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‘Flat Sum’ Settlements: An ‘End Run’ Around New York’s Reporting Requirements?

By Garrett L. Brodeur
The CPA Journal, Tax Practice & Procedure Column
March/April 2022 Issue

In computing a state resident’s adjusted gross income for personal income tax purposes, New York, like many states, starts with the individual’s federal adjusted gross income and makes certain additions or subtractions to arrive at the individual’s state taxable income [N.Y. Tax Law sections 607(a), 612(a)]. This federal-state conformity simplifies tax administration and makes compliance easier for taxpayers. It also benefits state taxing authorities by allowing them to track federal audit adjustments and “take a bite of the apple” when state residents are assessed additional federal taxable income. To facilitate this tracking, New York Tax Law section 659 requires state taxpayers to report certain adjustments to their federal taxable income to the New York State Department of Taxation and Finance (DTF).

Some settlement agreements between taxpayers and the IRS—even those that appear to adjust federal taxable income—may not be subject to New York’s reporting requirement. For certain flat sum settlements, a 2015 administrative decision by the New York Division of Tax Appeals (DTA) may offer a plausible argument that taxpayers are not required to file a report or an amended return with the DTF to reflect particular adjustments to their federal taxable income.


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Published with permission from The CPA Journal, a publication of the NYSSCPA © 2022.