The Department had told MCF Footwear Corporation and Mitsubishi International Corporation, in a March 1981 Advisory Opinion, that interest paid on funds borrowed from a related stockholder and re-lent could escape the section 208.9(b)(5) interest add-back under a four-part pass-through test. Two and a half years later, does the Department revoke that ruling, and does the correction reach back and undo past reliance?

Plain-English summary

This is a fourth documented instance of the October 6, 1983 coordinated revocation wave, alongside Kowa Realty (TSB-A-81(9.1)C), MC Minerals (TSB-H-81(21.1)C), and Ore and Chemical Corporation (TSB-A-82(15.1)C). In March 1981, the Department had told MCF Footwear Corporation and Mitsubishi International Corporation, in TSB-H-81(20)C, that a four-condition pass-through/conduit test could let MCF escape the § 208.9(b)(5) interest add-back on funds borrowed from its shareholders and re-lent to fund its footwear wholesale business.

By late 1983, the Department had concluded this was wrong for the same reasons articulated across the entire revocation wave: § 208.9(b)(5) requires the add-back in ALL cases except the four exceptions explicitly written into subparagraphs (i) through (iv). The Department formally REVOKED the March 27, 1981 ruling, attaching TSB-M-83(24)C, and made the correction PROSPECTIVE ONLY under Tax Law § 171, paragraph 24.

What this means for you

The October 6, 1983 revocation wave reached at least four separately-numbered original rulings

Kowa Realty, MC Minerals/Mitsubishi, MCF Footwear/Mitsubishi, and Ore and Chemical Corporation all had their pass-through-interest rulings revoked on this exact date -- strong, now well-documented evidence the Department executed a single coordinated policy correction across every open case raising the same theory, rather than a series of unrelated individual reconsiderations.

Common questions

Q: If I relied on the original 1981 pass-through ruling for periods before this revocation, am I at risk?
A: Under Tax Law § 171, paragraph 24, the revocation applies prospectively only.

Citations and references

Statutes and guidance:

• Tax Law § 208.9(b)(5)(i)-(iv)
• Tax Law § 171, paragraph 24
• TSB-M-83(24)C

Related rulings (same October 6, 1983 doctrinal correction):

• TSB-H-81(20)C -- the original March 1981 ruling this revokes
• TSB-A-81(9.1)C -- the Kowa Realty revocation, same date
• TSB-H-81(21.1)C -- the MC Minerals/Mitsubishi revocation, same date
• TSB-A-82(15.1)C -- the Ore and Chemical Corporation modification, same date

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/h81_20_1c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-H-81 (20.1)C
Corporation Tax
May 9, 1984

STATE OF NEW YORK
STATE TAX COMMISSION
MODIFIED ADVISORY OPINION

PETITION NO. C810225A

On March 27, 1981 an Advisory Opinion was issued to MCF Footwear
Corporation, One Park Avenue, New York, N.Y. 10016 and Mitsubishi International
Corporation, 277 Park Avenue, New York, N.Y. 10172 (TSB-H-81(20)C).
The Advisory Opinion indicated that under specified circumstances the
interest add-back requirement contained in section 208.9(b) (5) of the Tax Law
would not apply. It has been subsequently determined that such does not represent
a proper interpretation of the statute. Rather, an interest add-back is required
in all cases except where explicitly excluded by section 208.9(b)(5)(i) through
(iv) of the Tax Law. Accordingly, the decision reached in the Advisory Opinion
of March 27, 1981 is hereby revoked. See TSB-M-83(24)C, which is attached hereto
and is made part of this Advisory Opinion. It is to be noted, further, that in
accordance with section 171, paragraph twenty-fourth of Tax Law, this
modification has prospective application only.

DATED:

October 6, 1983

JAMES H. TULLY., COMMISSIONER

s/FRANK J. PUCCIA
Director
Technical Services Bureau

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR