Add S991, Tax L; amd Part A S35, Chap 389 of 1997; amd S385, Chap 190 of 1990
Makes a reduced rate of interest applicable to certain additions of tax resulting from discovery after filing an estate tax return of certain assets belonging to the decedent held by the state comptroller as abandoned property.
NEW YORK STATE ASSEMBLY MEMORANDUM IN SUPPORT OF LEGISLATION submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A5960A
SPONSOR: Farrell TITLE OF BILL: An act to amend the tax law, in relation to making a
reduced rate of interest applicable to certain additions to tax result-
ing from an executor's discovery after the date for filing an estate tax
return of certain assets belonging to the decedent held by the state
comptroller as abandoned property; and to amend chapter 389 of the laws
of 1997 amending the tax law and other laws relating to the estate and
gift tax, and chapter 190 of the laws of 1990 amending the tax law
relating to certain taxes, fees, and other impositions, in relation to
rates of interest for certain estates
PURPOSE OF BILL: The bill would preclude the charging of interest on
estate tax liabilities attributable to late-discovered assets in the
possession of the State Comptroller as abandoned property for any period
of time during which the State Comptroller did not pay interest on the
property.
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 aban-
doned 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 appli-
cable 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, incorpo-
rating 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 Comp-
troller has been required to maintain public records ,regarding aban-
doned 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 Comp-
troller 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).
PRIOR LEGISLATIVE HISTORY: This is a new proposal.
STATEMENT IN SUPPORT: It is often difficult for an executor of an
estate to discover all the assets of the decedent within the time allot-
ted 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 Comp-
troller 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 paid.
While the interest charged to the estate can be sizable, under APL
section 1405, the State Comptroller only pays interest on certain cate-
gories 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 Depart-
ment 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.
BUDGET IMPLICATIONS: This proposal will result in a revenue loss of up
to $400,000 annually beginning in SFY13-14.
LOCAL IMPACT: None.
EFFECTIVE DATE: The bill would take effect immediately and apply to
estates of decedents dying on or after June 1, 1944.
