If a personal income tax refund from a net operating loss carryback isn't paid within 45 days of the claim, does interest run from the loss year return's original April 15 due date or from the later, extended filing date?

Plain-English summary

The Petitioners filed an extension request for their 2008 New York personal income tax return before the April 15, 2009 due date, then filed the actual 2008 return before the extended October 15, 2009 deadline. In November 2009, they filed Form IT-113-X to carry back their 2008 net operating loss to the 2004 tax year. In March 2010 the Department refunded the full amount requested, but it computed interest running from the October 2009 date they actually filed the extended 2008 return - not from April 15, 2009, the unextended due date of the loss year return. The Petitioners asked whether interest should instead have been computed from April 15, 2009.

The Department's answer turns on the interaction of three parts of Tax Law § 688. Section 688(a) generally allows interest on overpayments up to a date preceding the refund check by no more than 30 days, but § 688(a)(3) cuts off interest before the actual filing date if the return itself was filed late. Section 688(c) eliminates interest entirely if a refund is paid within 45 days of the later of the return's due date (with extensions) or its actual filing date. Section 688(d), the carryback-specific rule, provides that an overpayment caused by a net operating loss carryback is deemed not to have been made before the filing date for the loss year, determined without regard to extensions, and that for purposes of the 45-day rule the loss year return is treated as not filed until the carryback claim itself is filed.

Because § 688 doesn't spell out what happens when a carryback refund isn't paid within 45 days of the claim but the loss-year return itself was filed on time within its extension, the Department looked to federal guidance interpreting Internal Revenue Code § 6611, on which § 688 is modeled - citing Marx v. Bragalini, Matter of Ilter Sener, Matter of Unicorp American Corporation, a Joint Committee on Taxation explanation of a 1982 amendment to § 6611, an Internal Revenue Manual example, and IRS Private Letter Ruling 8350109. All of that federal material treated interest as running from the loss year due date once the 45-day window is missed, so long as the loss year return itself was timely (including on extension).

Applying that framework, the Department concluded that because the Petitioners' carryback claim (filed November 2009) was not refunded within 45 days, and because their original 2008 return was timely filed within its extension period (so the late-return interest bar in § 688(a)(3) didn't apply), interest was owed from the date of overpayment - deemed under § 688(d) to be April 15, 2009, the loss year return's due date without regard to extensions - through a date preceding the refund check by no more than 30 days.

What this means for you

Taxpayers who carried back a net operating loss

If you carried back a net operating loss and your refund claim wasn't paid within 45 days of filing it, don't assume interest starts only from the date you actually filed (or extended) the loss year return. Under Tax Law § 688(d), the interest clock instead runs from that return's original, unextended due date - typically April 15 - as long as the loss year return itself was filed on time.

Accountants and tax professionals

When checking a client's carryback-refund interest computation, verify three things: whether the refund was paid within 45 days of the claim (if so, no interest is owed at all under § 688(c)); whether the loss year return was filed by its due date or within a valid extension (a genuinely late loss year return can still cut off interest under § 688(a)(3)); and, if neither exception applies, that interest was calculated from the loss year's unextended due date rather than from the actual filing date.

Common questions

Q: Why does it matter whether interest runs from April 15 versus the extended filing date?
A: The gap between the unextended due date and the extended filing date can be six months or more, which materially changes the amount of interest owed on the refund.

Q: Does the 45-day rule ever eliminate interest altogether on a carryback refund?
A: Yes. Under Tax Law § 688(c), as applied through § 688(d), if the Department pays the carryback refund within 45 days of the date the carryback claim is filed, no interest is owed at all.

Q: Why did the Department look to federal law to answer a New York question?
A: Tax Law § 688 is modeled on Internal Revenue Code § 6611, and New York courts have long looked to federal interpretations of substantially similar provisions - here, Joint Committee on Taxation legislative history, an IRS Private Letter Ruling, and an Internal Revenue Manual example - when the state statute doesn't directly address a situation.

Q: Does it matter that the taxpayers filed their original 2008 return on extension rather than by April 15, 2009?
A: Not for the interest start date, because the extension was validly used and the return was filed by the extended deadline. Section 688(a)(3)'s late-return interest bar applies only when a return is filed after its due date as extended - which did not happen here.

Citations and references

• Tax Law § 688(a) - general rule allowing interest on income tax overpayments, generally through a date no more than 30 days before the refund check
• Tax Law § 688(a)(3) - no interest for any day before a late return (filed after its extended due date) is actually filed
• Tax Law § 688(c) - no interest if an overpayment is refunded within 45 days of the return's due date (with extensions) or its filing date, whichever is later
• Tax Law § 688(d) - for a carryback-caused refund, the overpayment is deemed made on the loss year return's filing date determined without regard to extensions, and the loss year return is treated as not filed until the carryback claim is filed for purposes of the 45-day rule
• 26 U.S.C. § 6611 - federal interest-on-overpayment statute that Tax Law § 688 is modeled on, interpreted here via Joint Committee on Taxation legislative history, IRM 21.5.9.5.40, and IRS Private Letter Ruling 8350109
• Marx v. Bragalini, 6 N.Y.2d 322 (1959) - New York courts adopt federal construction of substantially similar tax provisions where reasonable
• Matter of Ilter Sener, Tax Appeals Tribunal (May 5, 1988) - federal cases may guide interpretation of state statutes modeled on federal law
• Matter of Unicorp American Corporation, Tax Appeals Tribunal (December 28, 1995) - Tax Appeals Tribunal previously relied on a federal revenue ruling to interpret New York interest provisions

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_2010.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a10_10i.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-10(10)I
Income Tax
October 28, 2010

Office of Counsel
Advisory Opinion Unit
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. I100608A

On June 8, 2010, the Department of Taxation and Finance received a Petition for Advisory Opinion
from name and address redacted, on behalf of name and address redacted Petitioners ask: If a refund of
personal income tax caused by a net operating loss is not given by the State within forty-five days of the
claim for refund, should interest on such overpayment be allowed from the due date of the loss year return
(April 15th) without regard to extensions of time to file?
We conclude that interest on a personal income tax refund caused by a net operating loss carryback
that is not refunded to a taxpayer within forty-five days of a claim for refund should be allowed from the due
date of the loss year return without regard to extensions of time to file.
Facts
Petitioners filed an extension request for the filing of their 2008 New York State personal income tax
return prior to the April 15, 2009 due date. They filed their 2008 personal income tax return prior to the
October 15, 2009 extended due date. In November of 2009, the taxpayers filed Form IT-113-X to carry back
their 2008 loss to the 2004 tax year. In March of 2010, the taxpayers received a refund for the full amount
requested and interest from the extended October 2009 actual filing date of the 2008 return, rather than from
April 15, 2009, the due date of the return for the loss year without extensions.
Analysis
Tax Law §688(a) provides in part:
§ 688. Interest on overpayment.--(a) General.--Notwithstanding the provisions of section sixteen of
the state finance law, interest shall be allowed and paid as follows at the overpayment rate set by the
commissioner pursuant to section six hundred ninety-seven, or if no rate is set, at the rate of six per cent per
annum upon any overpayment in respect of the tax imposed by this article:
*

*

*

(2) from the date of the overpayment to a date (to be determined by the commissioner) preceding the
date of a refund check by not more than thirty days, whether or not such refund check is accepted by the
taxpayer after tender of such check to the taxpayer. The acceptance of such check shall be without prejudice
to any right of the taxpayer to claim any additional overpayment and interest thereon.
.
(3) Late returns. Notwithstanding the provisions of paragraph one or two of this subsection, in the
case of a return of tax which is filed after the last date prescribed for filing such return (determined with
regard to extensions), no interest shall be allowed or paid for any day before the date on which the return is
filed.

