October 2000

New York City Tax Appeals Tribunal Updates

By Steven Steckler, Raines & Fischer

Three recent cases decided by the New York City Tax Appeals Tribunal provide answers to questions that are of interest to tax practitioners with clients with New York City income:
  • Is income reported on a limited partnerís W-2 for federal purposes subject to New York City unincorporated business taxable income (UBTI)?
  • Are a tenantís deductions from base rent for rebates allowed for commercial rent tax purposes?
  • Do lottery winnings of New York City residents remain taxable when they move from the city?

    Miller Tabak

    The first case involves the petition of Miller Tabak & Co. [New York City Tax Appeals Tribunal, TAT(E) 94-173 (UB), March 30, 1999]. Miller Tabak & Co., a limited partnership engaged in various aspects of the securities business, regularly designated certain key employees as special limited partners (SLPs) in recognition of their contributions to the company and issued them W-2s for services rendered, deducting these payments against UBTI as salaries. The SLPs had no control over the strategic direction of the company. The city disallowed the payments to the SLPs because they were nondeductible payments to partners. The company argued that the individuals involved had dual status as both SLPs and employees and that payments made to them as employees should be deductible as compensation to partners not acting in that capacity. The city responded that the payments to partners for services are not deductible, regardless of whether the individuals are also employees. The court concluded that under NYC Code sectio n 11-507(3), amounts paid to a partner for services or the use of capital includes payments to a partner not acting in the capacity of partner. Therefore, such payments are not deductible for New York City purposes regardless of their federal classification.


    The New York City Tax Appeals Tribunal decided the second case dealing with Admar Research, Incorporatedís tenantís deduction on March 2, 1999 [TAT(E) 94-137 (CR)]. The case began on April 1, 1987, when Admar and its landlord signed two agreements:

  • A rental agreement for seven years and four months.
  • A work letter agreement allowing Admar a seven-year extension on its lease if it renovated and refurbished the premises. Although not obligated to make any improvements, Admar could choose any leasehold improvements as long as they were in accordance with plans and specifications reasonably acceptable to the landlord. The landlord agreed to pay Admar a sum of money in installments over the initial term of the lease whether or not the renovations were made.

    Admar argued that the two agreements should be considered as one and commercial rent tax (CRT) should be paid on the net payment to the landlord. The city disagreed, asserting that the commercial tax should be paid on the gross rent as stated in the rental agreement because the two agreements were separate and distinct. The lower court took Admarís side, ruling that both agreements should be viewed as one and CRT should be paid on the net. However, the Tax Appeals Tribunal ruled that the two documents were separate and distinct and, therefore, payments received under the work letter agreement could not offset rental payments under the lease for CRT purposes.


    The third case, involving the taxability of Edison Blancoís lottery winnings in New York City, was settled by the New York State Division of Tax Appeals (DTA No. 815813). Blanco won a lottery prize on March 28, 1992, while a resident of New York City. He elected to take the prize in installment payments and agreed to have New York City tax withheld on the entire prize in the case of a change in residence. He and his spouse moved to Yonkers, N.Y., on July 24, 1992, where they continue to reside. Blanco received his initial payment in mid-April, and his subsequent annual installments in mid-March of succeeding years. He reported the initial installment on his joint 1992 New York State and New York City tax return and paid state and city tax. In 1993, however, he paid state and Yonkers tax, but not New York City tax. The New York State Division of Taxation and Finance assessed New York City tax on the 1993 installment and Blanco paid the assessment. Blanco paid both Yonkers and New York City tax on the 1994 and 1995 installments. He subsequently filed refund claims for the City of New York resident tax and the City of Yonkers income tax surcharge paid for 1993, 1994, and 1995. These claims were neither granted nor denied. The DTF took the position that Blanco should accrue the face amount of the remaining installments on the 1992 return. Blanco countered with the argument that the lottery installments should be treated as intangible property, rather than money, with tax levied on the present value of the prize at the date of relocation. The court rejected Blancoís present value argument, ruling the entire prize subject to New York City tax. However, the court granted some relief by ruling that the City of Yonkers income tax surcharge did not apply to Blancoís lottery winnings.

    State and Local Editor:
    Barry H. Horowitz, CPA
    Eisner & Lubin LLP

    Interstate Editor:
    Nicholas Nesi, CPA
    BDO Seidman LLP

    Contributing Editors:
    Henry Goldwasser, CPA
    M.R. Weiser & Co. LLP

    Steven M. Kaplan, CPA
    Kahn, Hoffman, Nonenmacher & Hochman LLP

    John J. Fielding, CPA
    PricewaterhouseCoopers LLP

    Warren Weinstock, CPA
    Marks Paneth Shron LLP

    This Month | About Us | Archives | Advertise| NYSSCPA

    The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.

    ©2009 The New York State Society of CPAs. Legal Notices

    Visit the new