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Volume 11 - Opinions of Counsel SBRPS No. 19

Opinions of Counsel index

Senior citizens exemption (income requirement) (railroad retirement benefits) - Real Property Tax Law, § 467:

The social security equivalent benefit of railroad retirement (reported on RRB-1099), like social security itself, is income for senior citizens exemption purposes. That portion of a railroad retirement that is a non-social security equivalent benefit (reported on RRB-1099-R) should be treated as other retirement benefits; that is, any portion not representing a return of capital should be considered income.

Our opinion has been requested concerning the income requirement of the senior citizens exemption (Real Property Tax Law, § 467). The question pertains to the recipient of railroad retirement benefits.

In relevant part, section 467(3)(a) defines “income” as including “social security and retirement benefits . . . but shall not include a return of capital. . . .” The portion of a pension or annuity distribution, which constitutes a return of principal (the original investment), is not income for exemption purposes since it merely represents a return of capital. Only that portion of the payment that represents interest, capital gains, or the like, would be considered income.

Railroad retirement benefits (45 USCS § 231 et seq.), though not identical to social security benefits, bear a close relationship thereto. Internal Revenue Service Publication 575 discusses railroad retirement benefits. From this, it appears that the social security equivalent benefit on Form RRB-1099 should be treated like social security for purposes of section 467 (see also, 33A Am Jur2d, Federal Taxation (1999) ¶13002).

According to the same publication, the Form RRB-1099-R is used to report non-social security equivalent benefits. Based on Publication 575’s discussion of this form, the “total gross paid” (Box 7) would seem to be a “retirement benefit.” Unless the taxpayer can prove that all or a portion of these payments represent a return of capital, these payments would appear to constitute “income” within the meaning of section 467(3)(a). As stated in the instructions to the Internal Revenue Service Form 1040 (for 1999 returns), “If your pension or annuity is partially taxable and your Form 1099-R does not show the taxable part, you must use the General Rule to figure the taxable part.” For certain pensions, however, the so-called Simplified Method may (or, for some pensions, must) be used. A Simplified Method worksheet is included in the instructions. {1}

The burden of proving exemption eligibility is on the applicant, and that includes proving that some portion of a pension constitutes a return of capital and therefore is not income for purposes of section 467. If the taxpayer in question is unable to make the computation, he or she may wish to ascertain if any assistance is available from the Railroad Retirement Board.

December 22, 1999

{1}  That the process of determining the taxable part of a pension can be somewhat difficult is evidenced by the fact that the instructions (for 1999 returns) state that the IRS will compute the taxable part for the taxpayer - for an $80 fee.