Sidney and Freda Esikoff filed their 1987 New York return as full-year nonresidents on Form IT-203, without checking the part-year-resident box or attaching the required Form IT-360, and later filed an amended 1987 return. When the Department audited them, they asked whether the statute of limitations had already run out on assessing additional tax for that 1987 return.

Plain-English summary

Sidney and Freda Esikoff timely filed joint federal and New York personal income tax returns for 1987 around October 15, 1988. They used Form IT-203, the Nonresident Income Tax Return, reporting themselves as full-year nonresidents of New York for the whole year. They did not check the box at Item C for part-year residents, and they did not attach Form IT-360, which part-year residents are required to file. Their original 1987 return showed a higher federal adjusted gross income than New York adjusted gross income - mostly because certain interest, dividend, and capital gains income was excluded from the New York figure based on their claimed nonresident status. On June 30, 1989, the Esikoffs filed an amended 1987 return.

Years later, in the context of an audit, the question arose whether the Department could still assess additional tax for 1987. Under Tax Law § 683(a), the ordinary assessment period is three years after a return is filed, and filing an amended return does not extend that period - so on its face, the window for 1987 looked closed. But two exceptions could keep it open. First, § 683(c)(1)(B) allows assessment at any time if a false or fraudulent return was filed with intent to evade tax. Second, § 683(d) extends the assessment period to six years if a taxpayer omits from New York adjusted gross income an amount exceeding 25% of that income (or the sum of tax-preference items) - unless the omitted amount was adequately disclosed on the return or an attached statement.

The Department declined to resolve either of those two big questions in this Advisory Opinion. Whether the return was filed with fraudulent intent is a factual question that can't be decided in an Advisory Opinion under Tax Law § 171 Twenty-fourth and 20 NYCRR § 2376.1(a), which limit such opinions to applying the law to a specified set of facts - and because the question arose in an ongoing audit, that determination belongs in the audit. Likewise, whether the six-year extended period under § 683(d) actually applies is also fact-dependent and was left to the audit.

What the opinion did resolve is a narrower legal point feeding into that § 683(d) analysis. Citing Matter of Bernard and Ruth Weinflash, TSB-H-81(197)I (June 5, 1981), the Department explained that when a taxpayer reports income in the federal-amount column of a nonresident return but simply uses an incorrect New York allocation percentage, that is not an "omission of income" for § 683(d) purposes - the income was disclosed, just possibly misallocated between New York and non-New York sources. Applying that precedent here, the Esikoffs had, in fact, disclosed all of their income in the federal-amount column of their IT-203, even though they filed the wrong form and used the wrong residency classification (nonresident instead of part-year resident, without attaching IT-360). Because that income was disclosed - not hidden - it cannot be counted as "omitted" New York adjusted gross income when calculating whether more than 25% of New York adjusted gross income was omitted under § 683(d).

The opinion also traces the federal analog: § 683(d) is patterned on IRC § 6501(e)(1), and the leading case interpreting that provision's predecessor is Colony, Inc. v. Commissioner, 357 US 28 (1958), which explained that the extended assessment period exists to offset the taxing authority's disadvantage when a return gives no clue that an item was omitted. Whether a return adequately apprised the Commissioner is, again, a factual inquiry (citing Estate of Fry, 88 TC 1020) - reinforcing why the ultimate six-year question had to stay in the audit rather than be decided here.

What this means for you

Taxpayers who filed the wrong residency form or classification

If you filed as a nonresident when you were arguably a part-year resident (or vice versa), and you're now being audited for a year that looks time-barred, this opinion shows that using the wrong residency form or classification is not automatically fatal to your statute-of-limitations defense. What matters for the 25%/six-year test under Tax Law § 683(d) is whether your income was actually disclosed somewhere on the return - for example, in the federal-amount column - not whether you picked the right box or attached the right supplemental form. Misclassifying your residency status is a different problem (it may trigger other issues), but it does not by itself convert disclosed income into "omitted" income for extended-assessment purposes.

Accountants and tax professionals handling residency-classification audits

When defending against an assessment based on the extended six-year period, focus on whether the income at issue appears anywhere on the face of the return or an attached statement in a way that would put the Department on notice of its nature and amount - the Weinflash precedent and this opinion both treat disclosure in the federal-amount column as sufficient, even when the taxpayer's allocation or residency classification is wrong. Also keep in mind that an Advisory Opinion won't resolve fraud allegations or make the ultimate factual call on whether the six-year period applies; those determinations happen in the audit itself, so don't expect a favorable ruling on this narrow legal point to end the audit.

Common questions

Q: Did the Department decide whether the Esikoffs' return was fraudulent, or whether the six-year statute of limitations applied to them?
A: No. Both of those are factual questions. Tax Law § 171 Twenty-fourth and 20 NYCRR § 2376.1(a) limit Advisory Opinions to applying the law to a specified set of facts, not resolving factual disputes - and since both questions arose in the context of an ongoing audit, the Department left those determinations to the audit process rather than deciding them in this opinion.

Q: What did the opinion actually decide, then?
A: It decided one narrower legal sub-point: for purposes of the 25%-of-income test under Tax Law § 683(d), any amount already listed in the federal-amount column of the Esikoffs' nonresident return cannot be treated as "omitted" New York adjusted gross income - even though they filed as full-year nonresidents on Form IT-203 without checking the part-year-resident box or attaching Form IT-360, which may have been the wrong classification and the wrong form.

Q: Why does it matter whether income is "omitted" versus just "misallocated"?
A: Tax Law § 683(d) only extends the assessment period to six years if a taxpayer omits from New York adjusted gross income an amount exceeding 25% of that income, and that extension doesn't apply if the amount was adequately disclosed on the return or an attached statement. Citing Matter of Bernard and Ruth Weinflash, TSB-H-81(197)I, the Department treated income reported in the federal-amount column as disclosed, not omitted, even when the taxpayer used an incorrect allocation percentage between New York and non-New York income. The same logic applied to the Esikoffs' incorrect residency classification.

Q: Does filing an amended return restart or extend the three-year assessment clock under § 683(a)?
A: No. The opinion states plainly that the subsequent filing of an amended return does not extend the time during which an assessment can be issued under the ordinary three-year period.

Q: What is the federal analog to Tax Law § 683(d), and why does the opinion mention it?
A: Section 683(d) is patterned after IRC § 6501(e)(1). The opinion cites Colony, Inc. v. Commissioner, 357 US 28 (1958), for the principle that the extended assessment period exists to offset the taxing authority's disadvantage when a return gives no clue that an item was omitted - and Estate of Fry, 88 TC 1020, for the point that whether a return adequately apprised the Commissioner is a factual inquiry. Both reinforce why the Department could resolve the "disclosed in the federal-amount column" legal question here, but not the ultimate factual question of whether the six-year period applies to the Esikoffs.

Citations and references

• Tax Law § 683(a) - the ordinary three-year assessment period; filing an amended return does not extend it
• Tax Law § 683(c)(1)(B) - allows assessment at any time if a false or fraudulent return was filed with intent to evade tax; a factual determination not resolved in this opinion
• Tax Law § 683(d) - extends the assessment period to six years if more than 25% of New York adjusted gross income (or the sum of tax-preference items) is omitted, unless adequately disclosed
• Tax Law § 171 Twenty-fourth; 20 NYCRR § 2376.1(a) - limit Advisory Opinions to applying the law to a specified set of facts, not resolving factual disputes
• Matter of Bernard and Ruth Weinflash, TSB-H-81(197)I (June 5, 1981) - income reported in the federal-amount column of a nonresident return, but allocated with an incorrect percentage, is not an "omission of income" under section 683(d)
• IRC § 6501(e)(1) - the federal provision that Tax Law § 683(d) is patterned after
• Colony, Inc. v. Commissioner, 357 US 28 (1958) - explains the purpose of the extended assessment period: offsetting the taxing authority's disadvantage when a return gives no clue an item was omitted
• Estate of Fry, 88 TC 1020 - whether a return adequately apprised the Commissioner of an item is a factual inquiry

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1992.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a92_6i.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-A-92 (6) I
Income Tax
July 14, 1992

