New York City—Corporate Income, Miscellaneous Taxes: City’s Decoupling From Certain CARES Act Provisions Discussed

24 September 2020

New York City has issued a memorandum discussing the following:

  • decoupling of its business corporation tax, general corporation tax, unincorporated business tax, and banking corporation tax from certain federal tax changes contained in the CARES Act; and
  • providing instructions to taxpayers for completing their tax year 2018 and 2019 business tax returns.

Business Tax Form Instructions Effectuating New York City’s Decoupling From CARES Act

New York City’s business corporation tax, general corporation tax, unincorporated business tax, and banking corporation tax are decoupled from CARES Act changes to the interest expense provisions under IRC Sec. 163(j)(10) for tax years beginning in 2019 and 2020. Additionally, for tax years beginning before January 1, 2021, the general corporation tax, unincorporated business tax, and banking corporation tax are decoupled from CARES Act changes to the net operating loss provisions under IRC Sec. 172, and the unincorporated business tax is decoupled from CARES Act changes to the limitation on excess business losses of non-corporate taxpayers under IRC Sec. 461(l). Therefore, New York City provides instructions to taxpayers for completing their tax year 2018 and 2019 business tax returns:

  • if a business corporation tax, general corporation tax, unincorporated business tax, and banking corporation tax taxpayer has already filed 2019 business tax returns with the City on which it reflected in entire net income the increase in the federal deduction allowed pursuant to IRC Sec. 163(j)(10), it must file an amended return using the instructions in this memorandum;
  • if a general corporation tax, unincorporated business tax, or banking corporation tax taxpayer has already filed 2018 or 2019 business tax returns with the City on which it applied CARES Act amendments to IRC Sec. 172 when computing its NOL deduction, it must file an amended return using the instructions in this memorandum; and
  • if an unincorporated business tax taxpayer has already filed 2018 or 2019 business tax returns with the City on which it did not add back to federal gross income the amount of the increase in the federal deduction allowed pursuant to CARES Act amendments to IRC Sec. 461(l), it must file an amended return using the instructions in this memorandum.

Penalty Abatement

New York City’s decoupling from CARES Act changes may result in increases to the City tax liability of some business taxpayers. The New York City Department of Finance has determined that the enactment of the CARES Act as well as the City’s decoupling legislation so late in tax year 2020 constitutes reasonable cause for taxpayers to have underpaid the portion of their City tax liabilities attributable to the City’s decoupling from CARES Act changes to IRC Sec. 163(j)(10), IRC Sec. 172, and IRC Sec. 461(l). Accordingly, if a taxpayer receives a bill that includes a penalty for failing to pay the correct amount of tax when due, and the underpayment is attributable to the City’s decoupling from CARES Act changes to IRC Sec. 163(j)(10), IRC Sec. 172, or IRC Sec. 461(l), the taxpayer may request an abatement of the penalty.

Finance Memorandum 20-6, New York City Department of Finance, September 22, 2020