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New York State gains tax: what's new?

The June 24, 1992, article entitled "Who is Responsible for New York State Gains Tax" described the new requirement to file Form TP-575, Transferor - Responsible Person Information.

Subsequently, the state has issued a notice suspending the filing requirement of that form due to certain problems and confusion it had created. The state is now re-examining its policy concerning when a responsible person will be individually liable for paying the tax and will provide additional information in the future.

In another development, the gains tax law was recently amended to release cooperative housing corporations and other secured parties from transferee liability for certain transfers if the transfers are pursuant to an action or proceeding to enforce a lien or security interest. For example, assume a sponsor of an offering plan holding unsold units defaults on the monthly maintenance payments, creating a lien on the sponsor's units. If, under the terms of the proprietary leases, the co-op forecloses on the units, a transfer of real property occurs. If gains tax is due on the transfer, the sponsor as the transferor would be liable for payment of the tax. In the event of nonpayment by the sponsor, the co-op corporation, as transferee, would also have been liable, prior to this change in the gains tax law. However, for transfers occurring on or after June 16, 1992, and before Feb. 1, 1995, the cooperative housing corporation will have no transferee liability. This treatment would also apply to banks or other lenders who enforce their security interest in shares of cooperative housing corporations as well as other corporate stock or partnership interests, resulting in transfers of real property.

Another recent development affecting the gains tax is budget legislation that amends the gains tax penalty provisions, temporarily, to give the commissioner additional authority to abate the penalty. The gains tax penalty can be significant as it is assessed at 10 percent of the tax, plus 2 percent per month, not to exceed 25 percent. Therefore, the maximum penalty, which is not tax deductible, is 35 percent. Under prior law, the penalty could be abated when it was determined that the failure to pay the tax was due to reasonable cause and not due to willful neglect. In a prior article, the difficulty in abating penalties was demonstrated by examples of reasons held not to constitute reasonable cause, such as unfamiliarity with the gains tax or reliance on advice of tax professionals. The recent legislation added to the statute a definition of "reasonable cause". Therefore, for the period from April 1, 1992, through Feb. 28, 1993, reasonable cause includes the existence of substantial authority for the tax treatment of any item, or in the absence of written instructions issued by the State of the contrary, disclosure of the tax treatment of an item in the pre-transfer audit filing. In addition, the penalty due to failure to file timely may be abated if a consistent pattern of timely filing is subsequently demonstrated.

Those who are currently involved in gains tax audits in which penalties may be an issue should review the facts and circumstances surrounding their situations and consider whether they satisfy the statutory requirement for penalty abatement. As the amendment applies only for the period April 1, 1992 through Feb. 28, 1993, immediate action is warranted.

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.
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Title Annotation:Taxing Situations; required forms for reporting capital gains tax changed
Author:Weiser, Larry
Publication:Real Estate Weekly
Date:Aug 12, 1992
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