Refundable State Tax Credits Are Included in Federal Income

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March 11 — Refundable state economic development tax credits must be included in the recipient's federal income regardless of state law labeling the credits as “overpayments” of past tax (Maines v. Commissioner, T.C., No. 14699-12, 144 T.C. No. 8, 3/11/18).

In a March 11 division opinion, the U.S. Tax Court held that New York state economic development credits must be included in the recipient's federal gross income to the extent they are refundable and that the recipient benefited from previous deductions for the tax payments.

Judge Mark V. Holmes said that New York-qualified empire zone enterprise (QEZE) investment and wage tax credits refunded to taxpayers to the extent the credits exceed the taxpayers' liability was an accession to wealth that must be included in federal gross income under tax code Section 61.

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