Who is responsible for NYS gains tax?

Real estate owners and developers are facing a new question when filing gains tax returns on the transfer of property regarding who may be personally liable for the payment of the tax. According to New York State, this is the "responsible person."

During 1992, New York State issued Form TP-575, "Transferor Responsible Person Information." This form is to be completed for all transfers of real property subject to the gains tax if the transferor is a partnership or corporation. It can be assumed that the state will no longer process gains tax filings without the completion of this form. Since this information was previously requested over the telephone during the pre-transfer audit filing procedure, the issuance of this form requirement is not totally unexpected. As the instructions to the form state:

"The purpose of Form TP-575 is to provide the tax department with the names, social security numbers, home addresses and telephone numbers of all individuals who may be personally liable for the gains tax."

The tax law defines the term "person" to include an officer or employee of a corporation or any member or employee of a partnership who is under a duty to perform an act in accordance with the gains tax.

In determining who is the responsible person, the state generally includes: * Limited partners actively involved in the management and financial affairs of the partnership. * A chief executive officer, treasurer or chief financial officer of a corporation * A corporate officer of a closely held corporation who has knowledge of corporate affairs and enjoys substantial benefits from the corporate profits

The state offers several examples or factors used in determining whether an individual is under a duty to perform an act required under the gains tax. These include: * The authority to engage a broker to sell the property * The authority to sign a contract of sale, a deed or a mortgage on behalf of the corporation or partnership * The designation as "tax matters partner on the Federal partnership return * The responsibility to sign any gains tax return or discuss audit progress during an audit for conference

The form also states that if the transferor entity is owned by another corporation or partnership, the name of the responsible person of that corporation or partnership is required.

New York State is now making it clear that it will take the necessary actions to better enforce collection of tax when an entity does not have the financial means to pay it. The "responsible persons" should be aware of the state's persons" should be aware of the state's position and act accordingly.

Larry Weiser, a partner in Friedman Alpren & Green, specializes in the tax and accounting aspects of residential real estate ownership, development and conversion. He is significantly involved with all aspects of the New York State Real Property Transfer Gains Tax.

Friedman Alpren & Green has responded to inquiries regarding previous articles and is pleased to discuss these and other tax questions posed by the readers of Real Estate Weekly. Any such questions should be directed to their office at 1700 Broadway, New York, New York.