Entire Gain From NYC Installment Sale Included in Last Return

A taxpayer must include all the gain from installment sales on the last return it files in New York City. In a New York City tax case, a taxpayer:

  • sold real estate;
  • reported the sale on its general corporation tax return using the installment method; and
  • indicated on the return that it was the taxpayer’s final return.

In short, the taxpayer ended its business in the city. After an audit, the Tax Appeals Tribunal ruled that the Department of Finance properly recomputed the taxpayer’s income on the return to include all of the gain from the sale.

If the taxpayer were permitted to use the installment method, it would avoid tax on the deferred gain in the installment payments. Under the law, the department may disregard a taxpayer’s method of accounting when it results in the understatement of income. In addition, published statements of department policy have addressed this issue. The department’s policy has long been that the installment method should be disregarded when:

  • a corporation files a final return; and
  • ceases to do business in the city after selling its assets in installment sales.

Although the taxpayer filed an amended return, it did not prove the year of sale was not its final tax year. For example, the taxpayer did not file a general corporation tax return for any later period.

1018 Morris Park Avenue Realty Inc. , New York City Tax Appeals Tribunal, TAT(E)14-4(GC), August 7, 2017 , ¶600-836

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All stories by: CCHTaxGroup