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Volume 11 - Opinions of Counsel SBRPS No. 56

Opinions of Counsel index

Senior citizens exemption (income requirement) (cancellation of debt) - Real Property Tax Law, § 467:

The amount of a cancelled debt is not income for purposes of the senior citizens exemption.

Our opinion has been requested concerning the income requirement of the senior citizens exemption (Real Property Tax Law, § 467(3)(a)). With her application for the exemption, a taxpayer submitted an Internal Revenue Service Form 1099-C which she apparently received from a finance company. Form 1099-C is used for reporting the cancellation of a debt. In this case, the applicant’s $9,692.39 debt was seemingly cancelled during 2003, and the question is whether any or all of this amount should be considered as part of the applicant’s 2003 income in determining her income eligibility for the exemption.

For income tax purposes, “[a] taxpayer is generally treated as realizing taxable income if a debt he owes is forgiven . . .” (33A Am Jur2d, Federal Taxation (2004) ¶ 12890). If the debt is a nonbusiness debt, the cancelled amount is reported as “Other income” (2003 Form 1040, line 21) (Internal Revenue Service Publication 17 (for use in preparing 2003 returns), p.93). There are some exceptions to the inclusion of cancelled debt in income, but, for purposes of this inquiry, we assume none is relevant here.

Section 467(3)(a) sets forth a quite inclusive definition of what is and what is not income for purposes of that exemption. In 11 Op.Counsel SBRPS No. 6, we quoted 1 Op.Counsel SBEA No. 87: “the apparent intention of the Legislature in providing for the income requirement [of § 467] was to exclude anyone who had a certain amount of cash accruing to him with which to meet expenses during the income tax year immediately preceding the date of making application for the exemption.” {1}  Here, while the applicant’s personal liabilities may have been reduced by the cancellation of her debt, she has not accrued additional cash as a result. We note, too, that if the debt had not been cancelled, and had she continued to make payments thereon during 2003, she would not have been permitted to reduce her measurable 2003 section 467 income by the amount of those payments. Accordingly, in our opinion, the amount of a cancelled debt is not income for purposes of the senior citizens exemption. {2}

March 25, 2004

{1}  We have consistently stated that whether moneys received are taxable or nontaxable for income tax purposes is not dispositive of the issue of inclusion or exclusion for purposes of the senior citizens property tax exemption (Engle v. Talarico, 33 N.Y.2d 237, 306 N.E.2d 796, 351 N.Y.S.2d 677 (1973)).

{2}  Note that we are not addressing how cancellation of a debt affects eligibility for the enhanced school tax relief [STAR] exemption (RPTL, § 425(4)), the income requirement of which (§ 425(4)(b)(ii)) differs substantially from that of the senior citizens exemption.