In Matter of Michael A. Goldstein A No. 1 Trust, DTA Nos. 822579, 822666 & 822681 (N.Y.S. Tax App. Trib., June 29, 2011), the New York State Tax Appeals Tribunal refused to apply retroactively a statutory amendment that would have allowed interest to be paid on a refund from the due date of the original return, holding that, during the years in issue, interest was payable only from the date of the amended return.

The sole issue in this group of three related cases was whether the taxpaying trusts, which filed claims for and received refunds of tax and partial interest based on federal changes, were also entitled to receive additional interest for the period from the date of filing of the original returns for the years in issue. The trusts argued that, as a result of the federal changes reducing the taxable income of the trusts, the taxable income of the trusts’ beneficiaries increased. These beneficiaries were required to pay interest from the dates of the filing of their original returns. Therefore, the trusts argued that an inequity results if the trusts do not similarly receive interest from the dates of their original returns.

The Administrative Law Judge had rejected the trusts’ arguments, and the Tribunal has now affirmed. It noted that, since the years in issue were prior to 1999, they were governed by an older version of the statute, under which interest was allowed only from the date of the amended return. The statute was amended to allow interest to be paid from the due date of the original return, but that amendment was made only prospectively for tax years beginning January 1, 1999. While noting the trusts’ claims that the result was inequitable or unjust, and finding that the legislature apparently agreed, since the statute had since been amended, the Tribunal stated that the legislature did so only prospectively, leaving the Tribunal without authority to award interest for the period in question. The Tribunal also rejected arguments based on alleged violation of the U.S. and New York State Constitutions.

Additional Insights. In the face of a clear statutory provision governing the payment of interest, it is not surprising that the Tribunal failed to grant relief. This is far from the only situation in which apparent inequities existed — and continue to exist — since state tax statutes often mandate payment of interest by taxpayers for periods in which no interest is paid to taxpayers, and even more commonly pay interest to taxpayers at a rate far smaller than the one imposed for underpayment.

It is worth noting that the rule discussed in this case is different from the rule that applies to amended corporation franchise tax returns, where interest starts to run only from the date an amended return is filed.