The Department had told MC Minerals Corporation and Mitsubishi International Corporation, in a March 1981 Advisory Opinion, that interest paid on funds borrowed from a related stockholder and re-lent could escape the section 208.9(b)(5) interest add-back if a four-part pass-through test was met. Two and a half years later, having concluded that answer was legally wrong, does the Department revoke the ruling -- and does that revocation reach back and undo the taxpayer's past reliance?

Plain-English summary

This is a third instance of the October 6, 1983 coordinated revocation wave already documented in this corpus through the Kowa Realty (TSB-A-81(9.1)C) and MCF Footwear/Mitsubishi (TSB-H-81(20.1)C) revocations. In March 1981, the Department had told MC Minerals Corporation and Mitsubishi International Corporation, in TSB-H-81(21)C, that a four-condition pass-through/conduit test could let MC Minerals escape the § 208.9(b)(5) interest add-back on funds borrowed from its shareholders (Mitsubishi International and its own Japanese parent, Mitsubishi Corporation) and re-lent to fund a copper-mining joint venture.

By late 1983, the Department had concluded this was wrong: § 208.9(b)(5) requires the add-back in ALL cases except the four exceptions explicitly written into subparagraphs (i) through (iv) -- there is no room for a substance-based conduit exception, however reasonable it seemed. The Department formally REVOKED the March 27, 1981 ruling, attaching TSB-M-83(24)C to explain the corrected rule, and -- as with the parallel Kowa Realty and MCF Footwear revocations issued the exact same day -- made the correction PROSPECTIVE ONLY under Tax Law § 171, paragraph 24, so MC Minerals's past reliance on the original ruling wasn't retroactively penalized.

What this means for you

This is now the THIRD documented instance of the October 6, 1983 revocation wave

Together with Kowa Realty and MCF Footwear/Mitsubishi International, this ruling shows the Department systematically revoking every prior pass-through-interest ruling it had issued across multiple, unrelated corporate families on the same day -- strong evidence of a deliberate, coordinated policy correction rather than an isolated case-by-case reconsideration.

Multiple related entities in the same corporate family can each need separate corrective attention

MC Minerals and its sibling company MCF Footwear (both partly owned by Mitsubishi International/Mitsubishi Corporation) each had their OWN separate pass-through rulings, and each required its OWN separate revocation -- even though the underlying legal question and correction were identical across both.

Common questions

Q: If I relied on the original 1981 pass-through ruling for periods before this revocation, am I at risk?
A: Under Tax Law § 171, paragraph 24, the revocation applies prospectively only, so reliance for periods before October 6, 1983 was not retroactively penalized.

Q: Does this affect MCF Footwear's separate ruling too?
A: MCF Footwear and Mitsubishi International Corporation received their own, separate revocation the same day -- see TSB-H-81(20.1)C.

Citations and references

Statutes and guidance:

• Tax Law § 208.9(b)(5)(i)-(iv)
• Tax Law § 171, paragraph 24
• TSB-M-83(24)C

Related rulings (same October 6, 1983 doctrinal correction):

• TSB-H-81(21)C -- the original March 1981 ruling this revokes
• TSB-A-81(9.1)C -- the Kowa Realty revocation, same date
• TSB-H-81(20.1)C -- the MCF Footwear/Mitsubishi revocation, same date
• TSB-A-82(15.1)C -- the Ore and Chemical Corporation modification, same date
• TSB-A-83(15)C and its six identical-boilerplate companions -- the seven-ruling batch applying the corrected rule to pending petitions, same date

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/h81_21_1c.pdf

Original ruling text

New York State Department of Taxation and Finance

TSB-H-81(21.1)C
Corporation Tax
May 9, 1984

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
STATE TAX COMMISSION
MODIFIED ADVISORY OPINION

PETITION NO. C810225B

On March 27, 1981 an Advisory Opinion was issued to MC Minerals
Corporation, 277 Park Avenue, New York, N.Y. 10172 and Mitsubishi International
Corporation, 277 Park Avenue, New York, N.Y. 10172 (TSB-H-81(21)C).
The Advisory Opinion indicated that under specified circumstances the
interest add-back requirement contained in section 208.9(b)(5) of the Tax Law
would not apply. It has been subsequently determined that such does not represent
a proper interpretation of the statute. Rather, an interest add-back is required
in all cases except where explicitly excluded by section 208.9(b)(5)(i) through
(iv) of the Tax Law. Accordingly, the decision reached in the Advisory Opinion
of March 27, 1981 is hereby revoked. See TSB-M-83(24)C, which is attached hereto
and is made part of this Advisory Opinion. It is to be noted, further, that in
accordance with section 171, paragraph twenty-fourth of the Tax Law, this
modification has prospective application only.

DATED: October 6, 1983

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

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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