Is a pension from the World Bank (International Bank for Reconstruction and Development) exempt from New York personal income tax as a pension from a U.S. government instrumentality?

Plain-English summary

Petitioner receives a pension from the International Bank for Reconstruction and Development, better known as the World Bank, and asked the Department whether that pension is subject to New York personal income tax. Specifically, Petitioner wanted to know whether the World Bank counts as an "instrumentality of the United States" - a status that would let the pension be fully subtracted from federal adjusted gross income (FAGI) when computing New York adjusted gross income (NYAGI).

Tax Law § 612 builds NYAGI by starting with a resident's FAGI and applying specified additions and subtractions. Under Tax Law § 612(c)(3)(ii) and 20 NYCRR § 112.3(c)(1), pensions paid to officers and employees of the United States, its territories or possessions, the District of Columbia, or any agency or instrumentality of any of those, are subtracted from FAGI. Separately, Tax Law § 612(c)(3-a) and 20 NYCRR § 112.3(c)(2)(i)(a-d) allow up to $20,000 of pension and annuity income to be subtracted if the taxpayer is at least 59½ and the payments are periodic payments attributable to personal services performed before retirement, arising from an employer-employee relationship.

To decide whether the World Bank qualifies as a U.S. instrumentality, the Department applied the test from United States v. New Mexico, 455 U.S. 720 (1982): an entity is a federal instrumentality only when it is "so closely connected to the Government that the two cannot realistically be viewed as separate entities." The World Bank was created by the Articles of Agreement drawn up at the 1944 Bretton Woods conference, and the United States joined as a member pursuant to 22 U.S.C. § 286. The Bank finances development, promotes private foreign investment, and works to stimulate balanced growth of international trade among its many member countries; under 22 U.S.C. § 288 and Executive Order 9751 (issued July 11, 1946), it is designated a public international organization.

Because the World Bank is an international, inter-governmental body in which the United States participates only as one of many member states - and the U.S. government neither controls it nor has the Bank act on the U.S. government's behalf - the Department concluded the World Bank is not an instrumentality of the United States. Petitioner's pension therefore does not qualify for the full subtraction under Tax Law § 612(c)(3)(ii). The Department noted, however, that Petitioner may still be eligible for the separate $20,000 pension and annuity subtraction under Tax Law § 612(c)(3-a) if its conditions are satisfied.

What this means for you

If you receive a pension from the World Bank or a similar international organization

Don't assume a pension from an international body like the World Bank is treated the same as a pension from the U.S. government for New York tax purposes. This ruling holds the World Bank is not a U.S. instrumentality, so its pensions don't get the automatic subtraction under Tax Law § 612(c)(3)(ii). You may still be able to subtract up to $20,000 of that pension under Tax Law § 612(c)(3-a), but only if you are at least 59½ and the payments are periodic payments tied to personal services performed before retirement under an employer-employee relationship.

Accountants and tax professionals

When a client's pension comes from an international organization rather than a domestic federal agency, apply the United States v. New Mexico instrumentality test before assuming the Tax Law § 612(c)(3)(ii) subtraction is available. Look for the degree of U.S. government control over the entity and whether it acts on the government's behalf - membership by the U.S. alongside other countries, without control, points away from instrumentality status. Then separately evaluate whether the client meets the age and payment-type requirements for the $20,000 subtraction under Tax Law § 612(c)(3-a).

Common questions

Q: Is a World Bank pension automatically exempt from New York income tax like a federal government pension?
A: No. The Department concluded the World Bank is not an instrumentality of the United States, so its pensions do not qualify for the full subtraction under Tax Law § 612(c)(3)(ii) that applies to pensions of U.S. officers and employees.

Q: What test did the Department use to decide whether the World Bank is a U.S. instrumentality?
A: The standard from United States v. New Mexico, 455 U.S. 720 (1982): an entity is a federal instrumentality only when it is "so closely connected to the Government that the two cannot realistically be viewed as separate entities."

Q: Why isn't the World Bank considered a U.S. instrumentality?
A: It's an international, inter-governmental organization created by the 1944 Bretton Woods Articles of Agreement, with the U.S. participating only as one of many member countries. The U.S. government doesn't control the Bank, and the Bank doesn't act on the U.S. government's behalf.

Q: Can Petitioner get any New York tax break on the World Bank pension?
A: Possibly. Petitioner may qualify for the separate subtraction of up to $20,000 under Tax Law § 612(c)(3-a), if Petitioner is at least 59½ and the payments are periodic payments attributable to personal services performed before retirement arising from an employer-employee relationship.

Q: Does this ruling apply to pensions from other international organizations, like the United Nations or IMF?
A: The ruling addresses only the World Bank, but the same instrumentality analysis - whether the entity is so closely connected to the U.S. government that the two can't realistically be viewed as separate - would apply to any similar international organization.

