If a business believed for 11 years that it was a validly incorporated New York corporation — filing corporate tax returns and paying corporate taxes the whole time — but later discovers the incorporation paperwork was never actually completed, was it a corporation subject to franchise tax all along?

Subject

Whether South Shore Male Den, Inc. was a corporation and subject to tax under Article 9-A of the Tax Law beginning with the fiscal year ended March 31, 1977, and whether its later Subchapter S election remains valid.

Plain-English summary

In early 1977, a group of individuals asked their attorney to form "South Shore Male Den, Inc." They received what they believed was a completed corporate kit and began operating as a corporation — filing federal and state corporate income/franchise tax returns and paying corporate taxes every year for 11 years. In 1988, after the Tax Reform Act of 1986 prompted management to elect S-corporation status (filing the federal Form 2553 and New York's CT-6), the Department told the taxpayer it had no record of South Shore Male Den, Inc. The New York Department of State likewise found no record that the corporation had ever actually been formed. The business promptly filed a genuine Certificate of Incorporation in 1988, and asked the Department to leave everything else as-is: keep the S election intact, keep the March 31 fiscal year, and not disturb the personal returns the shareholders had been holding pending resolution.

The Department agreed. Under 20 NYCRR § 1-2.3, "an entity conducted as a corporation is deemed to be a corporation" — since the organization held itself out as a corporation and conducted business as one continuously since 1977, it was deemed to be a corporation subject to Article 9-A tax from the start, regardless of the defect in the actual incorporation paperwork. Because it had properly filed corporate returns and paid corporate taxes throughout, it qualified as an Article 9-A taxpayer and could validly make the 1988 S-corporation election under Tax Law § 660(a) — meaning the CT-6 election and the retained March 31 fiscal year both stood, as long as the required federal fiscal-year retention form (DTF-980) had also been filed with the CT-3S to avoid late-filing penalties.

What this means for you

Business owners who discover a defective or never-completed incorporation

If your business has consistently held itself out as a corporation, filed corporate tax returns, and paid corporate taxes — even though the formal incorporation paperwork was somehow never completed — New York will likely treat you as having been a corporation the whole time under 20 NYCRR § 1-2.3's "deemed corporation" rule. This can preserve elections (like an S-corp election) and avoid unwinding years of corporate-level filings. File a proper Certificate of Incorporation as soon as the defect is discovered, as this taxpayer did.

Accountants discovering a similar filing-history gap for a client

Don't assume a missing incorporation record means the entity was taxed incorrectly as a partnership or the shareholders personally for all those years — check whether the entity behaved as a corporation and filed as one, since that history itself can establish deemed-corporation status going back to when the conduct began.

S-corporation elections tied to a fiscal year-end retention

This ruling is a reminder that retaining a non-calendar fiscal year for a New York S election (under IRC § 444, matched by New York's CT-6/DTF-980 requirements) needs its own paperwork trail — don't assume the S election alone preserves the fiscal year without the separate DTF-980 filing.

Common questions

Q: Does a defect in the original incorporation paperwork undo years of corporate tax filings?
A: Not necessarily. If the entity held itself out and operated as a corporation, 20 NYCRR § 1-2.3 deems it a corporation for tax purposes regardless of the paperwork defect.

Q: Does a later-discovered incorporation defect invalidate an S-corporation election made in the meantime?
A: Not here — because the entity was deemed a corporation from 1977 forward, its 1988 S election under Tax Law § 660(a) was valid, and it could retain its fiscal year, subject to properly filing form DTF-980.

Q: Can another business with a similar defective-incorporation history rely on this ruling?
A: No. This advisory opinion binds the Department only for the taxpayer and facts presented, and cannot be relied on by anyone else.

Citations and references

Statutes and regulations:

• Tax Law § 209.1 (Article 9-A franchise tax on corporations)
• 20 NYCRR § 1-2.3 (definition of "corporation"; an entity conducted as a corporation is deemed a corporation)
• Tax Law § 660(a) (New York S corporation election)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1989.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a89_10c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-89(10)C
Corporation Tax
August 16, 1989

