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Tax Alert: Recent New York Decision: Nonresident Partners Taxed on 100 Percent of Income Derived from Sale of New York Real Property


In a recent New York State Tax Appeals Tribunal ("TAT" or "Tribunal") decision, Matter of Ronald K. and Maxine H. Linde, DTA #823300, May 24, 2012, the TAT affirmed an administrative law judge's ("ALJ") determination holding that the New York State Department of Taxation and Finance ("Department") properly allocated to New York the taxpayers' share of income derived from the sale of New York real property.

The petitioners, Arizona residents, were partners in a partnership that owned hotels in several jurisdictions, including New York. The partnership sold two of its New York properties and apportioned the entire gain using the three-factor apportionment formula. The TAT, in affirming the ALJ's decision, held that the gains from the sale of New York real estate were not apportionable using the three-factor apportionment formula, but should be treated as entirely allocable to New York since the properties were situated within the state.

The Tribunal held that regulation section 132.16, which requires that gains from the sale or exchange of real property are to be considered as entirely derived from the situs of the real property, controls and that the gain on the sale of the New York real property sold is allocable to New York State. The Tribunal rejected petitioner's constitutional argument that such regulation violated interstate commerce or discriminated between resident and nonresident individual partners.

Nonresident partners in partnerships owning real property should take note of this decision and should report any gain derived from the sale of real property as either entirely allocable to New York or out of New York, depending on the location of real property.

For more information on the this decision or other state and local tax matters, please contact Corey L. Rosenthal, JD, director in the Firm's State and Local Tax Practice, at crosenthal@jhcohn.com or 646-625-5729, or Patrick J. Duffany, CPA, JD, partner and director of the Firm's State and Local Tax Practice, at pduffany@jhcohn.com or 860-368-3607.

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Circular 230 Notice: In compliance with U.S. Treasury Regulations, the information included herein (or in any attachment) is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of i) avoiding penalties the IRS and others may impose on the taxpayer or ii) promoting, marketing, or recommending to another party any tax related matters.

This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and J.H. Cohn LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

Published date: 6/22/2012

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