NY TSB-A-97(27)C Corporation Tax 1997-08-19

Is a corporation that holds bare record title to real property as nominee, and was later dissolved by proclamation, subject to Article 9-A -- for the years it was incorporated, after dissolution, or both?

Short answer: Two periods, two answers. A corporation that was incorporated and held record title to New York real property in a corporate capacity is subject to the Article 9-A franchise tax under section 209.1 for the years it was incorporated -- even if it was treated as a nullity and never actively did business -- because the taxable thing is exercising the corporate franchise and owning property in a corporate capacity. But after it was dissolved by proclamation (here, September 29, 1993), while it merely holds record title as nominee for the benefit of others and is otherwise inactive, it is not conducting business under section 209.3 and 20 NYCRR 1-2.4(c), so it is not subject to Article 9-A after dissolution.

Disclaimer: This is an official New York State Department of Taxation and Finance Advisory Opinion (TSB-A), issued by the Office of Counsel at a taxpayer's request. It is limited to the facts set forth in it and binds the Department only with respect to the petitioner to whom it was issued, and only if that petitioner fully and accurately described all relevant facts; another taxpayer cannot rely on it. It reflects the law, regulations, and Department policy in effect when issued and may since have changed. Taxpayer-identifying details are redacted. New York State and local sales taxes are administered centrally by the Department. This summary is informational only and is not legal or tax advice. Consult a licensed New York tax professional about your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked at the bottom of this page, or PDF in the sidebar) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

Rubin Brothers Holding Company discovered, while planning to convert to an LLC, that a corporation it had set up years earlier -- RBHC-Briarcliff Corp. -- still held record title to a New York property. Rubin Brothers had treated the corporation as a nullity: no meetings, no directors or officers, no tax returns; Rubin Brothers bore all the property's expenses, took all its income, and held itself out as the owner. The only act in the corporation's name was a lease-extension the day after the property was conveyed to it. The corporation had been dissolved by proclamation on September 29, 1993. Rubin Brothers asked whether the corporation is subject to Article 9-A.

The Department split the timeline:

While incorporated: Under section 209.1, the franchise tax applies to a corporation for exercising its corporate franchise or owning property in a corporate capacity. Because the corporation held the corporate franchise and held title to New York real property in a corporate capacity, it is subject to Article 9-A for the taxable years it was incorporated -- even though it was treated as a nullity and never actively did business.
After dissolution by proclamation: A dissolved corporation that continues to do business is taxable (section 209.3), but one whose activities are limited to liquidation is not (20 NYCRR 1-2.4(c)). A dissolved corporation that is merely a record-title holder of real property as nominee for others, and is otherwise inactive, is not conducting business. So after September 29, 1993, the corporation is not subject to Article 9-A.

What this means for you

Holding the franchise and property is itself taxable

While incorporated, a corporation that holds the corporate franchise and owns New York property in a corporate capacity owes the franchise tax, even if it never actively operates.

A dissolved nominee owes nothing

After dissolution by proclamation, a corporation that merely holds bare record title as nominee for others, and does nothing else, is not doing business and is not taxable.

Dissolution is the dividing line

The franchise-tax exposure runs from incorporation to dissolution; the nominee status only protects the post-dissolution period.

Common questions

Q: Does treating the corporation as a nullity avoid tax while incorporated?
A: No. Owning property in a corporate capacity and holding the franchise are themselves taxable, regardless of inactivity.

Q: Is the corporation taxable after dissolution?
A: No, while it merely holds record title as nominee for others and is otherwise inactive.

Q: What is the key date?
A: Dissolution by proclamation (September 29, 1993) -- taxable before it, not after.

Citations and references

Statutes, regulations, and authorities:
- Tax Law section 209.1 (franchise tax for exercising the corporate franchise or owning property)
- Tax Law section 209.3 (dissolved corporation continuing to do business is taxable)
- 20 NYCRR 1-2.4(c) (dissolved corporation limited to liquidation is not taxable)
- 20 NYCRR 2-3.1 (tax until the corporation ceases to possess a franchise)
- W.R.H.R.E Corp., TSB-A-95(4)C (March 3, 1995)
- Highmount Medical Building Inc., TSB-A-91(12)C (May 7, 1991)
- Rubin Brothers Holding Company, TSB-A-97(27)C (Dec. 4, 1997)

Source

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-97(27)C
Corporation Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C970819A

