For a foreign bank's New York branch, are transactions between its New York international banking facility (IBF) and its own foreign branches counted as 'total assets' when computing the Article 32 asset-based alternative minimum tax?

Plain-English summary

Bank Hapoalim B.M., an Israeli bank running a banking business through New York City branches, also operates a New York international banking facility (IBF) -- a special banking unit that conducts transactions with foreign customers and, here, with the bank's own foreign branches and other IBFs. The bank asked whether those interbranch transactions between the New York IBF and its own foreign branches count as "total assets" when computing Article 32's asset-based alternative minimum tax.

The bank used two different accounting methods across the years at issue: the IBF modification method (section 1453(f)) for 1987, deducting the IBF's eligible net income directly from entire net income, and the IBF formula allocation method (section 1454(b)(2)) for 1985-1986, instead treating the IBF as if it were a non-New York branch for allocation purposes (which itself already excludes IBF-to-foreign-branch transactions from the entire net income allocation percentage).

The Department found a consistent two-part test controls "total assets" regardless of which method was used. Under section 1455(b)(1)(v)(A) and Regulations section 18-5.2(d), total assets must be (1) assets properly reflected on the bank's own GAAP balance sheet used for its financial statements, and (2) limited to those assets whose income or expense is properly reflected in either the computation of alternative entire net income or the computation of the IBF's eligible net income. Interbranch items between the New York IBF and the bank's foreign branches don't satisfy that second, limiting condition -- so they're excluded from total assets for the asset-based AMT in all the years at issue, whichever IBF accounting method the bank used that year.

What this means for you

Foreign banks operating a New York IBF

Interbranch bookings between your New York IBF and your own foreign branches (or other IBFs) don't inflate your Article 32 asset-based alternative minimum tax base, regardless of whether you use the IBF modification method or the formula allocation method in a given year -- the exclusion holds under both.

Accountants and tax professionals

The controlling test isn't simply "is it on the balance sheet" -- it's the two-part test: balance-sheet presence plus whether the item's income/expense actually flows into alternative entire net income or IBF eligible net income. An asset can appear on the GAAP balance sheet and still be excluded from "total assets" if its income/expense doesn't feed into either of those two computations.

Common questions

Q: Does switching IBF accounting methods change whether interbranch items count toward total assets?
A: No -- this ruling found the same exclusion applied consistently whether the bank used the IBF modification method (1987) or the IBF formula allocation method (1985-1986).

Q: What items ARE included in "total assets" for the asset-based AMT?
A: Assets on the bank's own GAAP balance sheet whose income or expense is properly reflected in either alternative entire net income or the IBF's eligible net income computation -- interbranch items with the bank's own foreign offices fail that second condition.

Q: Can another foreign bank with a New York IBF rely on this ruling directly?
A: No. This is a private advisory opinion binding the Department only for Bank Hapoalim B.M. on these specific facts; another bank's IBF structure and accounting elections must be independently analyzed.

Citations and references

Statutes and regulations:

• Tax Law section 1455(b)(1)(v)(A) ("taxable assets" definition for the asset-based alternative minimum tax)
• Tax Law section 1453-A (alternative entire net income)
• Tax Law section 1453(f) (IBF modification method; eligible net income)
• Tax Law section 1454(b)(2) (IBF formula allocation method)
• Franchise Tax on Banking Corporations Regulations section 18-5.2(d) (balance sheet definition)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1990.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a90_26c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-90 (26)C
Corporation Tax
December 24, 1990

