New York Advisory Opinion TSB-A-82(1)I: If a taxpayer has both a net operating loss and a liability for New York's minimum income tax for a year, can the Department impose an addition to tax for failing to file a declaration of estimated tax or pay estimated tax installments?

Plain-English summary

Lothar F. Gue asked whether the Department could impose an addition to tax under Tax Law section 685(c) - the penalty for failing to file a declaration of estimated tax or failing to pay an estimated tax installment - for a year in which he had both a net operating loss and a separate liability for New York's minimum income tax.

The Department explained that the penalty in section 685(c) only applies where a declaration of estimated tax was actually required. Under section 656(a), estimated tax must be paid only "with respect to which a declaration is required," and section 655(a) requires a declaration only from a taxpayer whose New York adjusted gross income - other than wages already subject to withholding - "can reasonably be expected to exceed" $400 plus the taxpayer's allowable New York personal exemptions. Because Gue's non-withholding New York adjusted gross income never exceeded that threshold for the year in question, he was not required to file a declaration or make estimated payments, so no addition to tax could be imposed for failing to do either.

The Department went further to close off the government's likely counterargument: the fact that Gue separately owed New York's minimum income tax for the year didn't change the answer, because section 655(a)'s declaration-filing threshold doesn't list minimum-tax liability as a trigger. The only wrinkle the opinion notes is procedural, not substantive: a taxpayer who IS otherwise required to file a declaration must include the minimum income tax when totaling up estimated liability - but that rule is never triggered here, since filing wasn't required in the first place.

What this means for you

Taxpayers with a net operating loss and a minimum income tax liability

Don't assume that owing New York's minimum income tax by itself creates an obligation to file quarterly estimated tax declarations - that obligation turns solely on whether your non-withholding New York adjusted gross income crosses the section 655(a) dollar threshold, not on whether you separately owe the minimum tax.

Accountants advising clients facing an estimated-tax underpayment penalty

Check the client's non-withholding New York adjusted gross income against the section 655(a) filing threshold first; if it doesn't clear that bar, no declaration was ever required and the section 685(c) addition to tax cannot apply, regardless of other tax liabilities the client may owe for the year.

Taxpayers who ARE required to file a declaration and also owe the minimum income tax

Remember that once you cross the threshold and a declaration is required, your estimated payments must include your full Article 22 tax liability - including the minimum income tax - not just your regular income tax.

Common questions

Q: I have a net operating loss but I owe New York's minimum income tax - do I still need to file a declaration of estimated tax?
A: Only if your New York adjusted gross income (excluding wages already withheld) can reasonably be expected to exceed $400 plus your allowable personal exemptions. Owing the minimum income tax by itself doesn't trigger the filing requirement.

Q: Can I be penalized for not paying estimated tax if I was never required to file a declaration in the first place?
A: No. The addition to tax under section 685(c) only applies to a required declaration or a required estimated-tax installment; if section 655(a)'s threshold was never crossed, no declaration was required and no addition can be imposed.

Q: If I am required to file a declaration, does that estimated payment need to include the minimum income tax?
A: Yes. Once a declaration is required, the estimated tax payments must include the sum of all taxes imposed under Article 22, including the minimum income tax.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1982.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a82_1i.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-82 (1) I
Income Tax
April 2, 1982

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. I811102A

On November 2, 1981, a Petition for Advisory Opinion was received from Lothar F. Gue,
50 East 89th Street, New York, New York 10028.
The issue raised is whether an addition to tax may be imposed, based on failure to file a
declaration or underpayment of estimated tax, under the Personal Income Tax imposed under Article
22 of the Tax Law, where a taxpayer has both a net operating loss and a liability for minimum
income tax with respect to a given taxable year. The conclusion reached below is that under such
circumstances a taxpayer would not be required to file a declaration of, nor make payment of,
estimated tax and that, therefore, no such addition to tax may be imposed.
Section 685(c) of the Tax Law provides for an addition to tax where a taxpayer "fails to file
a declaration of estimated tax or fails to pay all or any part of an installment of estimated tax .... "
Section 656(a) of the Tax Law requires payments of estimated tax "with respect to which a
declaration is required." Declarations of estimated tax are required to be filed, pursuant to section
655(a) of the Tax Law, by any taxpayer whose "New York adjusted gross income, other than from
wages on which tax is withheld under this article, can reasonably be expected to exceed four hundred
dollars plus the sum of the New York personal exemptions to which he is entitled."
In the present instance Petitioner did not have a New York adjusted gross income in excess
of the amount specified in section 655(a) of the Tax Law with respect to the taxable year in question.
Accordingly, he was not required to file a declaration of estimated tax, nor to make payments of such
tax. It follows that no addition to tax may be made based on a failure to file a declaration of, or make
payment of, estimated tax. This conclusion is in no way altered by the fact that Petitioner had a
liability for minimum income tax with respect to the taxable year in question, inasmuch as the
controlling statutory provision does not include such liability as one of the criteria for a taxpayer's
obligation to file a declaration and make payments of estimated tax. Nor is the conclusion here
arrived at in any way vitiated by the fact that where a taxpayer is required to file a declaration of
estimated tax, he is required to include in such estimated tax the sum of all of the taxes imposed
under Article 22 of the Tax Law, including the minimum income tax.

DATED: March 16, 1982

JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR