New York Advisory Opinion TSB-H-80(522)I: Can a taxpayer claim a retroactive personal income tax modification for contributions to a qualified higher education fund (PASS account) that didn't exist and received no contributions during the years in question?

Plain-English summary

Marlene Anita Harding filed her New York personal income tax returns for 1978 and 1979 without claiming any modification for contributions to a qualified higher education fund (a "PASS account"). She hadn't actually established such a fund or made any contributions to one during either year. She asked whether she could still claim a retroactive modification for those years, and separately asked how much tax she would have saved had she made the maximum $750 modification for each year.

Tax Law section 611(a) starts a taxpayer's New York adjusted gross income from federal adjusted gross income, adjusted by specified additions and subtractions. Section 612(c)(16) allows a subtraction for amounts a taxpayer actually contributes during the taxable year to a PASS fund the taxpayer established, capped at $750 times the number of eligible beneficiaries. For the 1978 tax year specifically, the statute extended the contribution window through April 15, 1979 (a 15-month period); for 1979, the window was the calendar year itself.

Because Harding never established a PASS fund and made no contributions to one during either the 1978 or 1979 contribution windows, there was nothing to base a modification on - a fund established after the fact can't retroactively justify a subtraction for an earlier year in which no contribution was actually made. The Department did calculate, based on the returns she submitted, that a full $750 modification would have saved her $119.35 in 1978 tax and $122.58 in 1979 tax - but confirmed that without an actual contribution during the applicable window, no modification could be made for either year.

What this means for you

Taxpayers who missed contributing to a PASS account in a given year

You can't retroactively create the subtraction after the fact - the PASS subtraction requires an actual contribution to an established fund within that year's specific contribution window (including the extended window through April 15 of the following year for the very first year the provision applied).

Anyone planning to use a higher-education savings subtraction

Establish the fund and make your contribution within the applicable tax year's window before year-end (or the extended window, if one applies) - waiting until after the year has closed to set up the fund means losing the subtraction for that year permanently.

Accountants reviewing a client's prior-year returns

If a client asks about amending a return to add a PASS-account subtraction, confirm first that an actual qualifying contribution was made within that year's statutory window - a subtraction can't be manufactured retroactively simply because the client wishes they had contributed.

Common questions

Q: Can I set up a PASS account now and claim a subtraction for a prior tax year?
A: No - the subtraction requires an actual contribution made to an established fund during that specific tax year's contribution window; a fund created later doesn't reach back to justify an earlier year's subtraction.

Q: What was the contribution window for the 1978 tax year specifically?
A: An extended 15-month period running from January 1, 1978 through April 15, 1979, reflecting that the PASS provision was new; the 1979 tax year's window was simply the calendar year itself.

Q: How much could the subtraction have saved this taxpayer?
A: Based on her submitted returns, a full $750 modification would have saved $119.35 in 1978 and $122.58 in 1979 - but only if she had actually made the contributions, which she hadn't.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1980.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/h80_522i.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-H-80-(522)-I
Income Tax
February 2, 1981

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. I800904A

On August 9, 1980 a Petition for Advisory Opinion was received from Marlene
Anita Harding, 3 Stuyvesant Oval - 8B, New York City, New York 10009.
The issue raised is whether a taxpayer is entitled to retroactive
modifications, under the Personal Income Tax imposed under Article 22 of the Tax
Law, based on contributions made to a qualified higher education fund (a PASS
fund) where such a fund was not in existence and no such contributions were
actually made during the years in question. In addition, Petitioner also inquires
as to the reduction in tax which would have inured to her benefit had she made
modifications of $750 with respect to each of the years in question.
Petitioner's income tax returns for 1978 and 1979, copies of which have
been submitted with the Petition, were made out with no modification based on
contributions to a qualified higher education fund. Petitioner did not establish
nor make contributions to such a fund during 1978 or 1979.
Section 611(a) of the Tax Law provides that a taxpayer's New York adjusted
gross income, the starting point in determining his New York taxable income, is
equal to his Federal adjusted gross income as modified by certain specified
additions and subtractions.
Section 612(c)(16) of the Tax Law provides for such a subtraction of
amounts which during the taxable year are contributed by the taxpayer to a
qualified higher education fund established by him, such amount limited to the
product of seven hundred fifty dollars and the number of eligible beneficiaries
of the fund. For the taxable year 1978 subtractions may be made of amounts
contributed to a qualified education fund during the fifteen month period
beginning January 1, 1978 and ending April 15, 1979. For the taxable year 1979
a taxpayer may subtract amounts contributed by him during the period January 1,
1979 to December 31, 1979.
In order for such a PASS modification to be made with respect to 1978 or
1979 contributions must have been made within the periods set forth in the
previous paragraph. Contributions made to a fund established subsequent to 1979
may not be made the basis of modifications applicable to 1978 or 1979 taxable
years.
Analysis of the returns submitted by Petitioner reveals that had
modifications of $750.00 been made for 1978 and 1979 the reduction in tax would
have been $ll9.35 and $122.58, respectively.
Accordingly, since no qualified higher education fund had been established
by Petitioner and no contributions to such a fund were made in 1978 or 1979, no
modification may now be made with respect to such years.

DATED: December 2, 1980

TP-80 (4/80)

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau

JAMES H. TULLY, JR., COMMISSIONER
LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR