New York Advisory Opinion TSB-A-87 (2)I: In the year they change status from nonresident alien to resident alien (or vice versa), may Japanese treaty traders claim the New York standard deduction and 'married filing jointly' status even though federal law denies the federal standard deduction and forces 'married filing separately'?

Plain-English summary

Richard Berman, a CPA who prepares New York returns for Japanese treaty traders, asked how New York should treat these traders for the personal income tax in the year they change immigration status - either arriving in New York as they move from nonresident alien to resident alien, or departing as they move the other way. His question was framed against the federal rules for that dual-status year: federally, the traders are denied the standard deduction (forced to itemize) and married traders must use the federal "married filing separately" table.

On the standard-deduction question, the Department found no New York statute that ties the New York standard deduction to the federal itemizing requirement. Sections 611/613/614 (residents) and 631/633/634 (nonresidents) all make the standard deduction available unless the taxpayer elects to itemize instead - there is no provision requiring dual-status treaty traders to itemize for New York purposes just because federal law forces them to. So the traders remain free to claim the New York standard deduction (computed per §§ 614, 634, and 654, with proration for the portion of the year covered by each of the resident and nonresident returns required under a status change) even while itemizing federally. The Department separately flagged that the minimum available standard deduction could still be affected by § 607(b) and regulation 102.1(b).

On the filing-status question, the answer went the other way: Tax Law § 651(b) requires that if a married couple's federal tax is determined on separate returns, their New York returns must also be separate, and personal income tax regulation 145.10(a) confirms spouses filing separate federal returns must also file separate New York returns on separate forms. So because these treaty traders are forced into federal "married filing separately," they must likewise file New York filing status (4), "married filing separately on separate forms" - they may not file a New York joint return even though nothing else about their situation would otherwise bar it.

Notably, the Department limited its answer to the 1986 taxable year and flagged that "amendments to the Tax Law may mandate different results for taxable year 1987 and thereafter" - a caveat that turned out to matter, since the companion opinion TSB-A-87(6)I (also requested by Richard Berman, for E-1 treaty traders specifically) addresses the same standard-deduction and filing-status questions for the 1987 tax year.

What this means for you

Foreign treaty traders (and their preparers) navigating a dual-status year

Don't assume that being forced to itemize on your federal return for your year of arrival or departure also forces you to itemize on your New York return. This opinion confirms New York has its own, independent standard-deduction rules that don't track the federal dual-status itemizing requirement - you can generally still claim the New York standard deduction.

Married treaty traders filing federal "married filing separately"

Be aware that New York's filing-status rules DO track the federal rule here: if you're required to file separately for federal purposes, Tax Law § 651(b) and regulation 145.10(a) require you to also file "married filing separately on separate forms" for New York - a joint New York return isn't an option, even though the standard deduction itself remains available.

Accountants preparing returns for treaty traders across different tax years

This opinion's advice is expressly limited to the 1986 taxable year, with the Department itself noting that 1987 amendments might change the analysis. Check the companion 1987 opinion (TSB-A-87(6)I, addressing E-1 treaty traders for the 1987 tax year) rather than assuming this 1986-specific guidance still applies without checking for intervening law changes.

Common questions

Q: I'm a treaty trader forced to itemize federally in my year of arrival or departure - do I also have to itemize on my New York return? A: No, at least for 1986. The Department found no New York Tax Law provision requiring itemizing just because federal law does; you remain free to claim the New York standard deduction under sections 614, 634, and 654.

Q: My spouse and I are required to file "married filing separately" federally - can we still file a joint New York return? A: No. Tax Law § 651(b) and regulation 145.10(a) require spouses who file separate federal returns to also file separate New York returns, on separate forms (filing status (4)) - a New York joint return isn't available in that situation.

Q: Does this opinion's guidance still apply for tax years after 1986? A: Not necessarily. The Department explicitly limited its advice to the 1986 taxable year and warned that 1987 Tax Law amendments could change the result. See the related opinion TSB-A-87(6)I, which addresses similar questions for E-1 treaty traders for the 1987 tax year.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1987.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a87_2i.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-87 (2) I
Income Tax
April 29, 1987

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. I870303C

On March 3, 1987, a Petition for Advisory Opinion was received from Richard Berman, CPA, 860 Longview Avenue Valley Stream, New York 11581. The issue raised is the availability, for purposes of the personal income tax imposed under Article 22 of the Tax Law, of the standard deduction and "married filing jointly" filing status to Japanese treaty traders in the taxable year during which such traders change their status from nonresident alien to resident alien or from resident alien to nonresident alien. Petitioner prepares various New York State tax returns for Japanese treaty traders and questions the New York State treatment of such traders in the year of arrival in or departure from New York State in light of the federal treatment whereby the federal standard deduction is not allowed and married treaty traders are required to use the federal tax table for "married filing separately." ISSUE (I) Section 611 of the Tax Law provides that the "New York taxable income of a New York resident shall be his New York adjusted gross income less his New York deduction .... " Section 613 of the Tax Law provides that the "New York deduction of a resident individual shall be his New York standard deduction unless he elects to deduct his New York itemized deduction .... " Section 614 of the Tax Law sets forth the manner of computing the New York standard deduction of a resident individual. Section 631 of the Tax Law provides that the "New York taxable income of a nonresident individual shall be his New York adjusted gross income less his New York deduction .... " Section 633 of the Tax Law provides that the "New York deduction of a nonresident individual shall be his New York standard deduction unless he elects to deduct his New York itemized deduction .... " Section 634 of the Tax Law sets forth the manner of computing the New York standard deduction of a nonresident individual. Section 654(a) of the Tax Law provides that when "an individual changes his status during his taxable year from resident to nonresident, or from nonresident to resident, he shall file one return as a resident for the portion of the year during which he is a resident, and one return as a nonresident for the portion of the year during which he is a nonresident .... " Section 654(f) of the Tax Law provides that "[w]here two returns are required under this section, the New York standard deduction allowable on each return shall be the amount allowed pursuant to the provisions of section six hundred fourteen or six hundred thirty-four, as the case may be, prorated according to the period covered by each such return." RODERICK G. W. CHU, COMMISSIONER TP-8 (3/83)

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

-2­
TSB-A-87 (2) I
Income Tax
April 29, 1987

No provision of the Tax Law requires individuals such as those described by Petitioner to itemize their deductions for personal income tax purposes. Accordingly, the Japanese treaty traders described by Petitioner are free to claim the standard deduction on their New York State personal income tax returns in accordance with the provisions of sections 614, 634 and 654 of the Tax Law. Additionally, it is noted that the minimum New York standard deduction available to Japanese treaty traders may be affected by the provisions of section 607(b) of the Tax Law and section 102.1(b)of the personal income tax regulations. ISSUE (II) Section 651(b) of the Tax Law provides that "[i]f the federal income tax of husband and wife is determined on a separate federal return, their New York income tax liabilities and returns shall be separate." Furthermore, personal income tax regulation 145.10(a) provides that "[i]f a husband and wife file separate Federal income tax returns, they must also file separate New York State personal income tax returns on separate forms." Accordingly, since such Japanese treaty traders are forced for federal purposes to file as "married filing separately" they must file as "married filing separately on separate forms" (filing status (4)) for New York State purposes. Such traders may not file as "married filing joint return." Finally, it is noted that the advice given above pertains to the 1986 taxable year. At the time of the drafting of this advisory opinion it appears likely that amendments to the Tax Law may mandate different results for taxable year 1987 and thereafter.

DATED: April 29, 1987

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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