New York Advisory Opinion TSB-A-85 (3)I: If the IRS disallows a taxpayer's federal casualty loss deduction and the taxpayer accepts that disallowance, can the same loss still be deducted on the New York State personal income tax return?

Plain-English summary

Mark Lotaj suffered a casualty loss when an earthquake damaged his summer house in Yugoslavia. He claimed a casualty loss deduction on his federal income tax return under Internal Revenue Code § 165, but the IRS disallowed it, and Lotaj consented to that disallowance rather than contesting it. He then asked whether he could still claim the loss as a deduction on his New York State personal income tax return.

The Department's answer turned entirely on how New York itemized deductions are structured. Tax Law § 615(a) makes a taxpayer's New York itemized deductions equal to their federal itemized deductions (subject to exceptions not relevant to this case). Critically, the Tax Law has no separate, freestanding provision that independently allows a deduction for casualty losses - New York doesn't have its own casualty-loss rule apart from simply following the federal itemized-deduction figure.

Because Lotaj's loss was not allowed as a federal itemized deduction (having been disallowed by the IRS, with his consent), there was nothing for New York's conformity rule to pick up. The loss was therefore denied for New York purposes for the same reason it was denied federally - not because New York independently evaluated and rejected the loss, but because New York's deduction simply mirrors whatever the federal return allows.

What this means for you

Taxpayers whose casualty loss claim was disallowed by the IRS

Don't expect to preserve a New York deduction for a loss the IRS has disallowed. Because New York itemized deductions under § 615(a) equal federal itemized deductions, a federal disallowance - especially one you've consented to - carries straight through to your New York return.

Taxpayers with property damage located outside New York, or even outside the U.S.

The location of the damaged property (here, a home in Yugoslavia) wasn't itself the reason for denial - the denial followed from the federal disallowance. If you believe your casualty loss should have been federally allowable, that's the fight to have with the IRS; New York doesn't offer an independent path around a federal denial.

Accountants and tax preparers evaluating whether to contest an IRS casualty-loss disallowance

Recognize that consenting to a federal disallowance (rather than contesting it) forecloses the New York deduction too, since New York has no independent casualty-loss provision - it simply adopts the federal itemized-deduction result. Weigh that consequence before advising a client to accept an IRS disallowance without a fight.

Common questions

Q: The IRS disallowed my casualty loss deduction and I accepted that decision - can I still deduct it on my New York return?
A: No. Because New York itemized deductions under Tax Law § 615(a) equal your federal itemized deductions, a federal disallowance you've accepted means there's no federal itemized deduction for New York's conformity rule to adopt.

Q: Does New York have its own casualty loss deduction separate from the federal one?
A: No. The Tax Law contains no independent provision allowing a casualty loss deduction; New York simply follows whatever your federal itemized deductions are under § 615(a).

Q: Would the outcome differ if my casualty loss involved property in New York rather than abroad?
A: No - the location of the damaged property wasn't the basis for the Department's ruling. The denial followed directly from the federal disallowance, which would carry through to New York regardless of where the property is located.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1985.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a85_3i.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-85 (3) I
Income Tax
June 6, 1985

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. I840221B

On February 21, 1984, a Petition for Advisory Opinion was received from Mark Lotaj, 2250
Olenville Avenue, Bronx, New York 10467.
The issue raised is whether Petitioner's claim of a casualty loss should be allowed for
purposes of the personal income tax imposed under Article 22 of the Tax Law.
Petitioner states that he incurred a casualty loss as a result of an earthquake which damaged
Petitioner's summer house in Yugoslavia. Petitioner claimed a casualty loss for federal income tax
purposes. Petitioner's federal claim was disallowed by the Internal Revenue Service. Petitioner
consented to the federal disallowance.
Section 165 of the Internal Revenue Code allows an itemized deduction from federal adjusted
gross income for certain losses sustained by taxpayers.
Section 615(a) of the Tax Law provides that a taxpayer's New York itemized deductions shall
equal his federal itemized deductions (with exceptions not here relevant). The Tax Law contains no
specific provision for the deduction of losses in computing New York personal income tax.
Accordingly, since the Petitioner's losses are not allowable as a deduction for federal income
tax purposes, they are similarly not allowed as a deduction for New York State personal income tax
purposes.

DATED: April 30, 1985

FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth herein.

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR