Makes a reduced rate of interest applicable to certain additions of tax resulting from discovery after filing an estate tax return of certain assets

Summary of provisions

Section 1 of the bill would add new section 991 to the Tax Law, which relates to additional estate tax owed by an estate that is attributable to an executor's discovery, after the date for the filing of an estate tax return, of the existence of an estate asset in the possession of the State Comptroller as abandoned property. The new section would require the Commissioner of Taxation and Finance to not charge interest on such additions to estate tax for any period in which the State Comptroller did not pay interest on the asset if, at the time the estate's estate tax return was required to be filed, including any extensions, the asset was not yet included in the public records of abandoned property maintained by the State Comptroller.

Sections 2 and 3 of the bill would apply the same limitation on accrual of interest as set forth in section 1 to estates of decedents dying when prior versions of the New York estate tax were in effect. Thus, section 2 applies that interest limitation to estates of decedents dying after March 31, 1963 and before February 1, 2000, during which period an earlier version of Article 26's estate tax was in effect (which was repealed by Chapter 389 of the Laws of 1997).

Section 3 would apply the limitation to estates of decedents dying on or after June 1, 1944, the date on which the State Comptroller was first required to maintain public lists of abandoned property, and before April 1, 1963, during which .period former Article 10-C's estate tax was in effect, prior to its being superseded by former Article 26, pursuant to Chapter 1013 of the Laws of 1962.

Section 4 would make this bill effective immediately but applicable to estates of decedents dying on or after June 1, 1944, the date on which the State Comptroller was required to maintain public records of abandoned property. Section 4 also would provide that no refunds or credits would be granted as a result of this act.

Existing law

The discovery of assets after the date prescribed for paying the estate tax, including property in the possession of the State Comptroller as abandoned property, can create an additional estate tax liability, either by increasing the tax due from an estate that already filed an estate tax return or by putting a non-filing estate over the threshold size that triggers the duty to pay estate tax. Under all of these articles, interest is required to be charged if the tax is late-paid (Tax Law § 990-b 9, incorporating by reference Tax Law 5 683-c applicable to current article 26 and former article-26 for estates of decedents dying on or after May 25, 1990; former Tax Law 249-z applicable to estates of decedents dying on or after September 1, 1930 and before May 25, 1990). Executors and heirs holding estate property can be held liable for estate tax long after the due date of any estate tax return. For example, in regard to estates of decedents dying on or after May 25, 1990, there is no statute of limitations for imposing additional estate tax if the estate did not file a return (Tax Law § 990, incorporating by reference Tax Law § 684). In relation to estates of decedents dying on or after September 1, 1930 and before May 25, 1990, former Tax Law section 249-x applied, which allowed additional estate tax to be determined at any time based on unreported assets (former Tax Law § 962b incorporating former Tax Law § 249-z). Moreover, the Tax Department continues to have collection authority under these present and former estate tax articles in eases of late-discovered assets, as an estate tax lien attaches to estate property for specified periods (e.g., Tax Law § 982-a fifteen year lien; former Tax Law § 249-bb indefinite lien unless certain conditions are met).

The Abandoned Property Law (APL) requires many entities, such as banks, brokers, arid utilities, and the court system, to turn over to the State Comptroller certain types of customer property held by them after the passage of a specified period of inactivity. Since 1944, the State Comptroller has been required to maintain public records ,regarding abandoned property that has been paid over to it (APL 1401). Prior to the enactment of Chapter 936 of the Laws of 1977, the State Comptroller was not authorized to pay interest on abandoned property. As amended by chapter 936, effective June 1, 1977, the APL requires the State Comptroller to pay interest on certain types of abandoned property, but only for the first five years the property is in its possession, after which the State Comptroller ceases to pay interest (APL § 1405).

Justification

It is often difficult for an executor of an estate to discover all the assets of the decedent within the time allotted for filing the estate's New York State estate tax return, which, under the current estate tax, is nine months from the decedent's date of death (15 months if an extension is received). One difficulty is that fiduciaries holding assets not discovered by-the executor cannot treat such assets as abandoned property to be turned over to the State Comptroller until a statutorily set period of inactivity has expired, which is often long after the estate's estate tax return is due. For example, the period of activity with regard to bank accounts is three years (APL § 300). Despite the passage of time, the late discovery of an asset may trigger an estate tax liability if the estate tax statute of limitations has not expired (e.g., the estate had not filed a

return, in which case there is no limitations period on assessment under the current estate tax). The Tax Department is required to charge interest from the due date of the estate tax return that should have included the asset until such time as the tax is maid.

While the interest charged to the estate can be sizable, under APL section 1405, the State Comptroller only pays interest on certain categories of abandoned property and even then it only accrues interest for the first five years that the property was in that office's possession.

Prior to that section's amendment in 1977, the State Comptroller did not pay interest on any abandoned property.

In recent years, the State Comptroller has made efforts to encourage people to search its records of abandoned property, now available as searchable web-based databases. As a result, many people have been able to find abandoned property formerly belonging to deceased persons of whom they are heirs. The problem is that the newly discovered estate asset often triggers an estate tax liability that the heir must pay because the estate tax lien has not expired. The interest on the estate tax liability generated by the late-discovered abandoned property is sometimes as much as five to ten times the tax owed, while the State has often paid little or no interest on the property.

This proposal would mitigate this inequity by directing the Tax Department not to charge interest on any additional estate tax liability owed by an estate based on the late-discovered asset for periods in which the State Comptroller did not pay interest on that asset. This provision would not apply if the asset was listed as abandoned property in the public records of the State Comptroller prior to the due date, with extensions, of the estate's estate tax return and thus could have been discovered with due diligence by the estate's executor.

Under section 4 of the bill, no refunds or credits will be maid as a result of this bill.

Legislative history

New Bill.

Fiscal implications

This proposal will result in a revenue loss of up to $400,000 annually beginning in SFY13-14.

Effective date

The bill would take effect immediately and apply to estates of decedents dying on or after June 1, 1944.