‘Flat Sum’ Settlements

An ‘End Run’ Around New York's Reporting Requirements?

Garrett L. Brodeur, , JD, LLM

In computing a state resident's adjusted gross income for personal income tax purposes, New York, like many states, starts with the individual's federal adjusted gross income and makes certain additions or subtractions to arrive at the individual's state taxable income [N.Y. Tax Law sections 607(a), 612(a)]. This federal-state conformity simplifies tax administration and makes compliance easier for taxpayers. It also benefits state taxing authorities by allowing them to track federal audit adjustments and “take a bite of the apple” when state residents are assessed additional federal taxable income. To facilitate this tracking, New York Tax Law section 659 requires state taxpayers to report certain adjustments to their federal taxable income to the New York State Department of Taxation and Finance (DTF).