-2-

TSB-A-10(10)I
Income Tax
October 28, 2010

Tax Law §688(c) provides in part: “(c) Income tax refund within forty-five days of claim for
overpayment. If any overpayment of tax imposed by this article is credited or refunded within forty-five
days after the last date prescribed (or permitted by extension of time) for filing the return of such tax on
which such overpayment was claimed or within forty-five days after such return was filed, whichever is later,
. . .no interest shall be allowed under this section on any such overpayment. In regard to an amended return
claiming such overpayment or a claim for credit or refund on which such overpayment was claimed, if such
overpayment is refunded within forty-five days of filing such return or such claim, no interest shall be
allowed from the date such return or such claim is filed until the day the refund is made. . . .”
Tax Law §688(d) provides: “(d) Refund of income tax caused by carryback. For purposes of this
section, if any overpayment of tax imposed by this article results from a carryback of a net operating loss,
such overpayment shall be deemed not to have been made prior to the filing date for the taxable year in
which such net operating loss arises. Such filing date shall be determined without regard to extensions of
time to file. For purposes of subsection (c) of this section any overpayment described herein shall be treated
as an overpayment for the loss year and such subsection shall be applied with respect to the overpayment by
treating the return for the loss year as not filed before claim for such overpayment is filed. The term “loss
year” means the taxable year in which such loss arises.”
Section 688 does not address interest on refunds arising from net operating loss carrybacks not paid
within 45 days of a claim for refund when the return for the loss year was filed on or before its extended due
date. However, the provisions of section 688 of the Tax Law are modeled on section 6611 of the Internal
Revenue Code. The New York Court of Appeals has said, “It has long been the policy of our courts to adopt,
whenever reasonable and practical, the Federal construction of substantially similar tax provisions.” (Marx
v. Bragalini, 6 N.Y.2d 322 [1959].) When state statutes are modeled on federal statutes, it is accepted that
federal cases may be used for guidance in interpreting those statues. (Matter of Ilter Sener, Tax Appeals
Tribunal, May 5, 1988, citing Matter of Levin v. Gallman, 42 NY2d 32). It is noted that the New York Tax
Appeals Tribunal also previously found a federal revenue ruling helpful in interpreting New York interest
provisions. (Matter of Unicorp American Corporation, Tax Appeals Tribunal, December 28, 1995.) Federal
interpretive material has been found consisting of legislative history and Internal Revenue Manual sections
with respect to section 6611 of the Internal Revenue Code. The federal Joint Committee on Taxation, in
explaining amendments to section 6611 made by the Tax Equity and Fiscal Responsibility Act of 1982, said:
If, however, the claim for refund (including an application for tentative carryback or refund
adjustment) based on the carryback of the loss or credit from the loss year is filed after the
due date of the return for the loss year (determined without regard to extensions), the Act
provides that interest on the refund is payable only if the refund is not made within 45 days
of the claim. If the 45-day period expires, interest runs from the due date of the return for
the loss year. [Staff of the Joint Committee on Taxation, General Explanation of the
Revenue Provisions of the Tax Equity and Fiscal Responsibility Act of 1982 (H.R. 4961,
97th Congress; Public Law 97-248) at page 259.]
At least one Internal Revenue Manual section gives an example of the loss year return filed after the due date
of the loss year return, but before the extended due date. The refund claim was not paid within 45 days of
the refund claim, and interest was paid beginning on the loss year return due date because the loss year return
was timely filed on extension. (IRM 21.5.9.5.40 [05-17-2010], Carryback Forms 1040X, 1120X, 1041,
1120-C and 990-T Interest Computation Dates.) This example in the Internal Revenue Manual is consistent
with the conclusion in an IRS Private Letter Ruling that addresses this issue (PLR 8350109, 9/15/83).

-3-

TSB-A-10(10)I
Income Tax
October 28, 2010

Petitioners filed their claim for refund due to a net operating loss carryback in November of 2009. In
March of 2010, they received their refund and interest from the date the original return for the loss year was
filed during the extension period (in October of 2009). Tax Law §688(d) provides that an overpayment
caused by a carryback is not deemed to have been made prior to the filing date for the taxable year in which
the net operating loss arose (here April 15, 2009), determined without regard to extensions of time to file.
With respect to the 45-day interest rule in Tax Law §688(c), Tax Law §688(d) provides that the carryback
overpayment will be treated as an overpayment for the loss year and the return for the loss year is to be
treated as not being filed before the claim for the overpayment is filed. The claim for the overpayment was
filed in November of 2009, and the overpayment, paid in March of 2010, was not paid within 45 days of the
claim for overpayment so as to be paid without interest being owed on the refund. The original return for the
loss year was timely filed within the extension period so that interest would not begin from the filing date of
a late return. Interest is therefore owed the taxpayers from the date of overpayment to a date preceding the
refund check by not more than thirty days. Pursuant to Tax Law §688(d), the date of overpayment is deemed
to be the filing date of the return for the loss year, determined without regard to extensions, i.e., April 15,
2009.
DATED: October 28, 2010

NOTE:

/S/
DANIEL SMIRLOCK
Deputy Commissioner and Counsel

An Advisory Opinion is issued at the request of a person or entity. It is limited to the facts set forth
therein and is binding on the Department only with respect to the person or entity to whom it is
issued and only if the person or entity fully and accurately describes all relevant facts. An
Advisory Opinion is based on the law, regulations, and Department policies in effect as of the date
the Opinion is issued or for the specific time period at issue in the Opinion.