Does a domestic bank need to make a special adjustment to its federal taxable income to account for its International Banking Facility (IBF) interbranch income and expenses, the way an alien (foreign) bank does?

Subject

A modified advisory opinion to Philip L. Krevitsky, C.P.A., replacing the final two paragraphs of the original TSB-A-89(15)C to clarify how a domestic bank's International Banking Facility (IBF) interbranch income and expenses should be reflected in its New York entire net income base.

Plain-English summary

This is a modification of an earlier advisory opinion (TSB-A-89(15)C, originally issued December 18, 1989) to the same petitioner. After re-examining the facts, the Department replaced the opinion's last two paragraphs with new guidance, without disturbing anything else in the original ruling.

The background: in a separate 1988 opinion (Hessische Landesbank-Girozentrale, TSB-A-88(12)C, later modified in 1990), the Department had ruled that an alien (foreign) bank operating a New York International Banking Facility (IBF) needs to adjust its federal taxable income to properly capture interbranch income and expenses tied to computing its IBF's eligible net income — otherwise its New York income wouldn't be accurately reflected, since much of a foreign bank's income and books sit outside the U.S. federal tax system entirely.

This modified opinion draws the contrast for a domestic bank: when a domestic bank applies the standard IBF modification, the statutory computation already properly and accurately reflects its entire net income allocated to New York. Because a domestic bank's income (unlike an alien bank's) is already captured through ordinary federal taxable income reporting, there's no need for the extra adjustment that alien banks must make.

What this means for you

Domestic banks with New York International Banking Facilities

If you're a domestic (U.S.-chartered) bank using the standard IBF modification to compute your Article 32 entire net income, this ruling confirms you do not need to make an additional adjustment for interbranch IBF income and expenses — the statutory computation alone properly reflects your New York income. This is a materially simpler position than an alien bank operating a New York IBF, which does need the extra adjustment (per the Hessische Landesbank-Girozentrale opinions).

Accountants preparing Article 32 returns for banks with IBFs

Keep the domestic-vs-alien-bank distinction straight when computing entire net income for a bank with a New York IBF: domestic banks rely on the ordinary statutory computation; alien banks need the Commissioner's discretionary adjustment under Tax Law § 1462(g) to accurately reflect interbranch income. Don't apply the alien-bank adjustment to a domestic bank's return, or vice versa.

Readers of the original TSB-A-89(15)C

This modification only replaces the final two paragraphs of the original opinion — everything else in TSB-A-89(15)C remains in effect. If you're relying on the original ruling, use this modified version's conclusion on the domestic-bank IBF question instead of the original's superseded language.

Common questions

Q: Does a domestic bank need the same federal-income adjustment as an alien bank operating a New York IBF?
A: No. This modified opinion confirms domestic banks using the standard IBF modification already properly reflect their New York income without an extra adjustment — unlike alien banks, which do need one per the Hessische Landesbank-Girozentrale opinions.

Q: Why was the original opinion modified?
A: The Department states it "reexamin[ed] the facts as presented by Petitioner" and replaced the final two paragraphs; the modification doesn't identify a specific error, only a re-evaluation leading to the substituted conclusion.

Q: Can another bank rely on this ruling?
A: No. This advisory opinion binds the Department only for the taxpayer and facts presented, and cannot be relied on by anyone else.

Citations and references

Statutes and regulations:

• Tax Law § 1462(g) (Commissioner's discretion to properly and accurately reflect a taxpayer's income within New York State)
• Referenced prior opinions: Hessische Landesbank-Girozentrale, TSB-A-88(12)C (May 16, 1988, modified November 8, 1990) — alien bank IBF interbranch income adjustment
• Original opinion modified: TSB-A-89(15)C (December 18, 1989)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1989.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a89_15_1c.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-89(15.1)C
Corporation Tax
November 9, 1990

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
MODIFIED ADVISORY OPINION

PETITION NO. C890606A

On December 18, 1989, an Advisory Opinion was issued to Philip L. Krevitsky, C.P.A., 27
Park Avenue, New York, New York 10172. (TSB-A-89(15)C)
After reexamining the facts as presented by Petitioner, Philip L. Krevitsky, C.P.A., said
Advisory Opinion is modified by annulling the last two paragraphs contained therein and substituting
the following paragraphs.
In an Advisory Opinion of the Commissioner of Taxation and Finance issued to Hessische
Landesbank-Girozentrale on May 16, 1988, he concluded that to properly and accurately reflect the
alien bank's income within New York State, it was necessary for the bank to modify federal taxable
income to recognize the interbranch income and expenses that were included in the computation of
the eligible net income of its New York IBF. (Hessische Landesbank-Girozentrale, Adv Op Comm
T & F, May 16, 1988 (TSB-A-88(12)C). On November 8, 1990, said opinion was modified to
indicate that the conclusion reached for taxable years beginning on or after January 1, 1985, was also
reached by the Commissioner exercising his discretion granted by section 1462(g) of the Tax Law
to properly and accurately reflect the Petitioner's income within New York State.
Herein, when the domestic bank utilizes the IBF modification, it is concluded that the
legislative intent of the IBF legislation has been met and that the bank's entire net income allocated
within New York State is properly and accurately reflected when statutorily computed. Therefore,
it is not necessary to modify the domestic bank's federal taxable income by making an adjustment,
similar to the adjustment required of an alien bank in the Hessische Landesbank-Girozentrale
Advisory Opinion.

DATED: November 9, 1990

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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

TP-9 (9/88)