William and Mary Yuriko Kochiyama asked whether the $20,000 restitution payments they were entitled to receive under the federal Civil Liberties Act of 1988, for the U.S. government's internment of Japanese Americans during World War II, are subject to New York State and New York City personal income tax.

Plain-English summary

William Kochiyama and Mary Yuriko Kochiyama asked the Department whether restitution payments they were entitled to receive under the federal Civil Liberties Act of 1988 would be subject to New York State and New York City personal income tax.

The Civil Liberties Act of 1988 (Pub. L. 100-383) was signed into law on August 10, 1988. It formally acknowledged and apologized for the United States government's fundamental violations of the civil liberties and constitutional rights of individuals of Japanese ancestry during World War II - the internment of Japanese Americans - and authorized restitution payments to those affected, along with funding for a public education program intended to help prevent any recurrence. Under Section 104(c) of the Act, the U.S. Attorney General was authorized to pay $20,000 in restitution to each eligible individual, and both petitioners were eligible for that payment.

The Department held that these restitution payments are not subject to either New York State or New York City personal income tax. The key was Section 105(f) of the Civil Liberties Act itself, which provides that amounts paid to an eligible individual "shall be treated for purposes of the internal revenue laws of the United States as damages for human suffering" - meaning Congress directed that this restitution be excluded from federal adjusted gross income, the same way damages for personal injury or human suffering generally are. Because Tax Law § 612 defines New York adjusted gross income as federal adjusted gross income with certain listed modifications, and none of those modifications applies to this type of payment, restitution that is never included in federal adjusted gross income in the first place is also never included in New York adjusted gross income or New York taxable income. Since Tax Law § 1303 defines New York City resident taxable income as the same as New York State taxable income (as defined in Tax Law § 611), the same conclusion follows for city tax: because the restitution isn't in New York taxable income, it isn't in New York City taxable income either, and so it isn't subject to New York City personal income tax.

What this means for you

Recipients of federal reparations or restitution payments

If you received restitution under the Civil Liberties Act of 1988 for the WWII Japanese American internment, that payment is not taxable income for New York State or New York City personal income tax purposes. Because the exclusion flows from the payment never being included in federal adjusted gross income in the first place, you generally would not report it as income on your New York return at all - it simply isn't part of the federal AGI figure that New York's income tax starts from.

Recipients of other federally authorized restitution or reparations programs

The specific outcome here depends on the particular federal statute authorizing the payment. Congress does not always include language like Section 105(f) of the Civil Liberties Act, which expressly characterizes the payment as "damages for human suffering" excluded from federal gross income. Before assuming a different restitution or reparations payment is tax-free, check whether the authorizing federal statute contains a comparable tax-characterization provision, or whether the payment would otherwise qualify for exclusion under general federal tax principles (such as the exclusion for damages received on account of personal physical injury).

Accountants and tax preparers

Because New York's personal income tax is built on federal adjusted gross income, a client's federal tax treatment of an unusual payment often is the entire analysis for New York purposes. When advising a client who received restitution, reparations, or a similar payment authorized by a specific federal statute, start by reading that statute's own text (as here, with Section 105(f) of the Civil Liberties Act) to see whether Congress directed a particular federal tax treatment - and then check Tax Law § 612 to confirm none of its listed modifications requires adding the payment back into New York income.

Common questions

Q: Why doesn't this restitution show up on my New York tax return at all?
A: New York adjusted gross income starts from federal adjusted gross income (Tax Law § 612) and city taxable income starts from New York taxable income (Tax Law § 1303). Because Section 105(f) of the Civil Liberties Act of 1988 directs that this restitution be treated as damages for human suffering for federal tax purposes, it is never included in federal adjusted gross income to begin with. Since it's never in the starting figure, and none of the addition modifications in Tax Law § 612 brings it back in, it never appears in New York adjusted gross income, New York taxable income, or New York City taxable income.

Q: Does New York have its own separate exemption for this restitution?
A: No. New York did not need to create a special exemption. The exemption is a byproduct of New York's general rule that state and city income tax follow federal adjusted gross income, combined with Congress's own decision (in Section 105(f) of the Act) to exclude the restitution from federal gross income.

