Question 1:
Facts:
ABC partnership is New York State based partnership, which has 3 partners:
- Partner A: is a New York partnership with two (2) partners: Susie, who is a New York resident for tax purposes and Bill, who is non-resident for New York tax purposes. Each of the partner's distributive share is equal to ½ of all items of income, gain, loss and deductions received and/ or incurred by the partnership.
- Partner B: is Limited Storage LLC, a Limited Liability Company that is wholly owned by Jackie, who is a New York resident for tax purposes.
- Partner C: is a newly incorporated S-Corporation for federal purposes. Partner C has 2 shareholders.
Each partner's distributive share is equal to 1/3rd of all items of income, gain, loss and deductions received and or incurred by ABC partnership.
All services performed on behalf of ABC partnership are performed in New York State, except for the services rendered by Bill, which are performed both in New York and in New Jersey. When performing services in New Jersey. Bill works in a warehouse that is leased by ABC partnership. ABC could have leased a warehouse in New York, but chose to lease the warehouse in New Jersey because of rent cost. Bill works seventy five (75) days in New Jersey and seventy five (75) days in New York for ABC partnership.
Bill also receives the following items of income during the year:
- $20,000 of rental income from property located in New Jersey
- $50,000 in dividends from stocks he owns in Microsoft
- $50,000 in interest income received pursuant to a loan agreement with his friend
- $30,000 from a non-competition agreement he had with his former employer located in Florida
The distribution Partner A receives from ABC partnership at the end of year is comprised of two components (1) compensation for services rendered by Partner A on behalf of ABC partnership and (2) the distributive share of the ABC partnership's yearly income, gain, loss or deductions.
ABC partnership has $240,000 in gross income in 2012. Of the $240,000, $40,000 represents earnings from Bill's services rendered in New Jersey on behalf of ABC partnership. ABC partnership also sustained $80,000 in losses and deductions, of which, $20,000 is attributable to Bill's work in New Jersey.
Questions:
1. How are the items of income, gain, loss and deductions received or incurred by ABC partnership and its partners reported for New York State tax purposes?
2. To what extent, if any, is Susie's distributive share from ABC partnership subject to New York State tax?
3. Identify each item of income, gain loss and/or deduction that Bill receives throughout the tax year which is subject to New York State tax, and explain whether, and to what extent, the income is subject to New York state taxes. If you believe any item of income, gain, loss or deduction that Bill receives is not subject to New York State income tax, explain your answer.
4. How is Limited Storage LLC and Jackie taxed under New York State and City law? Fully explain your answer.
5. What is the New York State City tax effect on the shareholders and their basis in the S-corporation stock upon receiving its year-end distributive share of income, gain, loss and deductions from ABC partnership? Fully explain your answer.
Question 2:
A nonresident taxpayer is employed as an IT technician for a company located in New York. The taxpayer earns $100,000 in salary for the tax year. The taxpayer's job requires him to travel throughout the country to various satellite offices of the company to maintain their IT systems.
During the tax year, the taxpayer can show that he spent:
- One-hundred (100) days in the company's New York office,
- Twenty-five (25) days in the company's Miami office,
- Thirty-five (35) days in the company's Chicago office,
- Forty (40) days in the company's LA office, and
- Ten (10) days from his home in Connecticut using special IT equipment that his Employer could not afford, that further ensure the safety of the company's network.
The taxpayer cannot demonstrate where he worked any of the other days of the year.
In addition to his salary, the taxpayer earned the following income
- $150,000 from the sale of stock of a California corporation which only held New York real property
- $4,000 in NY State lottery winnings
- $50,000 distribution from his pension plan
- $1,000 interest income from his savings account from ING
- $100,000 in gains from the sale of a painting located in Connecticut but sold while temporarily at a museum located in New York. The cost of the painting was $20.000.
Discussion Questions
1. To what extent, if any, is the income realized by the taxpayer other than his wages from his company are subject to New York taxation? Fully explain your answer.
2. To what extent, if any, is the wages the taxpayer earned subject to New York taxation? Fully explain your answer.
3. What is the taxpayer's allocation formula to determine his New York source wages?
4. What is the allocation percentage to be applied to his "base tax" in determining his overall New York tax liability?
5. What is the taxpayer's New York tax liability? Assume that the New York tax rate is 8%.