporations must report tax base adjustments if a triggering event occurs for any one of their shareholders. The tax returns must be amended for all tax periods that are subject to tax base adjustments, even if the period is currently (or was previously) under audit by the Department. Amended returns must include the tax base adjustments, the recalculations required to incorporate the tax base adjustments into the City tax calculation and the new City tax due. Documents provided with amended returns must include: (1) a schedule that identifies each tax base adjustment, showing how each change affects the taxpayer's City tax calculation; (2) a copy of the IRS and/or DTF final determination, waiver or notice of carryback allowance; and (3) a statement explaining why the tax base adjustment is erroneous or inapplicable, if the taxpayer disagrees with it.4 The taxpayer may file a single amended return to report IRS and DTF determinations for the same tax period when the federal and state adjustments overlap, provided that the taxpayer attaches separate schedules explaining the IRS and DTF tax base adjustments. The Department considers each amended return to be a self-assessment, and it can begin collection activity when the taxpayer files, unless the taxpayer includes a statement explaining why its tax base adjustments are erroneous or inapplicable.5 Taxpayers that do not report tax base adjustments may be subject to a deficiency assessment at any time through a Notice of Tax Due.6 The notice date becomes the assessment date unless the taxpayer properly reports the tax base adjustment within 30 days of the notice and attaches a statement explaining why the tax base adjustment and the notice are erroneous.7 If a taxpayer cannot compute its corrected City tax liability within the statutory period, it may request an accelerated audit by the Department to determine its correct tax liability. The City will not process Forms NYC-3360 for the General Corporation Tax, NYC-3360B for the Banking Corporation Tax or NYC-115 for the Unincorporated Business Tax as stand-alone reports of tax base adjustments for tax periods beginning on or after January 1, 2015. New York State's 2015-2016 budget legislation amends the framework for assessing tax and issuing refunds from tax base adjustments that arise from DTF franchise tax determinations (NYS adjustments). These changes provide that reallocations of income, receipts and capital that result from NYS adjustments may be included in the calculation of assessments and refunds during the additional limitations period that applies to tax base adjustments. The Department conforms to this change for tax periods beginning on or after January 1, 2015. This requires taxpayers to reallocate City income, receipts and capital consistently with any NYS adjustments affecting apportionment. To do this, taxpayers must replicate the methodologies that DTF applied to determine income, receipts and capital apportionment in its adjustments, provided that the City and the NYS laws are the same.8 The Department considers the same principle applied to the same information to be the same methodology. A taxpayer's schedule attached to the return must identify each of the DTF's changes to apportionment and show how it affects City allocations and tax calculations. Generally, the Department does not require a corporation that pays tax under the City's General Corporation Tax or Banking Corporation Tax to incorporate NYS adjustments to apportionment into its calculations after the standard limitations period expires. This adjustment, however, is required if the apportionment rule giving rise to the adjustment corresponds to an allocation rule in the City's Administrative Code that applies to the corporation. State and federal tax reallocations of income, receipts and capital for tax periods beginning before January 1, 2015, may not be incorporated into assessments or refunds during the additional limitations period that applies to tax base adjustments.9 Interest on additional tax due from tax base adjustments compounds daily from the original return's due date (without regard to payment extensions) until the payment date.10 In the event of an overpayment, the Department pays interest, accruing from the date on which a taxpayer files a refund claim to a date not more than 30 days preceding the refund check. Interest does not accrue on any overpayment the Department refunds within three months, and it does not accrue on overpayments when a taxpayer fails to report a tax base adjustment within 90 days of its IRS and/or DTF notice or final determination.11 Late filing and late payment penalties apply to taxpayers that report tax base adjustments or make related payments after the statutory filing period has expired.12 Taxpayers subject to the City's Business Corporation Tax, General Corporation Tax, Banking Corporation Tax and Unincorporated Business Tax must report IRS and/or DTF determinations that affect their City tax bases within the applicable time periods, and should refer to this guidance to ensure they follow the proper reporting procedures. Taxpayers should consider the City tax implications of IRS and/or DTF determinations when the tax period was previously audited by the Department. 1 N.Y.C. Dept. of Fin., Fin. Memo. No. 17-5 (Oct. 13, 2017)(superseding SAP-PP-2008-10, March 20, 2008). 2 A copy of the final determination should be attached if a taxpayer previously filed an amended City return or if the amounts shown on its original City return were changed pursuant to a Department audit. 4 The Department noted that it will provide template schedules for each tax type on its website, but requires taxpayers reporting tax base adjustments before the publication of the templates to submit manually created schedules that provide the generally required information. Document ID: 2017-1768 |