Q: Would this same reasoning apply to restitution paid to the estate of someone who was eligible but died before receiving payment?
A: This opinion only addresses the facts presented by these two petitioners, both of whom were living, eligible individuals entitled to receive the $20,000 restitution directly. It does not address payments made to a surviving spouse or estate under other provisions of the Act, which involve different facts.

Q: Is this opinion good authority for a similarly situated taxpayer today?
A: This advisory opinion is binding only on the Department with respect to the petitioners who requested it, and only based on the facts as they described them. Other taxpayers who received Civil Liberties Act of 1988 restitution can look to the same reasoning, but the opinion does not bind the Department as to anyone else, and confirming your own facts and any subsequent changes in law with a tax professional is still advisable.

Q: What was the amount of restitution at issue, and who authorized it?
A: Section 104(c) of the Civil Liberties Act of 1988 authorized the U.S. Attorney General to pay $20,000 in restitution to each eligible individual. Both William Kochiyama and Mary Yuriko Kochiyama were found eligible for that payment.

Citations and references

• Civil Liberties Act of 1988, Pub. L. 100-383, § 104(c) - authorizes the U.S. Attorney General to pay $20,000 in restitution to each eligible individual
• Civil Liberties Act of 1988, Pub. L. 100-383, § 105(f) - directs that restitution paid under the Act be treated for federal tax purposes as damages for human suffering, excluding it from federal gross income
• Tax Law § 612 - defines New York adjusted gross income as federal adjusted gross income with specified modifications, none of which applies to this restitution
• Tax Law § 611 - defines New York taxable income, incorporated by reference into Tax Law § 1303
• Tax Law § 1303 - defines New York City resident taxable income as the same as New York State taxable income

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1989.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a89_3i.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-89 (3) I
Income Tax
March 10, 1989

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. I890105A

On January 5, 1989, a Petition for Advisory Opinion was received from William Kochiyama
and Mary Yuriko Kochiyama, 545 West 126th Street, Apartment 3B, New York, New York 10027
The issue raised is whether restitution to Petitioners under the Civil Liberties Act of 1988,
Public Law 100-383, will be subject to New York State personal income tax and New York City
personal income tax on residents.
The Civil Liberties Act of 1988 was signed into law on August 10, 1988. The purpose of the
Act is to acknowledge and apologize for the fundamental violations of basic civil liberties and
constitutional rights of individuals of Japanese ancestry during World War II, to make restitution,
and to fund a public education program to prevent the recurrence of any similar event in the future.
Under Section 104(c) of the Act, the United States Attorney General is authorized to make
restitution in the amount of $20,000 to eligible individuals. Both Petitioners are eligible for
restitution pursuant to the Act.
Section 105 (f) of the Civil Liberties Act states that: "Amounts paid to an eligible individual
under this section (1) shall be treated for purposes of the internal revenue laws of the United States
as damages for human suffering;...
Section 612 of the Tax Law states that: "[t]he New York adjusted gross income of a resident
individual means his federal adjusted gross income as defined in the laws of the United States for
the taxable year, with the modifications specified in this section."
The modifications contained in Section 612 require various additions to and subtractions
from federal adjusted gross income in arriving at New York adjusted gross income. None of the
modifications contained in section 612 of the Tax Law pertain to the payments here at issue.
Accordingly, if Petitioners are not required to include amounts received under the Civil
Liberties Act in their federal adjusted gross income, such amounts would not be included in their
New York adjusted gross income or New York taxable income and would, therefore, not be subject
to New York State personal income tax.
Section 1303 of the Tax Law states that: "[t]he city taxable income of a city resident
individual shall mean and be the same as his New York taxable income as defined in section six
hundred eleven of this chapter."

-2­
TSB-A-89 (3) I
Income Tax
March 10, 1989

Accordingly, if payments received under the Act are not included in their New York taxable
income, then such amounts would not be included in their New York City taxable income. Thus,
the payments would not be subject to New York City personal income tax.

DATED: March 10, 1989

s/FRANK J. PUCCIA
Director
Technical Services

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