Is a shareholder personally required to file the corporation's franchise tax report, or personally liable for the corporation's unpaid franchise tax and penalties?

Plain-English summary

Josh M. Praver, a shareholder of a corporation, asked two things: (1) is he, as a shareholder, required to file a New York franchise tax report for the corporation, and (2) if he does not, is he guilty of a criminal offense and/or liable for the corporation's unpaid franchise tax and penalties? The corporation had conducted no business except one transaction of less than $5,000 in services in April 1990.

The answer to both tax questions is no. The franchise tax in section 209.1 is imposed on the corporation. The filing requirement in section 211.1 runs to "every taxpayer" -- and section 208.2 defines a "taxpayer" as the corporation subject to Article 9-A. A shareholder is not the taxpayer. Therefore:

• a shareholder is not required to file a franchise tax report on the corporation's behalf; and
• a shareholder is not liable for the corporation's unpaid franchise tax and penalties.

On the criminal question, the opinion declines to rule. Under section 171, twenty-fourth, advisory opinions are rendered only to a person subject to a tax or liability (or claiming exemption) under the Tax Law -- so determining whether a criminal offense occurred under Article 37 is outside the scope of an advisory opinion.

What this means for you

Franchise tax filing and liability belong to the corporation, not its shareholders

The corporation is the "taxpayer." Being a shareholder does not, by itself, make you responsible for filing the corporation's franchise tax report or paying its tax.

A small amount of corporate activity does not shift the obligation to a shareholder

Even where the corporation did almost nothing (one sub-$5,000 transaction), any franchise tax obligation is still the corporation's, not the shareholder's.

Advisory opinions do not decide criminal questions

The Department will not use an advisory opinion to say whether someone committed a tax crime -- that is outside the section 171, twenty-fourth scope.

Common questions

Q: As a shareholder, do I have to file my corporation's franchise tax report?
A: No. The filing duty is the corporation's, because the corporation -- not the shareholder -- is the "taxpayer."

Q: Am I personally on the hook for the corporation's unpaid franchise tax?
A: No. A shareholder is not liable for the corporation's unpaid franchise tax and penalties under these rules.

Q: Will the Department tell me whether I committed a crime by not filing?
A: No -- that criminal question is outside the scope of an advisory opinion under section 171, twenty-fourth.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 209.1 (franchise tax on corporations)
- Tax Law section 211.1 (corporate report filing requirement)
- Tax Law section 208.2 (definition of taxpayer)
- Tax Law section 171, twenty-fourth (scope of advisory opinions)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1992.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a92_10c.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-92 (10) C
Corporation Tax
June 10, 1992

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C920422D

On April 22, 1992, a Petition for Advisory Opinion was received from Josh M. Praver, 118
Main Avenue, Sea Cliff, New York 11579.
The issue raised by Petitioner, Josh M. Praver, is whether Petitioner as a shareholder of a
corporation is required to file a New York State franchise tax report for the corporation, and if he
does not file the franchise tax report, is he guilty of a criminal offence and/or liable for any unpaid
franchise taxes and penalties.
Petitioner is a shareholder of a corporation that has not conducted any business except for
one transaction of less than $5,000 in services in April of 1990.
Section 209.1 of the Tax Law imposes, annually, a franchise tax on domestic and foreign
corporations for the privilege of exercising its corporate franchise or of doing business, or of
employing capital or of owning or leasing property in New York State in a corporate or organized
capacity or of maintaining an office in New York State.
Section 211.1 of the Tax Law provides that every taxpayer, as well as every foreign
corporation having an employee, including any officer, within New York State, shall annually file
a report on or before the fifteenth of March.
Section 208.2 of the Tax Law defines "taxpayer" as any corporation subject to tax under
Article 9-A of the Tax Law.
Accordingly, as a shareholder, Petitioner is not required to file a franchise tax report on
behalf of the corporation and Petitioner is not liable for any unpaid franchise tax and penalties owed
by the corporation.
Section 171, twenty-fourth of the Tax Law, provides that advisory opinions shall be rendered
to any person subject to a tax or liability under the Tax Law or claiming exemption from such tax
or liability. Therefore, it is not within the scope of this Advisory Opinion to determine whether a
criminal offense has been committed pursuant to Article 37 of the Tax Law.

DATED: June 10, 1992

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.
TP-9 (9/88)