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C900201B

On February 1, 1990, a Petition for Advisory Opinion was received from Bank Hapoalim
B.M., 75 Rockefeller Plaza, New York, New York 10019.
The issue raised by Petitioner, Bank Hapoalim B.M., is whether, for purposes of Article 32
of the Tax Law, interbranch items of a New York international banking facility (hereinafter
NIBF") are included in total assets when computing the asset based alternative minimum tax.
Petitioner is a bank organized under the laws of Israel and conducts a banking business in
New York through its branches in New York City. Petitioner has also established an IBF in New
York. The New York IBF,s activities include interbranch transactions between such IBF and
foreign branches of Petitioner and other IBF's of Petitioner.
For taxable year 1987, Petitioner accounted for the operations of the New York IBF by
using the IBF modification method contained in section 1453(f) of the Tax Law. Under such
modification, a taxpayer is entitled to modify its entire net income by deducting the adjusted
eligible net income of the New York IBF.
For taxable years 1985 and 1986, Petitioner accounted for the operations of the New York
IBF by using the IBF formula allocation method contained in section 1454(b)(2) of the Tax Law.
Under such method, the taxpayer, in lieu of the IBF modification method, elects to treat its New
York IBF as a non-New York branch for entire net income and alternative entire net income
allocation purposes, by treating the payroll, receipts and deposits properly attributable to the
production of eligible gross income of the New York IBF as payroll, receipts and deposits arising
outside New York State.
Section 1455(b)(1)(v)(A) of the Tax Law defines "taxable assets' as follows:
The term "taxable assets" shall mean the average value of total assets reduced by
any amount of money or other property received from or attributable to amounts
received from the federal deposit insurance corporation pursuant to subsection (c)
of section thirteen of the federal deposit insurance act, as amended, or the federal
savings and loan insurance corporation pursuant to paragraph one, two, three or
four of subsection (f) of section four hundred six of the federal national housing
act, as amended, and, for taxpayers whose total assets are comprised of twenty
percent or more of interbank placements, further reduced by an amount not to
exceed five hundred million dollars. Total assets are those assets which are
properly reflected on a balance sheet the income or expenses of which are properly
reflected (or would have been properly reflected if not fully depreciated or
TP-9 (9/88)

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Corporation Tax
December 24, 1990

expensed or depreciated or expensed to a nominal amount) in the computation of
alternative entire net income for the taxable year or in the computation of the
eligible net income of the taxpayer's international banking facility for the taxable
year.
Section 1453-A of the Tax Law defines 'alternative entire net income' as follows:
(a) Alternative entire net income means entire net income as determined
pursuant to section fourteen hundred fifty-three, except that the deductions
described in paragraphs eleven and twelve of subsection (e) of section fourteen
hundred fifty-three shall not be allowed.
(b)
Any election made pursuant to paragraph two of subsection (b) of
section fourteen hundred fifty-four with respect to the modification provided for in
subsection (f) of section fourteen hundred fifty-three shall be deemed to have been
made for purposes of computing alternative entire net income.
Section 1454(b)(2)(B) provides that when a taxpayer elects to account for the operations of
its New York IBF by using the IBF formula allocation method. transactions between the
taxpayer's IBF and its foreign branches are not considered when computing the entire net income
allocation percentage.
Section 1453(f)(1) of the Tax Law defines "eligible net income" of a New York IBF as the
amount remaining after subtracting from the eligible gross income the applicable expenses.
Eligible gross income and the applicable expenses of the New York IBF include interbranch
transactions between the IBF and foreign branches of the taxpayer.
Section 18-5.2(d) of the Franchise Tax on Banking Corporations Regulations provides that
for purposes of determining total assets, the term "balance sheet" means the balance sheet of the
taxpayer prepared from the books and records of the taxpayer in accordance with generally
accepted accounting principles and used for purposes of preparing the taxpayer's financial
statements."
Pursuant to section 1455(b)(1)(v)(A) of the Tax Law and section 18-5.2(d) of the Franchise
Tax on Banking Corporations Regulations, two criteria must be met when determining total assets
for purposes of the asset based alternative minimum tax. Total assets are (1) those assets properly
reflected on the balance sheet that is prepared from the books and records of the taxpayer in
accordance with generally accepted accounting principles and used for purposes of preparing the
taxpayer's financial statements and (2) limited to such assets, the income or expenses of which are
properly reflected (or would have been properly reflected if not fully depreciated or expensed or
depreciated or expensed to a nominal amount) in either the computation of alternative entire net
income for the taxable year or in the computation of the eligible net income of the taxpayer's IBF
for the taxable year. That is, in the case of a bank organized outside the United States, total assets

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December 24, 1990

are those assets properly reflected on the balance sheet that are effectively connected with the
conduct of a trade or business in the United States and limited to such assets, the income or
expenses of which are properly reflected in either the computation of its alternative entire net
income or the computation of its eligible net income of its IBF.
Therefore, for all years at issue, interbranch items of the New York IBF are not to be
included in Petitioner's determination of total assets for purposes of computing the asset based
alternative minimum tax.

DATED: December 24, 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.