If a taxpayer doesn't contest an erroneous notice of deficiency disallowing part of an investment tax credit, and that year later becomes a closed period under the statute of limitations, can the taxpayer still claim the full investment tax credit carryforward from that closed year when a later, open year is audited?

Plain-English summary

For its taxable year ended September 30, 1978, Cibro Petroleum Products properly claimed a $476,764 investment tax credit for a new topping plant that processes crude oil into heating oil, kerosene, and naphtha. It used $4,752 of the credit against its 1978 tax and carried forward the $472,012 balance. It then claimed the related 50% employment incentive credit ($238,382 each year) in the two following years, bringing the total carryforward at issue to $948,776. In March 1980, the Department issued a Notice of Deficiency disallowing that original $4,752 credit for the 1978 year -- a determination Cibro now agrees, and the Department later confirmed, was simply wrong. Cibro didn't contest that deficiency within the required 90 days, and by the time an auditor caught the error (during a later audit of Cibro's 1981 return), the statute of limitations had already closed the door on directly amending the 1978 return.

Despite catching the original 1978 error, the Audit Division took the position that Cibro's failure to timely contest that old deficiency meant it also couldn't carry forward ANY of the $948,776 in credits tied to the topping plant into the still-open 1981 year -- effectively treating the unprotested 1978 deficiency as locking in a much larger loss than the $4,752 originally at issue. The Department disagreed. It explained that while Cibro genuinely can't reopen the closed 1978 year itself (the redetermination window and the statute of limitations have both run), a separate statutory provision lets the Tax Commission consider facts from other years -- including closed ones -- when necessary to correctly determine the tax due for an OPEN year, without actually redetermining whether the closed year was itself over- or underpaid. Relying on two prior State Tax Commission decisions applying this same principle, the Department concluded that the Commission can and should recompute the correct carryforward amount originating from the closed 1978 year (and the related 1979-1980 employment incentive credits) when figuring Cibro's correct 1981 liability -- restoring the full $948,776 carryforward, unaffected by Cibro's earlier failure to protest the erroneous $4,752 disallowance.

What this means for you

Taxpayers who didn't protest an old, erroneous credit disallowance

Missing the window to contest an old deficiency doesn't necessarily lock in that error's full downstream consequences forever. If the credit or deduction at issue carries forward into a still-open tax year, the Department can -- and under this ruling's reasoning, should -- correct the carryforward amount when it recomputes the open year's liability, even though the closed year's own assessment can't be reopened directly.

Auditors and taxpayers reconciling multi-year credit carryforwards

An error discovered in a closed year doesn't have to propagate forward uncorrected just because the closed year itself is untouchable. The distinction that matters: the Tax Commission can't change what was owed FOR the closed year, but it can use the correct facts from that year to get the carryforward INTO an open year right.

Common questions

Q: Could Cibro have gotten a direct refund for the erroneously disallowed $4,752 from the 1978 year itself?
A: No -- by the time the error was discovered, the statute of limitations had already closed that avenue; the relief here comes only through correcting the carryforward into the open 1981 year, not through reopening 1978 directly.

Q: Does this mean the Tax Commission can always revisit closed years?
A: No -- it can't redetermine whether the closed year's tax was itself overpaid or underpaid; it can only consider the correct facts from that year as background for correctly computing the tax due in an OPEN year.

Q: Can another taxpayer rely on this specific ruling?
A: No. It binds the Department only for this petitioner's specific facts and can't be relied upon by other taxpayers, though it applies the same principle as two prior State Tax Commission decisions (Twin Lake Chemical, Master Eagle Photo Engraving).

Citations and references

Statutes and regulations:

• Tax Law § 1089(b) (90-day redetermination petition window); § 1089(g) (considering other-year facts without redetermining those years)
• Tax Law § 210.12-A (employment incentive tax credit)
• Matter of Twin Lake Chemical, Inc., TSB-H-86(4)C; Matter of Master Eagle Photo Engraving Corp., TSB-H-83(6)C

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1987.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a87_16c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-87 (16) C
Corporation Tax
June 15, 1987

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. C870226A

On February 26, 1987, a Petition for Advisory Opinion was received from Cibro
Petroleum Products, Inc. 1066 Zerega Avenue, Bronx, New York 10462.
The issue raised is whether Petitioner's failure to contest a notice of deficiency related to
an erroneous disallowance of an investment tax credit deprives Petitioner of the right to claim an
investment tax credit carry forward of the unused portion of such credit that is applicable to the
same assets.
Petitioner states that for taxable year ended September 30, 1978 it properly claimed an
investment tax credit of $476,764 for the addition of a topping plant that processes crude oil into
various grades of heating oil, kerosene and naphtha. Petitioner applied $4,752 of the credit to its
tax liability for taxable year ended September 30, 1978 and carried forward the balance of
$472,012 to be applied against future tax liabilities.
For taxable years ended November 30, 1979 and November 30, 1980, Petitioner qualified
for and claimed the additional investment tax credit of $238,382 (50% of 476,764) in each year.
Accordingly, the total of the carry forward at issue is $948,776 comprised as follows:
From taxable year ended September 30, 1978
From taxable year ended November 30, 1979
From taxable year ended November 30, 1980
Total

$472,012
238,382
238,382
$948,776

On March 14, 1980, a Notice of Deficiency was issued disallowing the investment tax
credit of $4,752. The amount of the deficiency was applied to reduce a refund due Petitioner for
taxable year ended September 30, 1975. Petitioner did not contest the deficiency.
Upon audit of Petitioner's tax return for taxable year ended November 30, 1981, it was
determined by the auditor that for taxable year ended September 30, 1978 the disallowance of the
investment tax credit of $4,752 was incorrect. However, for taxable year ended November 30,
1981 the Audit Division reduced the amount of the investment tax credit carry forward claimed
by Petitioner by $948,776 (the carry forward applicable to the topping plant) because Petitioner
had failed to contest the deficiency paid for taxable year September 30, 1978 that disallowed a
portion of the investment tax credit claimed for the topping plant.
Section 1089(b) of the Tax Law provides that within ninety days after the mailing of the
notice of deficiency, the taxpayer may file a petition with the Tax Commission for a
redetermination of the deficiency.
RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-87 (16) C
Corporation Tax
June 15, 1987

Section 1089(g) of the Tax Law provides that "[t]he tax commission shall consider such
facts with relation to the taxes for other years as may be necessary correctly to determine the tax
for the taxable year, but in so doing shall have no jurisdiction to determine whether or not the tax
for any other year has been overpaid or underpaid."
Petitioner is now barred, by the statute of limitations, from filing a timely petition for a
redetermination of the deficiency issued for taxable year ended September 30, 1978, which
incorrectly disallowed the investment tax credit of $4,752.
However, when determining the proper tax liability for taxable year ended November 30,
1981, the Tax Commission, pursuant to section 1089(g) of the Tax Law, can redetermine the
amount of an investment tax credit carry forward from a closed period to an open period. Matter
of Twin Lake Chemical, Inc., State Tax Commission, January 17, 1986, TSB-H-86(4)C; Matter
of Master Eagle Photo Engraving Corp., State Tax Commission, February 4, 1983, TSB-H­
83(6)C.
In the instant case, it is determined that the proper amount of investment tax credit carry
forward from taxable year ended September 30, 1978 is $472,012 as claimed by Petitioner. In
addition, pursuant to section 210.12-A of the Tax Law, Petitioner is allowed the additional
investment tax credit carry forward from taxable years ended November 30, 1979 and November
30, 1980 of $238,382 that was claimed for each year.
Accordingly, pursuant to section 1089(g) of the Tax Law, Petitioner may carry forward to
taxable year ended November 30, 1981, the unused investment tax credit and additional
investment tax credit of $948,776 that is attributable to the topping plant, even though Petitioner
did not contest the deficiency paid for taxable year September 30, 1978.

DATED: June 15, 1987

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.