Did the Department's original 1988 ruling requiring an alien bank to restore interbranch IBF income before applying the IBF modification also rest on the Commissioner's separate discretionary anti-distortion power?

Plain-English summary

This is a short modification, issued November 8, 1990, to the Department's May 16, 1988 Advisory Opinion TSB-A-88(12)C, addressed to Hessische Landesbank-Girozentrale — an alien (foreign) bank operating a New York International Banking Facility (IBF). The original opinion isn't yet in this corpus, but a later 1989 opinion, TSB-A-89(15)C, quotes its core holding directly: an alien bank computing its Article 32 entire net income must recognize (restore) the interbranch income and expenses between its New York IBF and its foreign branches before applying the IBF modification under Tax Law § 1453(f) — otherwise the modification improperly shrinks the bank's non-IBF income, since those interbranch amounts wash out to zero for federal tax purposes (an IBF isn't a separate entity federally).

This modification doesn't change that conclusion. It simply appends a notation that, for tax years beginning on or after January 1, 1985, the Department's conclusion also rests on an independent, alternative legal basis: the Commissioner's discretionary authority under Tax Law § 1462(g) to adjust a taxpayer's reported income, deductions, or assets whenever an "agreement, understanding or arrangement" between the taxpayer and any other person causes the taxpayer's New York activity, business, income, or assets to be "improperly or inaccurately reflected." In other words, even if the primary statutory rationale in the original opinion were ever challenged, the Department is saying it would reach the same result anyway under its general anti-distortion power.

What this means for you

Banks with New York International Banking Facilities (especially alien banks)

If your bank operates a New York IBF and has interbranch transactions with foreign branches, the underlying rule from TSB-A-88(12)C — restore interbranch income/expenses before applying the § 1453(f) IBF modification — still controls, and this modification just reinforces that the Department has two independent legal footings for it (the specific IBF-modification mechanics, plus general § 1462(g) discretion). See the fuller discussion in TSB-A-89(15)C, which quotes and applies this ruling directly, and its own modification TSB-A-89(15.1)C, which clarifies the rule is specific to alien banks (a domestic bank does not need the extra adjustment).

Accountants and tax professionals

Section 1462(g) is a broad, arrangement-based anti-distortion tool similar in spirit to federal IRC § 482 — worth flagging whenever a client's IBF or interbranch structure could be seen as understating New York-reflected income, since the Department has signaled it will invoke this discretionary authority as a backstop even where a more specific statutory computation already reaches the same answer.

Common questions

Q: Does this modification change what banks with IBFs must do?
A: No. It doesn't alter the original opinion's computational conclusion — it only adds a second legal justification (§ 1462(g) discretion) alongside the original IBF-modification analysis.

Q: Where can I read the full original holding?
A: The original TSB-A-88(12)C (May 16, 1988) is referenced and its holding quoted in TSB-A-89(15)C, a later opinion applying the same rule to a different bank's IBF.

Q: Can another bank rely on this opinion?
A: No. It binds the Department only as to Hessische Landesbank-Girozentrale's specific facts and cannot be relied upon by other taxpayers.

Citations and references

Statutes:

• Tax Law § 1462(g) (Commissioner's discretionary anti-distortion authority)
• Tax Law § 1453(f) (International Banking Facility modification)
• Related opinion: TSB-A-89(15)C (Dec. 18, 1989), quoting the original TSB-A-88(12)C holding
• Related modification: TSB-A-89(15.1)C (Nov. 9, 1990), distinguishing alien vs. domestic banks

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1988.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a88_12_1c.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-88 (12.1)C
Corporation Tax
November 8, 1990

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK

COMMISSIONER OF TAXATION AND FINANCE
MODIFIED ADVISORY OPINION

PETITION NO. C870602B

On May 16, 1988, an Advisory Opinion was issued to Hessische Landesbank-Girozentrale,
499 Park Avenue, New York, New York 10022. (TSB-A-88(12)C) Such Advisory Opinion is
amended by appending thereto the following notation.
It should be noted that for taxable years beginning on or after January 1, 1985, the conclusion
reached was also reached by the Commissioner of Taxation and Finance exercising his discretion
granted by section 1462(g) of the Tax Law to properly and accurately reflect the Petitioner's income
within New York State. Said section provides that where it appears to the Commissioner of Taxation
and Finance that any agreement, understanding or arrangement exists between the taxpayer and any
person, whereby the activity, business, income or assets of the taxpayer within New York State is
improperly or inaccurately reflected, said Commissioner is authorized and empowered, in his
discretion, to adjust items of income or deduction in computing entire net income or alternative
entire net income.

DATED: November 8, 1990

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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

TP-9 (9/88)