New York Advisory Opinion TSB-A-11(5)C: Could a foreign corporation that is a general partner (with an indirect interest in a New York LLC) make the foreign corporate limited-partner separate-accounting election?

Plain-English summary

The petitioner is a foreign corporation that was the general partner of LTD, a partnership that owned an interest in Channel LLC -- a New York LLC treated as a partnership. So the petitioner had an indirect interest in a New York business. It wanted to make the separate-accounting election that lets a foreign corporate limited partner compute its tax on only its distributive share of a New York limited partnership (20 NYCRR former § 3-13.1).

The Department said no. The election is available only to a foreign corporation that is subject to Article 9-A tax solely as a result of the limited-partner provision, 20 NYCRR § 1-3.2(a)(6). Under the aggregate theory of partnerships, the petitioner -- as general partner of LTD -- was treated as owning a proportionate share of Channel LLC's assets and participating in its activities, so LTD was doing business in New York and the petitioner was taxable as a general partner under 20 NYCRR § 1-3.2(a)(5), not solely under the limited-partner rule. Because it failed the 'solely as a result of' condition, it could not make the § 3-13.1 election.

What this means for you

Foreign corporations investing through partnership tiers

The limited-partner election is narrow: it's only for corporations whose entire New York tax hook is the limited-partner provision. If you're a general partner anywhere in the chain -- even with only an indirect interest in the New York entity -- the aggregate theory makes you a general-partner taxpayer and the election is off the table.

Accountants and tax professionals

Trace the partnership tiers and identify the capacity (general vs. limited) at each level. Being a general partner of an upper-tier partnership that holds the New York interest defeats the 'solely as a result of 1-3.2(a)(6)' requirement, even though the underlying New York entity is an LLC treated as a partnership.

Common questions

Q: Who can make the foreign corporate limited-partner separate-accounting election?
A: Only a foreign corporation subject to Article 9-A tax solely because of the limited-partner provision (20 NYCRR 1-3.2(a)(6)).

Q: Why didn't the petitioner qualify?
A: As a general partner of the partnership that held the New York interest, it was taxable as a general partner under 20 NYCRR 1-3.2(a)(5), not solely under the limited-partner rule.

Q: Does the aggregate theory help or hurt here?
A: It hurts: it attributes the New York LLC's activities up to the general partner, making it a general-partner taxpayer that can't use the election.

Citations and references

• 20 NYCRR § 3-13.1 (foreign corporate limited-partner separate-accounting election; 'solely as a result of' requirement)
• 20 NYCRR § 1-3.2(a)(6) (limited-partner nexus provision); 20 NYCRR 1-3.2(a)(5) (general-partner nexus)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2011.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a11_5c.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

TSB-A-11(5)C
Corporation Tax
February 22, 2011

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION PETITION NO. C100226A
The petition asks whether name redacted (Petitioner) could make the separate accounting
election under 20 NYCRR former §3-13.1 for its 2005 taxable year with respect to its indirect
interest in a limited liability company that is treated as a partnership and is doing business in
New York State.1
We conclude that, because Petitioner is not subject to tax solely as a result of the
application of limited partnership provisions at 20 NYCRR § 1-3.2(a)(6), it could not make the
separate accounting election available to a foreign corporate limited partner under 20 NYCRR
former §3-13.1.
Facts
Petitioner is a corporation that currently owns an 85.5% general partner interest in name
redacted (LTD). LTD holds a 6% member interest in name redacted. (Channel LLC). Channel
LLC is an operating entity with headquarters in New York that operates the name redacted cable
television station. Channel LLC is a New York limited liability company treated as a partnership
for federal income tax and New York tax purposes.
Petitioner describes its business activities as limited to the holding of an interest in LTD.
LTD’s business activities consist of holding a membership interest in Channel LLC and
managing and receiving trademark revenues. LTD licenses the use of the name redacted
trademark from a related entity and sub-licenses the use of the trademark to Channel LLC. LTD
manages its investment in Channel LLC, collects trademark revenues, pays business expenses,
and maintains books and records, all from its Utah location. LTD does not have an office or
property, or directly employ anyone, within New York.
In 2005, LTD sold a 14% interest in Channel LLC to an unrelated third party. The gain
related to this sale was passed through to the LTD partners, including Petitioner. In 2005,
Petitioner made the foreign corporate limited partner election under 20 NYCRR former §3-13.1
and treated the gain related to this sale as non-New York allocable income under that regulation.
All other income, capital gain, loss, or deduction passed through to Petitioner by Channel LLC
(by way of LTD) was reported on Petitioner’s 2005 New York Form CT-3-S.

