New York Advisory Opinion TSB-A-13(1)C / 13(2)I: Does an LLC keep its Empire Zone certification and benefits after a foreign corporate member exits and the remaining member gifts a majority interest to a spouse?

Plain-English summary

The petitioner is a multi-member New York LLC taxed as a partnership and certified as a qualified Empire Zone enterprise (QEZE) since 2008, with an EZ Retention Certificate. It is owned 50% by a New York resident individual and 50% by a foreign corporation. The corporation plans to transfer its 50% interest to the individual (and will recapture and repay the EZ credits it claimed on that transfer), making the individual the sole owner. Immediately after, the individual will gift a 51% interest to a spouse, ending up 49% / 51%. The business will keep operating exactly as before. It asked whether these ownership changes would end its EZ certification and benefits.

The Department said no, subject to the standard conditions. To claim EZ benefits a business must be certified under Article 18-B of the General Municipal Law and meet the Tax Law's requirements. The Department of Economic Development (DED) decides whether certification survives an ownership change, so the company should confirm with DED. If DED keeps it certified, the Tax Department will accept the certificate of eligibility and EZ Retention Certificate as proof, and the business may keep claiming QEZE credits for the rest of its benefit period as long as it meets the annual employment test (Tax Law § 14(b)(4)) and the credits' other requirements.

What this means for you

EZ businesses with changing ownership

For this petitioner's proposed ownership transfers, the Tax Department said QEZE credits could continue if DED retained its certification, the annual employment test was met, and the other credit requirements were satisfied. The opinion left the certification decision to DED. It did not establish a general rule for ownership changes.

Accountants and tax professionals

The exiting corporate member here recaptured and repaid its EZ credits on transfer; that's distinct from the LLC's continuing QEZE status. Confirm the post-change certification with DED, then keep the annual employment test satisfied.

Common questions

Q: Does changing the LLC's members end its Empire Zone benefits? A: For this petitioner's proposed transfers, benefits could continue if DED kept it certified and it met the annual employment test and the other credit requirements. The Tax Department did not decide whether DED would retain certification.

Q: What about the departing corporate member's credits? A: That member recaptures and repays the EZ credits it claimed on its transfer; that recapture is separate from the LLC's continuing eligibility.

Q: Who confirms the certification survives?
A: The Department of Economic Development; the Tax Department then accepts the certificate of eligibility and retention certificate as evidence.

Citations and references

• Tax Law § 14(b)(4) (QEZE annual employment test)
• General Municipal Law § 959(a) (DED authority to certify under Article 18-B)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_2013.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a13_1c_2i.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

TSB-A-13(1)C
Corporation Tax
TSB-A-13(2)I
Income Tax
January 8, 2013

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. Z120403A

The Department of Taxation and Finance received a Petition for Advisory Opinion from name and address redacted. Petitioner asks whether its Empire Zone (EZ) certification under Article 18-B of the General Municipal Law (GML) and its accompanying eligibility for EZ tax benefits will survive and remain in full force and effect if it changes its ownership structure as outlined below. We conclude that Petitioner will be eligible to claim the EZ tax benefits after the proposed change in its ownership structure for the remainder of its benefit period, provided that the Department of Economic Development (DED) continues its certification under Article 18-B of the GML and it meets the requirements in the Tax Law. Facts Petitioner is a multi-member New York State (NYS) Limited Liability Company (LLC) which is treated as a partnership for Federal income tax purposes. Petitioner is currently owned 50% by a NYS resident (Individual) and 50% by a foreign corporation (Corporation) that files Federal Form 1120-F and NYS Form CT-3 reporting its member interest activity in Petitioner. The Individual is the manager of the LLC and files Federal Form 1040 and NYS Form IT-201. Petitioner is a qualified Empire Zone enterprise (QEZE) that was certified under Article 18-B of the General Municipal Law (GML), effective October 8, 2008, and subsequently, Petitioner was issued an EZ Retention Certificate (EZRC). The Corporation proposes to transfer its 50% LLC member interest to the Individual, who would then own and control 100% of Petitioner. The Corporation will recapture and remit the required amount of EZ tax credits upon the transfer of its 50% LLC member interest. Immediately after the transfer of the Corporation’s member interest to the Individual, the Individual will give a 51% member interest in Petitioner to the Individual’s spouse. After the conveyance, the Individual will own directly a 49% member interest in Petitioner and his spouse will own directly a 51% interest in Petitioner. The Petitioner’s business will continue to operate after the proposed transfer in the same manner as it did prior to the proposed transfer.

-2-

TSB-A-13(1)C
Corporation Tax
TSB-A-13(2)I
Income Tax
January 8, 2013

Analysis
In order to be eligible to claim the EZ tax benefits, a business enterprise must be certified under Article 18-B of the GML and meet the specific requirements in the Tax Law. The Commissioner of the Department of Economic Development is authorized to certify a business enterprise under Article 18-B which qualifies the business enterprise to participate in the EZ program,1 and Petitioner should contact DED to confirm that its certification will be retained after a change in ownership. The Department of Taxation and Finance (DTF) is charged with insuring that the business enterprise is in compliance with the Tax Law. If Petitioner continues to be certified by DED after the proposed transfers of the member interests outlined above, DTF will accept a copy of Petitioner’s Certificate of Eligibility and EZRC, issued by DED, as evidence that Petitioner is certified. Petitioner must also meet the requirements of the Tax Law in order to claim the EZ tax benefits. If Petitioner remains certified by DED and annually meets the employment test under Tax Law §14(b)(4), it will be eligible to claim the qualified EZ enterprise (QEZE) tax credits for the remainder of its benefit period, provided that it meets the other requirements of the credits in the Tax Law.

DATED: January 8, 2013

NOTE:

1

/S/
DEBORAH R. LIEBMAN
Deputy 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. The information provided in this document does not cover every situation and is not intended to replace the law or change its meaning.

§959(a) of the GML.