On August 19, 1997 a Petition for Advisory Opinion was received from Rubin
Brothers Holding Company, c/o George Comfort & Sons, Inc., 200 Madison Avenue,
New York, New York.
The issue raised by Petitioner, Rubin Brothers Holding Company, is whether
a dissolved corporation that holds record title to real estate as nominee is
subject to tax under Article 9-A of the Tax Law.
Petitioner submits the following facts as the basis for this Advisory
Opinion.
Petitioner is a limited partnership organized under the laws of New York
State. It was formed by members of the Rubin family to hold a number of parcels
of real estate located in New York and in New Jersey. The partnership interests
were originally owned by three brothers. Over the years since its formation,
interests in Petitioner have been conveyed to the children, spouses and
grandchildren of the original partners.
At various times since its formation, Petitioner's legal and financial
advisors have reviewed the structure through which it owned its various real
estate holdings. At some point during the late 1980's, Petitioner's attorneys
contemplated conveying each of its real estate properties to a separate specially
formed corporation all of the stock of which would be owned by Petitioner. In
this way, it was believed that each of the properties could be shielded from
potential liabilities that could arise with respect to the other properties.
The plan in its entirety was never consummated, but in the process of
preparing for its implementation some steps were taken.
Among them, RBHCBriarcliff Corp., a New York corporation, (the "Corporation") was incorporated
and, on February 27, 1989, a deed conveying the property located on North State
Road, Briarcliff Manor, Ossining, New York, Section 4, Plate 22, Block 15, Lot
12A and 12B (the "Property"), from Petitioner to the Corporation was prepared,
executed and recorded. On February 28, 1989, the Corporation, as lessor, entered
into a Lease Extension Agreement with Raymond P. Oakley, as lessee. Petitioner's
principals have no recollection of the details of the execution of these
documents.
In fact, Petitioner's accountants were never informed of the
existence of the Corporation or of any change in the ownership of the Property.
The Lease Extension Agreement appears to be an isolated transaction involving the
Corporation as a party.
Petitioner has undergone another legal analysis in contemplation of a
restructuring and has, in fact, adopted a plan whereby it will be converted into
a limited liability company organized under the laws of New York State.
In
connection with this analysis, the principals of Petitioner, and its current

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Corporation Tax

legal advisors and management personnel, were surprised to learn that the
Corporation existed and that it held record title to the Property. They also
discovered that the Corporation was dissolved by proclamation on September 29,
1993.
At no time since March 1, 1989 has the Property been represented as owned
by the Corporation. The Corporation has been treated by Petitioner as a nullity
in all respects. No meetings of shareholders, directors or officers have been
held nor have any directors been elected or officers appointed. No tax returns
have been filed for the Corporation. All expenses of the Property have been
borne by Petitioner and all income that it has generated has been paid to
Petitioner. All of such items have been reflected on Petitioner's tax returns.
Other than the Lease Extension Agreement, executed the day after the Property was
conveyed to the Corporation, all documents (such as subsequent leases) relating
to the Property have been executed by Petitioner, as owner of the Property,
without regard to the fact that record title to the Property is in the
Corporation.
In sum, at virtually all times since Petitioner acquired the
Property, Petitioner has held itself out in all respects as owner of the
Property, notwithstanding the execution, delivery and recording of the deed to
the Corporation.
Section 209.1 of the Tax Law imposes, annually, a franchise tax on every
corporation for the privilege of exercising its 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
for all or any part of each of its fiscal or calendar years.
Section 2-3.1 of the Business Corporation Franchise Tax Regulations
provides that every domestic corporation is required to pay a tax measured by
entire net income (or other applicable basis) up to the date on which it ceases
to possess a franchise.
Section 209.3 of the Tax Law provides that a dissolved corporation which
continues to conduct business shall be subject to tax under Article 9-A of the
Tax Law. Section 1-2.4(c) of the Business Corporation Franchise Tax Regulations
provides further that where the activities of a dissolved corporation are limited
to the liquidation of its business and affairs, the disposition of its assets
(other than in the regular course of business), and the distribution of the
proceeds, the dissolved corporation is not subject to tax under Article 9-A.
Therefore, a dissolved corporation that is merely a record title holder of
real property located in New York State as nominee for the benefit of others, and
is otherwise inactive, is not conducting business in New York State as
contemplated by section 209.3 of the Tax Law. W.R.H.R.E Corp., Adv Op Comm T &
F, March 3, 1995, TSB-A-95(4)C; Highmount Medical Building Inc., Adv Op Comm T
& F, May 7, 1991, TSB-A-91(12)C; Harold S. Sommers, Adv Op Comm T & F, March 15,
1990, TSB-A-90(9)C; Babson Bros. Co. of New York Inc., Adv Op Comm T & F,
September 1, 1988, TSB-A-88(19)C.

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Accordingly, pursuant to section 209.1 of the Tax Law, the Corporation is
subject to the franchise tax imposed by Article 9-A for the taxable years during
which the Corporation was incorporated. After its dissolution by proclamation
September 29, 1993, the Corporation is merely holding property as nominee for the
benefit of others and is not conducting business in New York State pursuant to
section 209.3 of the Tax Law. Therefore, the Corporation is not subject to tax
under Article 9-A of the Tax Law after it was dissolved by proclamation.

DATED: December 4, 1997

NOTE:

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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