New York Advisory Opinion TSB-A-88 (1)I: For personal income tax purposes, can a shareholder of an electing S corporation still claim a pro rata share of the special additional mortgage recording tax credit for taxable years beginning after 1987?

Plain-English summary

Stephen B. and Janice G. Ashley asked whether, as a shareholder of an S corporation, Stephen could still claim a personal income tax credit for his pro rata share of the special additional mortgage recording tax under Tax Law § 253.1-a(a) for taxable years beginning after 1987. The answer turned on a tangled sequence of 1987 statutory amendments that briefly took the credit away before restoring it.

Before 1987, a business corporation could claim a credit under § 210.17 for the special additional mortgage recording tax it paid, and individuals had a parallel personal credit under § 606(f). Section 606(i) separately let the § 210.17 corporate credit pass through pro rata to shareholders of an S corporation that had made the New York S election under § 660(a). Chapter 28 of the Laws of 1987 (the Tax Reform and Reduction Act of 1987) amended both § 606(f) and § 606(i) to cut off these credits for taxable years beginning in or after 1988. But later the same year, Chapter 817 of the Laws of 1987 (the Business Tax Reform and Rate Reduction Act of 1987), in its own § 57-1, amended § 606(i) again - this time to eliminate the newly-imposed 1988 cutoff, restoring the pass-through credit for S corporation shareholders for years after 1987. Critically, no similar restoring amendment was made to § 606(f), so the parallel non-S-corporation individual credit remained cut off after 1987.

Reading the final, twice-amended version of § 606(i), the Department concluded that shareholders of electing S corporations may continue to claim their pro rata share of the § 210.17 special additional mortgage recording tax credit determined for the corporation, for taxable years beginning after 1987 - reproducing the full amended statutory text of § 57-1 in the opinion to show exactly how the 1988 restriction had been struck.

What this means for you

S corporation shareholders who paid the special additional mortgage recording tax

If your S corporation is eligible for the § 210.17 special additional mortgage recording tax credit and has made the New York S election under § 660(a), you can still claim your pro rata share of that credit on your personal income tax return for taxable years beginning after 1987 - this 1987 legislative back-and-forth resolved in your favor, restoring the pass-through that a prior 1987 amendment had briefly eliminated.

Individuals who separately claimed the mortgage recording tax credit outside an S corporation

Don't assume the same good news applies to you. The Department specifically noted that while § 606(i) (the S-corp pass-through) was restored for post-1987 years, § 606(f) (the parallel credit for individuals generally) was never similarly amended and remains cut off for taxable years beginning after 1987 under Chapter 28 of the Laws of 1987.

Accountants and tax preparers tracking mid-1987 statutory amendments

This opinion is a good illustration of how two 1987 tax-reform statutes (Chapter 28 and the later Chapter 817) can amend the same Tax Law section in opposite directions within a single year. When researching whether a credit survived past 1987, check for a SECOND amendment later in the same legislative session before concluding a credit was eliminated - as happened here with § 606(i) but not with the otherwise-parallel § 606(f).

Common questions

Q: Can I still claim the special additional mortgage recording tax credit as an S corporation shareholder for tax years after 1987?
A: Yes, if your S corporation made the New York S election under § 660(a) and is eligible for the § 210.17 credit. The Department confirmed that Chapter 817 of the Laws of 1987 restored the § 606(i) pass-through for years beginning after 1987, undoing an earlier 1987 amendment that had cut it off.

Q: I'm an individual claiming this credit outside of an S corporation - does the same restoration apply to me?
A: No. The opinion specifically notes that § 606(f), the parallel individual credit, was not similarly re-amended and remains restricted to taxable years beginning before 1988.

Q: Why did the credit almost disappear and then come back in the same year?
A: Two different 1987 tax-reform laws amended the same provision. Chapter 28 of the Laws of 1987 first cut off the § 606(i) pass-through for years beginning in 1988 or later; Chapter 817 of the Laws of 1987, enacted later that year, amended § 606(i) again to remove that cutoff, restoring the credit for post-1987 years.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1988.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a88_1i.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-88 (1) I
Income Tax
February 25, 1988

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. I880120A

On January 20, 1988, a Petition for Advisory Opinion was received from Stephen B. and
Janice G. Ashley, 4348 Richmond Center Road, Livonia, New York 14487.
The issue raised is the availability, for purposes of the personal income tax under Article 22
of the Tax Law, of the special additional mortgage recording tax credit to an individual who is a
shareholder of an S corporation for taxable years beginning after 1987.
Section 253.1-a(a) of the Tax Law requires the payment of a special additional mortgage
recording tax under certain circumstances. A business corporation is allowed a credit, pursuant to
section 210.17 of the Tax Law, against the tax imposed under Article 9-A of the Tax Law in an
amount equal to the special additional mortgage recording tax paid. Prior to the enactment of
Chapter 28 of the Laws of 1987, an individual was allowed a similar credit for personal income tax
purposes pursuant to section 606(f) of the Tax Law. Moreover, section 606(i) of the Tax Law
permitted the franchise tax credit allowed under section 210.17 to be passed through on a pro rata
basis to the shareholders of an S corporation where the election under section 660(a) of the Tax Law
was in effect for the taxable year.
Chapter 28 of the Laws of 1987 (the Tax Reform and Reduction Act of 1987) amended
sections 606(f) and 606(i) to restrict the personal income tax credit to taxable years beginning before
1988. Section 606(i) was subsequently amended by section 57-1 of Chapter 817 of the Laws of 1987
(the Business Tax Reform and Rate Reduction Act of 1987) to eliminate this restriction. However,
no similar amendment was undertaken with respect to section 606(f).
Section 57-1 of Chapter 817 of the Laws of 1987 provides, in part:
§ 57-1. Paragraphs one and two of subsection (i) of section six hundred six of such
law, as amended by chapter twenty-eight of the laws of nineteen hundred eighty­
seven, are amended to read as follows:
(1) In the case of a shareholder of an S corporation where the election
provided for in subsection (a) of section six hundred sixty is in effect, there shall be
allowed a credit against the tax imposed by this article after allowance of any other
credit provided under this section and any credits permitted under sections six
hundred twenty, six hundred twenty-one and six hundred [forty] thirty-five. The
amount of the credit shall be his pro rata share of the credits [(A) for taxable
years beginning before nineteen hundred eighty-eight;] under subdivisions
twelve, twelve-B, seventeen, eighteen, nineteen and twenty[; (B) for taxable years
beginning in nineteen hundred eighty-eight, under subdivisions twelve, twelve-B and

-2­
TSB-A-88 (1) I
Income Tax
February 25, 1988
eighteen,] of section two hundred ten of this chapter determined for the corporation
for which such election is in effect, for the corporation's taxable year ending with or
within the shareholder's taxable year. However, the credits allowed under such
subdivisions twelve and twelve-B shall be computed at the rates applicable under
subsections (a) and (i), respectively, of section six hundred six of this chapter. Such
credit shall not, however, include any credit arising for a taxable year when such
election was not in effect.
EXPLANATION - MATTER IN
ITALICS (underscored) is new; matter
in brackets [ ] is old law to be omitted.
Accordingly, pursuant to section 606(i) of the Tax Law as amended by Chapter 817 of the
Laws of 1987, shareholders of electing S corporations will continue to be allowed to claim their pro
rata share of the special additional mortgage recording tax credit determined under section 210.17
of the Tax Law for such electing S corporations for taxable years beginning after 1987.

DATED: February 25, 1988

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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