The New York City Tax Appeals Tribunal, affirming a determination of an Administrative Law Judge, has held that Astoria Bank, which engaged in a banking business in New York City, was not required to include in its combined New York City bank tax returns its Connecticut investment subsidiary that principally held non–New York mortgage loans. Matter of Astoria Financial Corporation & Affiliates, TAT (E) 10-35 (BT) et al. (N.Y.C. Tax App. Trib., May 19, 2016). The Tribunal concluded that the subsidiary had a business purpose apart from tax benefits, had economic substance, and conducted its transactions with Astoria Bank at arm’s length. It also held that the 2011 New York State Tax Appeals Tribunal decision in Matter of Interaudi Bank under the former New York State bank tax – where the State Tribunal found distortion resulting from a “mismatch of income and related expense” between a bank and its investment subsidiary – was inapplicable because the facts were materially distinguishable.

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