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Tax Law

New York Continues to Disregard Taxpayer’s Reliance on Disregarded Entity Rules

The New York State Tax Appeals Tribunal affirmed a New York State Division of Tax Appeals determination denying a refund claim to a taxpayer that sought to apply the income sourcing rules for registered broker-dealers to receipts from its separate investment advisory business. The taxpayer structured its broker-dealer operations and investment advisory operations into two separate single-member limited liability companies (LLCs). The taxpayer claimed that it was entitled to apply the customer-based sourcing rules for registered broker-dealers under former N.Y. Tax Law § 210(3)(a)(9) to income from its investment advisory business because the LLCs were disregarded and deemed divisions under the federal check-the-box regulations. However, the Tribunal concluded that the taxpayer could not carry over one LLC’s status as a broker-dealer to the non-broker-dealer receipts earned by the other LLC. The Tribunal agreed with the Administrative Law Judge at the Division of Tax Appeals, who concluded that “even a disregarded entity that is not a registered broker-dealer is not disregarded under the check-the-box regulations in determining where its receipts are sourced for New York State corporate franchise tax purposes.”

In re BTG Pactual N.Y. Corp., DTA No. 827577 (N.Y.S. Tax App. Trib., Mar. 24, 2020).