1

20 NYCRR former § 3-13.1(a) was amended and renumbered to § 3-13-5(a)(1) on November 1, 2006. The
amended and renumbered regulation was made applicable to taxable years beginning on or after January 1, 2007.

-2-

TSB-A-11(5)C
Corporation Tax
February 22, 2011

Analysis
The Department’s regulation in effect in 2005 that allowed a foreign corporate limited
partner to elect to separately account for the limited partnership interest in computing its tax
liability stated as follows:
(a) A foreign corporation which is a limited partner in one or more limited
partnerships, which is subject to tax under article 9-A of the Tax Law
solely as a result of the application of section 1-3.2(a)(6) of this Title and
which does not file on a combined basis for Article 9-A purposes, may
elect to compute its tax by taking into account only its distributive share of
the income, capital, gain, loss or deduction of each such limited
partnership which is doing business, employing capital, owning or leasing
property or maintaining an office in New York State, whether or not such
share is actually distributed . . . (emphasis added) 20 NYCRR former §313.1(a)
Therefore, for a corporate partner to make the foreign corporate limited partner election under 20
NYCRR former §3-13.1, it must have been a limited partner in the partnership that was doing
business, employing capital, owning or leasing property, or maintain an office in New York, and
it must have been subject to tax solely as a result of the application of 20 NYCRR § 1-3.2(a)(6).
According to the petition, in 2005 LTD owned an interest in Channel LLC, a limited
liability company doing business in New York that was treated as a partnership. Petitioner, as a
general partner in LTD, had an indirect interest in Channel LLC. For the foreign corporate
limited partner election, 20 NYCRR former §3-13.1 required not only that the foreign
corporation be a “limited partner in one or more limited partnerships,” but also that the foreign
corporation be subject to tax solely as a result of its ownership interest in a limited partnership
pursuant to 20 NYCRR §1-3.2(a)(6). This latter regulation has been applied to ownership
interests in limited liability companies treated as partnerships. Thus, if the entity that is doing
business, employing capital, owning or leasing property, or maintaining an office in New York
State is a limited liability company treated as a partnership for tax purposes, then the interest of
the foreign corporation in that company must be analyzed to determine if it is more like a limited
partnership or a general partnership interest. See Stone Commodities Corp., Adv Opn Comm T
& F, December 4, 1997, TSB-A-97(26)C.
Petitioner maintains that the application of the aggregate theory of partnerships under 20
NYCRR §1-3.2(a)(6) establishes New York nexus for it due to its indirect partnership interest in
Channel LLC. According to Petitioner, the aggregate theory of partnerships should apply to
elections under 20 NYCRR former §3-13.1 as well. The aggregate theory is described in the
Department’s current regulation at 20 NYCRR §3-13.1(b), which states that a partner is viewed
as having an undivided interest in the partnership’s assets, liabilities and items of receipts,
income, gain, loss and deduction, and is treated as participating in the partnership’s transactions
and activities.

-3-

TSB-A-11(5)C
Corporation Tax
February 22, 2011

Contrary to Petitioner’s claim, the application of the aggregate theory demonstrates that
Petitioner does not qualify to make the separate accounting election in 20 NYCRR former
§3-13.1. The regulation requires the foreign corporate limited partner to be subject to tax under
Article 9-A “solely as a result of the application of” 20 NYCRR §1-3.2(a)(6). Petitioner does
not satisfy this condition. Under the aggregate theory of partnerships, LTD owned its
proportionate share of Channel LLC’s assets and was involved in the activities of that company
in 2005. Thus, LTD was considered to be doing business, employing capital, owning or leasing
property, or maintaining an office in New York based on the attributes of Channel LLC. Under
those circumstances, Petitioner would be subject to tax under 20 NYCRR §1-3.2(a)(5) as a
general partner of a partnership, that is, LTD, which satisfied one or more of the Article 9-A
jurisdictional requirements for taxation.
Accordingly, while Petitioner had an indirect ownership interest in Channel LLC,
Petitioner was not subject to tax in New York in 2005 “solely as a result” of the limited
partnership provision of 20 NYCRR §1.3.2(a)(6). Therefore, Petitioner was not eligible to make
the election under 20 NYCRR former § 3-13.1 to separately account for the items that flowed
through to it from LTD and were attributable to LTD’s interest in Channel LLC.

DATED: February 22, 2011

NOTE:

/S/
DANIEL SMIRLOCK
Deputy Commissioner & Counsel

An Advisory Opinion is issued at the request of a person or entity. It is limited to the
facts set forth therein and is binding on the Department only with respect to the person
or entity to whom it is issued and only if the person or entity fully and accurately
describes all relevant facts. An Advisory Opinion is based on the law, regulations, and
Department policies in effect as of the date the Opinion is issued or for the specific
time period at issue in the Opinion.