Changes to New York Offer in Compromise Program. The New York State Department of Taxation and Finance recently enacted legislation that expands the eligibility of taxpayers to participate in New York's Offer in Compromise Program and provides the Commissioner with more flexibility with respect to amounts that can be accepted in compromise of a tax liability. In addition to previously eligible taxpayers that have been discharged in a bankruptcy proceeding or are proven to be insolvent, eligible taxpayers now include individuals who can demonstrate that a full collection of any tax liability will cause the taxpayer undue economic hardship. An undue economic hardship occurs when a taxpayer is unable to pay reasonable basic living expenses. In determining whether an undue economic hardship exists, the Department of Taxation and Finance will look to the IRS's Collection Financial Standards to help determine a taxpayer's allowable basic living expenses and will consider other factors that can impact an individual's financial condition, e.g., age, employment status, illness or disability, obligations to dependents, or extraordinary circumstances.
The amount that the Commissioner previously could have accepted in compromise of a tax liability could not have been less than the amount recoverable through legal proceedings. The new law generally permits the Commissioner to accept amounts in compromise that reasonably reflect collection potential or are otherwise justified by the proof offered by the taxpayer.
The new law retains the requirement of a New York State Supreme Court justice's approval for fixed and final liabilities where the amount to be compromised is over $100,000 (excluding penalties and interest), but raises the threshold from $25,000 to $50,000 (including penalties and interest) before requiring an opinion of counsel to finalize offers for liabilities that are not fixed and final.
New York Statute of Limitations for Collection of Tax Liabilities. New York recently amended the law that imposes a 20 year statute of limitations to collect tax liabilities to clarify that such 20 year period begins from the first date the Commissioner could have filed a warrant (a legal action against a taxpayer that creates a lien against the taxpayer's real and personal property), without regard to whether the warrant is actually filed. Where there is no right to a hearing, the first date the Commissioner could have filed a warrant is the day after the last day specified for payment by the Notice and Demand and where there is a right to a hearing, such date is the day the opportunity for a hearing or review has been exhausted. In addition, the taxpayer's payment or acknowledgment of a debt in writing no longer extends the 20 year statute of limitations; however, the Commissioner and the taxpayer can agree to a longer statute of limitations. This new law applies to all tax liabilities that could have been warranted before August 17, 2011, and that can be warranted on or after such date.
Change in Filing Requirements for New York Same-Sex Couples. The Marriage Equality Act, signed into law on July 24, 2011, provides that all marriages will be treated equally under all laws of New York state, including the tax laws.
Effective for tax years ending on or after July 24, 2011, same-sex married couples (including those who were married outside of New York) must file New York personal income tax returns using a married filing status (i.e., married filing jointly or married filing separately), even though their marital status is not recognized for federal tax purposes (see article on federal law in this edition) and they may have filed as a single or head of household status on their federal returns. To compute their New York tax, such married couples must re-compute their federal income tax as if they were married for federal purposes.
In addition, the New York taxable estate of an individual in a same-sex marriage must be computed in the same manner as if the deceased individual were married for federal estate tax purposes. The estate of an individual married to a same-sex spouse must begin by computing the gross estate on a pro forma federal return as if the marriage were recognized for federal estate tax purposes, including certain deductions and valuations.
Same-sex married employees may want to file new withholding certificates with their employer informing them of their married status and provide proof of their married status to have the employer stop withholding New York tax on the value of certain benefits (e.g., health care coverage of their spouse).
Out-of-State Investment Company Limited Partner Lacked Nexus with New Jersey. The Superior Court of New Jersey held that a foreign investment corporation whose only connection with New Jersey was a 99% limited partnership interest in a limited partnership that does business in New Jersey does not give rise to sufficient nexus with New Jersey to subject the foreign limited partner to New Jersey's corporation business tax. The foreign limited partner had no place of business, property, employees, agents, or representatives in New Jersey.
New Jersey argued that the foreign limited partner had a unitary relationship with the business conducted by the limited partnership in New Jersey. The Court held that the foreign limited partner and the limited partnership did not have a unitary relationship and the partner did not have sufficient nexus with New Jersey because (1) unanimous consent of both partners was required to admit additional partners, merge or consolidate the partnership with another entity and consent to the sale or transfer of either partner's interest and the non-selling partner had the right of first refusal in a sale of a partner's interest and the general partner controlled the ongoing business activities of the limited partnership, (2) there was no indication that the foreign limited partner had a New Jersey address, (3) the sharing of some officers and office space is insufficient to show a unitary business, (4) the foreign limited partner's right to inspect books, records, reports and returns do not show that it controlled the limited partnership, and (5) the foreign limited partner was not in the same line of business as the partnership.
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