New York Advisory Opinion TSB-A-86 (7)I: Are fees an investment syndicator receives for raising money for real estate partnerships, and renewal commissions he still receives from his former career as an independent insurance agent, subject to the New York Unincorporated Business Tax?

Plain-English summary

Mark Schachter worked as an investment syndicator, coordinating the raising of investor money across various states to build shopping centers and other real estate projects. His process: travel to the state where a project would be built, set up a local office at his own initial expense, raise money from investors, and once enough investors committed, form a partnership - at which point the partnership took over the office and all its expenses, and the office stopped being Schachter's place of business. In 1980 he received guarantee fees totaling $93,000 from four such partnership syndications (in Texas, New York, and Kentucky) plus $60,000 from a fifth syndication formed as a Nevada corporation. He also still received renewal commissions on insurance policies he had sold years earlier as an independent insurance agent, a career he'd since left. He asked whether either type of income was subject to the (then still-in-effect, pre-1982) Unincorporated Business Tax under Article 23.

On the syndication fees, the Department first established that Schachter's syndicator business is legally SEPARATE from the partnerships he forms, citing its own precedent in Matter of Draper - so he's an independently taxable unincorporated business entity in his own right, not merged into the partnerships' tax treatment. That separateness mattered for allocation purposes: under Cromwell v. Bates, a partner treated as a separate taxable entity must independently maintain a regular place of business outside New York (per 20 NYCRR 207.2(a), a bona fide office or similar place systematically and regularly used by HIM) in order to allocate any of his own income outside the state - it's not enough that the PARTNERSHIP he helped form maintains offices elsewhere. Since Schachter's own offices in each state were only temporary (existing until the partnership formed and took them over) and he never established or maintained any other regular place of business of his own outside New York, ALL of his syndication fee income - regardless of where the underlying properties were located - was allocated entirely to New York under Tax Law § 707(a)'s default rule for a business with no regular place of business outside the state.

On the insurance renewal commissions, the answer was more straightforward: the Department's own precedent (Matter of Tinkler) already established that insurance agent commission income is unincorporated business gross income under section 705(a), and separately (Matter of Leibowitz) that RENEWAL commissions received after an agent has stopped actively selling still count, since they're received on policies sold while he was actively engaged in the insurance business. Accordingly, both the syndication fees and the insurance renewal commissions were subject to Unincorporated Business Tax.

What this means for you

Syndicators, deal-organizers, or others who form partnerships as part of their own business

Your own syndication/organizing activity can be treated as a SEPARATE taxable unincorporated business from the partnerships you help create - which cuts both ways. It means you're independently subject to tax on your own fees, but it also means the partnership's offices and activities in other states don't automatically let YOU allocate income outside New York; you need your OWN regular place of business elsewhere, maintained by you (not just used temporarily before handing it to a partnership), to allocate any of your own income out of state.

Business owners setting up temporary offices before handing them to a formed entity

If you set up an office in another state purely as a stepping-stone - intending to transfer it to a partnership, corporation, or other entity once formed - that temporary use likely won't count as YOUR "regular place of business" for allocation purposes once the transfer happens. Consider whether maintaining your own ongoing presence (rather than a hand-off arrangement) is necessary if out-of-state income allocation matters to your tax position.

Former insurance agents (or similar commissioned professionals) still receiving renewal income

Don't assume that leaving a line of business ends its tax treatment. This opinion confirms that renewal commissions received on business you originated while actively working in that trade remain subject to the same tax treatment (here, Unincorporated Business Tax) as your active-era income, even years after you've moved on to a different career.

Common questions

Q: I'm a syndicator who sets up an office in another state, but hand it over to the partnership once it's formed - can I use that office to allocate my own fee income outside New York?
A: No, according to this opinion. Since the office becomes the partnership's place of business (not yours) once the syndication is formed, it doesn't count as YOUR regular place of business for allocation purposes - you need to independently maintain your own regular place of business outside New York to allocate any of your own income there.

Q: Is my syndication business taxed the same way as the partnerships I help form?
A: No, they're treated as separate taxable entities. Your syndicator fees are taxed to you individually as an unincorporated business, distinct from whatever tax treatment applies to the partnerships themselves.

Q: I no longer work as an insurance agent, but I still receive renewal commissions on old policies - are those taxable under the Unincorporated Business Tax?
A: Yes. The Department's precedent confirms renewal commissions on policies sold while you were actively an independent insurance agent remain subject to the same Unincorporated Business Tax treatment as your active-era commission income, even after you've left that line of work.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1986.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a86_7i.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86 (7) I
Income Tax
May 28, 1986