Citations and references

• Tax Law § 612(c)(3)(ii) - subtraction from FAGI for pensions of U.S. officers/employees and agencies/instrumentalities of the U.S., its territories, or the District of Columbia
• Tax Law § 612(c)(3-a) - subtraction of up to $20,000 of pension and annuity income for taxpayers at least 59½ receiving periodic payments from an employer-employee relationship
• 20 NYCRR § 112.3(c)(1) - regulation implementing the federal-pension subtraction
• 20 NYCRR § 112.3(c)(2)(i)(a-d) - regulation implementing the $20,000 pension/annuity subtraction
• United States v. New Mexico, 455 U.S. 720 (1982) - test for whether an entity is an instrumentality of the United States
• 22 U.S.C. § 286 - U.S. acceptance of membership in the World Bank
• 22 U.S.C. § 288 and Executive Order 9751 (July 11, 1946) - designation of the World Bank as a public international organization

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_2015.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a15_1i.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-15(1)I
Income Tax
March 19, 2015

Office of Counsel
Advisory Opinion Unit

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE

ADVISORY OPINION

PETITION NO. I130528A

The Department of Taxation and Finance received a Petition for Advisory
Opinion from REDACTED. Petitioner asked whether his pension from the International Bank
for Reconstruction and Development (“World Bank”) is subject to New York personal income
taxation.
We conclude that the World Bank is not an instrumentality of the United States.
Therefore, the taxpayer’s pension from that entity is not eligible for the subtraction modification
in Tax Law § 612(c)(3)(ii).
Facts
Petitioner receives a pension from the World Bank. Petitioner asks whether the World
Bank is an instrumentality of the United States, and that the pensions he receives from it are
deductible from personal income taxation under the Tax Law.
Analysis
Section 612 of the Tax Law provides that the New York adjusted gross income (NYAGI)
of a resident is the individual’s Federal adjusted gross income (FAGI) with the addition and
subtraction modifications specified in Tax Law § 612. Pensions of officers and employees of the
United States of America, any territory or possession or political subdivision of such territory or
possession, the District of Columbia, or any agency or instrumentality of any one of the
foregoing, to the extent includible in gross income for federal income tax purposes are subtracted
from FAGI. See Tax Law § 612(c)(3)(ii); 20 NYCRR § 112.3(c)(1). In addition, up to $20,000
of the FAGI income derived from pension and annuity distributions are eligible for the
subtraction modification provided by Tax Law § 612(c)(3-a) if the following conditions are met:
(1) the distributions are not subject to the subtraction modifications provided by Tax Law
§ 612(c)(3-a); (2) the taxpayer is at least 59 ½ years old; and (3) The distributions are “periodic
payments attributable to personal services performed by such individual prior to his retirement
from employment and which arise from an employer-employee relationship . . . .” Tax Law
§ 612(c)(3-a); see also 20 NYCRR § 112.3 (c)(2)(i)(a-d).
The determination of whether an entity is an instrumentality of the United States depends
on the degree to which the entity is connected with the federal government. An entity will be

TSB-A-15(1)I
Income Tax
March 19, 2015

-2-

considered an instrumentality of the United States when it is “so closely connected to the
Government that the two cannot realistically be viewed as separate entities.” United States v.
New Mexico, 455 US 720 (1982).
The World Bank is an international, inter-governmental organization. It was created by
the Articles of Agreement drawn up at a conference held in Bretton Woods, New Hampshire in
1944. The United States accepted membership in the World Bank pursuant to § 286 of Title 22
of the United States Code. The Bank is empowered to provide financial assistance for the
development of member countries, to promote private foreign investment, to stimulate the
balanced growth of international trade, and “to conduct its operations with due regard to the
effect of international investment of business conditions in the territories of members.” Articles
of Agreement (as amended Feb. 16, 1989), Art. I. Pursuant to 22 U.S.C. § 288 and Executive
Order 9751 (issued July 11, 1946), the World Bank is designated a public international
organization. Thus, the World Bank is an international entity in which the United States
government participates as one of many member states. The United States government does not
exercise control over the entity nor does the World Bank perform its functions on behalf of the
United States.
Based on the foregoing, we conclude that the World Bank is not an instrumentality of the
United States. Consequently, Petitioner’s pension is not eligible for the subtraction modification
in Tax Law § 612(c)(3)(ii). However, Petitioner may be eligible for the subtraction modification
of up to $20,000 in Tax Law § 612(c)(3-a) if the conditions described in that paragraph are met.

DATED: March 19, 2015

/S/
DEBORAH R. LIEBMAN
Deputy Counsel

NOTE:

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. The information provided in this
document does not cover every situation and is not intended to replace the law or
change its meaning.