can i ask you just as a preliminary matter i know i think there's something in the record here at this particular situation and under new york law there's since been and then said that this particular way of doing tax credits no longer exists on the as there have been a number of amendments to new york law all in the original i think a version that covered both a slight preparation costs and changeable property costs which would be the building new york has s limited parts of portions of the credit to i guess cut down on the number of credits for a pencil property the the other a minute that they made is the revenue from revenue concerns caused them to the first of the payments and we see that happening in this case or is generally when you follow the tax returns of the folks or the taxpayer if your father tax returns they should have been entitled to receive conspiracy to involving labeled used by the ginsburg and and new york this was the court's terminology spear see by that or you're you're offended by that well i think that i don't think there's anything i mean i think the issue here is the judge or the judge hodges seem to believe that the refundable the fact that this is refundable credit was  terminology manipulate is a pretty strong term and here is used at both the taxpayers and the state can you manipulate the tax laws in a lawful fashion i thought that's what they were designed for well i'm sorry for the refundable credits meaning that there is a portion of it that's applied to the tax liability and there's a portion of it that's refundable it is designed in a way that effects so in this instance used let's say you have a piece of property in the state refund some of your taxes let's say that the foundation has two million dollars and they refund five hundred thousand dollars right that you paid in new york taxes so that under well established federal income tax all of the recovery of capital doctrine that's it that portion is were is a recovery of capital by definition which is not taxable it is a reduction in the basis of the property the million and a half stays invested it is a reduction of basis it works exactly like the federal income tax code which which if you're looking at capital counts tax fall for the section twenty one of the new york  half million is is the refundable portion which is a reduction of basis it is not taxable income for federal income tax purposes because the recovery of capital doctrine it is the government uses the sale scenario i buy stock two years ago i sell the stock today my basis said that was a say eighty dollars today i'm selling it for one hundred dollars i'm pocketing doctrine that's not a sale either well well well well hang on you're confusing me because in i asked you if there's a restriction you said no on how they can spend the money but in the  recovery of couple purposes what i would say here the credit sure they can spend that they may have to repay head over there is the restrictions here unlike the off the shelf credit that i think drawn or referred to earlier this is not off the shelf this is there is a ground to clean up agreement with the state rights we'll take yourself off the pavement so the the limit tech is there any limitation be a restriction beyond recruiting the payment is there fraud or something like that there is said i think the government even says for good cause which is quite brought there is just sort of not in the nature of fraud necessarily but if you're not doing what the commitment with the state was in order for you to get that benefit at anything beyond that term so there's an property right that that if there's a violation of what the agreement to the understanding was between the owners and the stay that's the circumstance i'm asking if there's any other restriction on your use just like any other recovery of capital once i've received it can you answer my question they can explain it but is that is there any restriction beyond some recoupment of payment if there's a violation what the understanding was of the party there are restrictions in this case i'm saying that my our position is that is not roland close on the glynn short last which government is relying upon there is the first requirement succession of wealth that's where the recovery of capital doctrine comes and and we don't satisfy that that requires not satisfy we win on that basis although that requirement complete the million is the lack of restrictions that's the third requirement in the clinch shop class which says that the taxpayer must have complete  the income and our answer to that here in this case is the taxpayer doesn't have complete dominion we're using my example of putting down the foundation for my vision and that is presumption that they've been properly inspected and they did in the building perceive at that point in time there's an initial the the certificate of completion that gives the tax the tax division in new york the oh your honor the the mean argument here as to why this is not income appears to be that we're trying to capital doctrine that the taxpayers are relying on your honor this there is no precedent for applying this this doctrine in this type of instance where it is relevant in terms of a capital asset like a building here is when there's a sale and as your honour's it appeared to perceive that there is no sale here there turn it capital doctrine just doesn't apply and there is no general print principle that you don't have to pay tax until you cover in your initial investment now was one of the examples that came up with stock which i think makes a good point because  we can we determine that there is not a return to capital because the ginsburg cab rufio producing wealth for them through the property that's correct your honor and they would recover their capital when they sell it time it's currently they're receiving rental payments maybe other fees any other type of money that they take in at this time they have to pay taxes in fact the basis of their property having been reduced right right go back to the stock example that would be another issue where you receive a dividend that doesn't reduce your basis you have to pay tax on it when that happens just as you would as they would with france or anything else in this example  and a contrary result would essentially would leave would allow states and private parties to redefine the scope of income to the detriment of the federal tax system which i believe your hono is living in new york and the other isn't clearly they're not going to have a large state tax liability so very likely but obviously new york didn't think of it this way which is we want to give benefit to people who are really doing a lot of business in new york but it's far is the federal fifth what is it i mean why are we distinguishing between people who live in one state and people who live in the same state essentially distinction is just that those who have to have a state tax bill and those who don't otherwise they forfeited as the ginsburg did in this case you mean in terms of the tax it ends up being federal taxable under the federal code is because they didn't have enough offset because it becomes paid out right if you're in a difference so it's not fundable credit and generally speaking can be carried forward to future years which is probably the way it would work in a different state system but our position is essentially it doesn't really matter what state it is if the state is coming up with this type of system  if you want to do it as a tax credit and you don't want to have them after a federal taxes on it then it should be not refundable say credit but there are different ways to subsidize different projects i'm sure this is going are some variation of this goes all around the country are you specifically aware of states other than new york who have similar situation i mean it's kind of odd that this is like an issue that hasn't been decided yet and one of the things that may different state a having this type of refundable tax credit there may have been a reference somewhere in some guidance and one of the briefs that have to do with  example of recovery of capital there's a case for the blame company that deals with a situation where he would have an easement that might be taken of the property there are multiple occasions where in this particular property it is not unique the seller may treat the full amount of the payments as they are received as a return of capital only those payments that are received after isn't higher basis has been recovered must be reported as income how does your return of capital there a fit into that example what payment did you make to the paper that now being returned or again there are numerous examples and that's one example the return of capital sale is but in the sale says this situation and there are in there very few papers down below that in reality the credit is designed to reimburse the taxpayers capital expenditures that is very important because that is a recovery of capital and you get to recover that capital by reducing your basis in the property and it you know in many cases this is not an expense the government says the facts benefit rule we should have a space this is a base for this property reduced was a reduced if it's reduced through a mechanism where in this case that we will not get adult when i get a windfall tax personal note i get a windfall it's depreciation allowances will get reduced because there was depreciation that would have been with a full basis you have to reduce that depreciation allowances to account for the fact that here this was a reimbursement a return to capital and that's important because that happens at this point in time when there's an element sale down the road the game will be bigger as a result of that if i  york structured this this transaction and there's a sonobuoy case contrary to this case the government's position with federal tax credits that are refundable is that they are not included one taxation