Relates to reversing the crediting of a personal income tax or corporate franchise tax overpayment against estimated tax

Sections 2, 4 and 6 of the bill would amend cross-references to Tax Law §§ 686(e) and l086(b) and the Administrative Code of the City of New York § 11-1786(e).

Section 5 of the bill makes corresponding amendments to the Administrative Code of the City of New York § 11-1786(e) for the New York City personal income tax on residents.

Section 7 provides that the bill would take effect immediately.

Existing law

When a taxpayer files a personal income tax or corporate franchise tax return and has an overpayment (credits and prepayments are more than the tax owed), an election may be made by the taxpayer to have some or all of the overpayment refunded or credited to estimated tax for the succeeding taxable year. Tax Law §§ 686(e) and 1086(b) and the Administrative Code of the City of New York § 11-1786(e) provide that if an overpayment is credited against estimated tax for the succeeding taxable year, the amount is considered to be a payment of tax for the succeeding taxable year and no claim for credit or refund of the overpayment will be allowed for the taxable year for which the overpayment arises. The Internal Revenue Service has issued a policy statement on similar language in the Internal Revenue Code which allows individual taxpayers to have the election reversed and the overpayment refunded without interest upon a showing that the taxpayer would suffer "undue financial hardship." These refund requests must be made far enough in advance to permit a refund to be made prior to the end of the taxable year to which the credit was applied. (IRS Policy Statement 2-88, approved 10-21-1971, in Internal Revenue Manual section 1.2.12.1.14.)

Legislative history

This is a new bill.

Statement in support

The virtually irreversible election to credit an overpayment to estimated tax for the succeeding taxable year has at times caused problems for taxpayers. In some cases, because of a software or return preparation error, the overpayment was entered on the credit-to-estimated-tax line rather than on the refund line. Taxpayers who were expecting a refund were frustrated by the Department's inability to correct the error. Further, a taxpayer may become aware of another liability before the due date of the return for the succeeding taxable year and may prefer to use the overpayment against that liability instead of for estimated tax for the next year. There may be other situations that would call for reversing the crediting of an overpayment, such as a significant change in the taxpayer's economic situation.

This bill would remedy the problem by permitting the taxpayer to request a reversal of the crediting of the overpayment to estimated tax. The ability to request such reversal would last until the prescribed due date of the return for the succeeding taxable year, plus any extensions granted the taxpayer. Once the return for the succeeding taxable year is filed, the taxpayer will be able to request that any overpayment on that return be refunded or credited to estimated tax for the next succeeding taxable year. The decision to grant or deny the request is in the discretion of the Commissioner. The Commissioner could decide not to reverse the credits of a class of taxpayers due to, for example, the State's fiscal circumstances. The Commissioner's decision would not be subject to further administrative or judicial review to promote quicker settlement of the affected tax years.

Budget implications

This bill will not have an impact on State finances.

Effective date

This bill would take effect immediately.