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. I920423A

On April 23, 1992, a Petition for Advisory Opinion was received from Sidney
and Freda (dec'd) Esikoff, 5500 Collins Avenue - Apt. 303, Miami Beach, Florida
33140.
The issue raised by Petitioners, Sidney & Freda (dec'd) Esikoff, is whether
the statute of limitations has expired with respect to Petitioners' 1987 New York
State personal income tax return including their amended return for 1987.
The Petitioners filed timely joint Federal and New York State income tax
returns for 1987 on or about October 15, 1988. The taxpayers' 1987 personal
income tax return was filed on Form IT-203 Nonresident Income Tax Return (the
"original 1987 return"). No entry was made in the box at Item C on Form IT-203
and Form IT-360 was not attached to the original 1987 return.
The original 1987 return reported a higher federal adjusted gross income
than New York State adjusted gross income, the difference being predominantly the
exclusion of certain interest income, dividend income and capital gains because
Petitioners claimed nonresident status. On June 30, 1989, Petitioners filed an
amended 1987 personal income tax return ("amended 1987 return").
Section 683(a) of the Tax Law provides that "[e]xcept as otherwise provided
in this section, any tax under this article shall be assessed within three years
after the return was filed .... " The subsequent filing of an amended return for
such taxable year does not extend the time during which an assessment can be
issued.
However, section 683(c)(1) of the Tax Law provides that "[t]he tax may be
assessed at any time if ... (B) a false or fraudulent return is filed with intent
to evade tax .... " The determination of whether "a false or fraudulent return
is filed with intent to evade tax" is a factual matter not susceptible of
determination in an Advisory Opinion. An Advisory Opinion merely sets forth the
applicability of pertinent statutory and regulatory provisions to "a specified
set of facts." Tax Law, §171. Twenty-fourth; 20 NYCRR 2376.1(a). Since this
question arose within the context of an audit, the necessary factual
determination will be made within such context and not by an Advisory Opinion.
Section 683(d) of the Tax Law provides that the tax may be assessed at any
time within six years after the return was filed if an individual omits from his
or her New York adjusted gross income an amount properly includible therein which
is in excess of twenty-five percent of the amount of New York adjusted gross
income or the sum of the items of tax preference.
For purposes of section
683(d), there shall not be taken into account any amount which is omitted in the
return if such amount is disclosed in the return, or in a statement attached to
the return, in a manner adequate to apprise the Commissioner of Taxation and
Finance of the nature and amount of the item of income or tax preference.

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TSB-A-92 (6) I
Income Tax
July 14, 1992

In the Matter of Bernard Weinflash and Ruth Weinflash, Dec St Tax Comm,
June 5, 1981, TSB-H-81(197)I, it was held that where income was reported on
petitioners nonresident return under the federal amount column, but the
petitioners used an incorrect allocation percentage in determining New York
income, to the extent the income was included in the federal amount column, it
was not an omission of income for purposes of section 683(d) the Tax Law.
Herein, Petitioners filed their 1987 personal income tax return as
nonresidents of New York State on Form IT-203. Petitioners did not mark the box
at Item C with respect to part-year residents nor did they attach Form IT-360 as
required by Item C. Petitioners did complete the return as nonresidents for the
entire year and did disclose all items of income for the taxable year in the
federal amount column on page one of the return.
Accordingly, when determining whether Petitioners omitted an amount in
excess of twenty-five percent of the amount of New York adjusted gross income for
purposes of section 683(d) of the Tax law, an amount that is included in the
federal amount column of their nonresident return should not be taken into
account as omitted New York adjusted gross income.
However, it should be noted that section 683(d) is patterned after section
6501(e)(1) of the Internal Revenue Code. The leading case on the purpose of the
six-year statute of limitations prescribed in section 6501(e)(1) of the Internal
Revenue Code is Colony, Inc. v Commr (357 US 28 [1958]) which dealt with section
275(c) of the 1939 Internal Revenue Code, the predecessor of section 6501(e)(1).
The reasoning is applicable to our interpretation of section 683(d).
In Colony, Inc. v Commr, (supra, at 36), the Supreme Court stated that the
purpose behind the additional period of time granted the Commissioner of Internal
Revenue within which to audit a return was to offset the disadvantage to the
Commissioner in detecting errors where the return on its face provides no clue
to the existence of the omitted item. In each case, the question of whether the
tax return is sufficient to apprise the Commissioner of the nature and amount of
the transaction is essentially a factual inquiry (see, Estate of Fry, 88 TC
1020).
As stated previously, questions of fact are not susceptible of
determination in an Advisory Opinion. Therefore, since the question arose within
the context of an audit, the determination of whether, pursuant to section 683(d)
of the Tax Law, the time for issuing an assessment with respect to Petitioners
1987 personal income tax return is extended to within six years from the time the
return was filed will be made within such context. However, as previously noted,

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TSB-A-92 (6) I
Income Tax
July 14, 1992

in making such a determination the amount included in the federal amount column
of Petitioner's non resident return cannot be taken into account as omitted New
York adjusted gross income.

DATED: July 14, 1992

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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