The New York City Chief Administrative Law Judge has issued a decision holding that Astoria Bank was not required to include in its combined New York City bank tax returns its Connecticut subsidiary that held non-New York mortgage loans. Matter of Astoria Financial Corporation & Affiliates, TAT (H) 10-35 (BT) et al. (N.Y.C. Tax App. Trib., Admin. Law Judge Div., Oct. 29, 2014). The Chief ALJ concluded that the subsidiary had economic substance, was formed for legitimate business purposes, and conducted its transactions with Astoria at arm’s length. She held that there was no agreement or arrangement with the subsidiary that caused the bank’s income to be improperly or inaccurately reflected.

The Chief ALJ also rejected the Department of Finance’s contention that the New York State Tax Appeals Tribunal decision in Matter of Interaudi Bank, DTA No. 821659 (N.Y.S. Tax App. Trib., Apr. 14, 2011) was binding precedent. The Chief ALJ found that because the facts in Interaudi were distinguishable, and Interaudi did not articulate a new legal principle, it did not constitute binding precedent. She concluded that, unlike in Interaudi, there was no “mismatch” of income and expenses where the interest deductions taken by the bank could not be correlated to the mortgage income earned by the subsidiary. The Chief ALJ also emphasized that a capital contribution of mortgage assets to a subsidiary is not per se a distortive transaction, citing the State Tribunal decision in Matter of U.S. Trust Corp., DTA No. 810461 (N.Y.S. Tax App. Trib., Apr. 11, 1996).

As we went to press, the Department of Finance filed an Exception to the decision.