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C890310A

On March 10, 1989, a Petition for Advisory opinion was received from South Shore Male
Den, Inc., South Shore Mall, Bay Shore, New York 11706.
The issue raised is whether Petitioner was a corporation and subject to tax under Article 9-A
of the Tax Law beginning with the fiscal year ended March 31, 1977. If yes, is the CT-6 election
made for fiscal year ended 1988 valid and will Petitioner be able to keep the current fiscal year
ending March 31. If no, what is the effect on all the corporate taxes paid in prior years and what is
the effect on the personal returns filed by the principals of the organization for the 11 year period in
question.
In the beginning of 1977, it was the intention of the individuals involved to form a
corporation under the name of South Shore Male Den, Inc. They contacted their attorney and
requested that he perform this service on their behalf. A short time later the principles received what
they believed to be a completed corporate kit and began to conduct business as South Shore Male
Den, Inc.
The organization believed it was a fully sanctioned corporation in New York State, held itself
out as a corporate entity, operated as a corporate entity abiding by all the corporate rules and
regulations, and filed both federal and state corporate income/franchise tax returns for a period of
11 years.
Since 1977, both the federal and state corporate income/franchise tax returns were filed for
the fiscal years ending on March 31. All applicable taxes due with these returns were paid by the
Petitioner.
When the Tax Reform Act of 1986 was signed into law, the management decided to file for
the election to be treated as an "S" corporation. In July of 1988, the Internal Revenue Code section
444 election was made to retain the corporate fiscal year end of March 31. The shareholders filed
the federal form 2553 and the state form CT-6 for the fiscal year ended 1988. Form CT-3S for the
fiscal year ended March 31, 1988 was subsequently filed by the taxpayer. In November of 1988,
Petitioner was contacted by the New York State Department of Taxation and Finance and told that
the Department could not locate any information on South Shore Male Den, Inc. At this point
Petitioner contacted the New York State Department of State, to inquire about any information they
might have on South Shore Male Den, Inc. They responded shortly after and indicated that a search
of their records had failed to uncover any records of such a corporate entity ever being formed. The
Petitioner subsequently filed a Certification of Incorporation with the New York State Department
of State.
It is the Petitioner's contention that the situation should be left in a status quo position, with
the "S" election intact and the retention of the March 31 fiscal year end.
TP-9 (9/88)

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TSB-A-89(10)C
Corporation Tax
August 16, 1989

At this point, the personal income tax returns of the principals involved are being held until this
matter is resolved.
Section 209.1 of Article 9-A of the Tax Law, imposes an annual franchise tax on domestic
or foreign corporations for the privilege of exercising a corporate franchise, doing business,
employing capital, owning or leasing property in a corporate or organized capacity, or maintaining
an office, in New York State.
Section 1-2.3 of the Business Corporation Franchise Tax Regulations (hereinafter
"Regulations") defines the term "corporation" as follows:
(a) The term "corporation" means an entity created as such under the laws of the
United States, any state, territory or possession thereof, the District of Columbia, or any
foreign country, or any political subdivision of any of the foregoing, which provides a
medium for the conducting of business and the sharing of its gains.
(1) The term "domestic corporation" means a corporation incorporated by or
under the laws of the State or colony of New York State.
(2) The term "foreign corporation" means a corporation which is not a
domestic corporation.
(b) ...

An entity conducted as a corporation is deemed to be a corporation....

Since Petitioner held itself out as a corporation and has been conducting business in New
York State as a corporation since 1977, pursuant to section 1-2.3 of the Regulations, Petitioner is
subject to tax under Article 9-A of the Tax Law beginning with fiscal year ended March 31, 1978.
Section 660(a) of the Tax Law provides that
(a) Election. If a corporation which is an S corporation for federal income tax
purposes is subject to tax under article nine-a of this chapter, the shareholders of the
corporation may elect in the manner set forth in subsection (b) of this section to take into
account, to the extent provided for in this article, the S corporation items of income, loss,
deduction and reductions for taxes described in paragraphs two and three of subsection (f)
of section thirteen hundred sixty-six of the internal revenue code which are taken into
account for federal income tax purposes for the taxable year. No election under this
subsection shall be effective unless all shareholders of the corporation have so elected.
Since Petitioner is deemed to have been a corporation since 1977, Petitioner is subject to tax
under Article 9-A of the Tax Law. Petitioner has properly filed franchise tax returns and paid the
taxes due since the fiscal year ended March 31, 1978. As a result, Petitioner is a taxpayer under
Article 9-A. Further, Petitioner has met the requirements of section 660(a) of the Tax Law

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TSB-A-89(10)C
Corporation Tax
August 16, 1989

and, therefore, may avail itself of the election contained therein to be treated as a New York State
S corporation.
If Petitioner has made the section 660 election by properly filing a CT 6 for fiscal year ended
March 31, 1988, Petitioner will be treated as a New York State S corporation. In addition, Petitioner
may retain its March 31 fiscal year. However, to avoid the imposition of penalties for late filing,
Petitioner must have filed form DTF-980 with its CT3S showing that it has retained its fiscal year
for federal income tax purposes.

DATED: August 16, 1989

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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