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. I851101A

On November 1, 1985, a Petition for Advisory Opinion was received from Mark and Ann
Schachter, 80 Salem Ridge Drive, Huntington, New York 11743.
The issues raised are (1) whether fees received by Petitioner for services rendered as an
investment syndicator are subject to Unincorporated Business Tax imposed under Article 23 of the
Tax Law and (2) whether income Petitioner received during 1980 as a result of his previous activities
as an independent insurance agent is also subject to Unincorporated Business Tax.
Petitioner is an investment syndicator who co-ordinates the raising of monies within various
states within the United States for building shopping centers and other real estate projects.
Petitioner travels to the state in which the shopping mall is to be built. To facilitate his fund
raising activities, Petitioner sets up an office there. Initially, he is responsible for the expenses of the
office. When Petitioner has the requisite number of investors committed to the project, a partnership
is formed. At this time, the partnership takes over the Petitioner's office and all expenses related
thereto. The office is no longer the Petitioner's place of business; it becomes and remains the
partnership's place of business.
Most syndications are partnerships in which Petitioner is a general partner. The partnerships
pay all expenses for prospectus publications, legal and accounting related thereto, office expenses
and a guarantee fee to Petitioner for raising the money.
In 1980, Petitioner received guarantee fees from partnerships per the schedule below.
Locations in the schedule below indicate the state in which the properties were sold, an office was
set up and where all expenses for the operation were incurred.

1.
2.
3.
4.

Syndication

General Partner Fee

Location

Maple Property
Pine Brook
Townline Plaza
Middleforth

$25,000
30,000
23,000
15,000

Texas
Texas
New York
Kentucky

TOTAL $93,000
In addition, a fifth syndication was formed as a corporation in Nevada for which Petitioner
received a fee of $60,000.

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-86 (7) I
Income Tax
May 28, 1986

Previous to being an investment syndicator, Petitioner worked as an independent insurance
agent. He is no longer an insurance agent but does receive compensation on premiums paid for
continuing policies maintained in force.
Section 701(a) of the Tax Law imposes a tax on "...the unincorporated business taxable
income of every unincorporated business, wholly or partly carried on within this state." This applies
to taxable years ending on or after December 31, 1960 through taxable years ending on or before
December 31, 1981.
Section 703(a) defines "unincorporated business" as "...any trade, business or occupation
conducted, engaged in or being liquidated by an individual or unincorporated entity, including a
partnership or fiduciary or a corporation in liquidation.... "
Section 707(a) provides "If an unincorporated business is carried on both within and without
this state, as determined under regulations of the tax commission, there shall be allocated to this state
a fair and equitable portion of the excess of its unincorporated business gross income over its
unincorporated business deductions. If the unincorporated business has no regular place of business
outside this state, all of such excess shall be allocated to this state."
ISSUE 1
Petitioner is an investment syndicator. His business as an investment syndicator is a separate
business distinct from the partnership syndications to which he belongs. Therefore, Petitioner, as an
investment syndicator is a separate taxable entity subject to unincorporated business tax. Matter of
the Petition of James F. Draper, State Tax Commission, October 5, 1984, TSB-H-84(172)I.
If a partner in a partnership is deemed to be a separate taxable entity, that partner, as a taxable
entity, must carry on business without New York State in order to allocate income outside New York
State. Cromwell v. Bates 284 A.D. 1001. In general, an unincorporated business is carried on at any
place either within or without New York State where the unincorporated business entity has a regular
place of business. 20 NYCRR §207.2(a). A regular place of business is any bona fide office, factory
warehouse or other place which is systematically and regularly used by the unincorporated business
entity in carrying on its business. Id. Therefore, in order for Petitioner to allocate his income outside
New York State he must maintain a regular place of business in each of the states he wishes to
allocate income to. It is not sufficient that the partnership to which he belongs maintains regular
places of business in those states.
Petitioner does not maintain a regular place of business outside New York State. Although
Petitioner initially sets up an office in the state in which a shopping mall is to be built, he maintains
that office only until the partnership comes into existence. At that time, the partnership takes over

-3­
TSB-A-86 (7) I
Income Tax
May 28, 1986

the Petitioner's office and all expenses related thereto. Never again is the office maintained by the
Petitioner nor does Petitioner set up another office. The Petitioner may use the partnership's office
to carry out his activities, however, as noted previously, this does not allow the Petitioner to allocate
income outside New York State.
Petitioner does not maintain an office or any other place which is systematically and regularly
used by him in any other state. Therefore, all of Petitioner's unincorporated business income is
allocated to New York State.
ISSUE 2
Commission income derived from activities as an independent insurance agent constitutes
unincorporated gross income within the meaning of section 705(a) of the Tax Law. Matter of the
Petition of Robert Tinkler, State Tax Commission, July 15, 1983, TSB-H-(240)I. Petitioner was an
independent insurance agent prior to becoming an investment syndicator. Although he no longer sells
insurance, he still receives compensation on premiums paid for continuing policies maintained in
force. These renewal commissions received on policies sold while an independent insurance agent
are subject to the imposition of unincorporated business tax. Matter of Leibowitz, State Tax
Commission, November 14, 1980, TSB-H-(434)I.
Accordingly, both the fees earned as an investment syndicator and renewal commissions
received on policies sold while an independent insurance agent are subject to unincorporated
business tax imposed under Article 23 of the Tax Law.

DATED: May 28, 1986

s/ANDREW F. MARCHESE
Chief of Advisory Opinions

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.