N.Y. Comp. Codes R. & Regs. Tit. 20 §§ 1-2.3

Current through Register Vol. 46, No. 36, September 4, 2024

Section 1-2.3 - Foreign corporations - partnership interests

Tax Law, section 209(1)

(a) If a partnership is doing business, employing capital, owning or leasing property, maintaining an office, or deriving receipts from activity in New York State, as determined pursuant to the rules under article 9-A, then all of its corporate general partners (other than corporate partners that are or would be subject to franchise tax under article 9 or 33) are subject to the tax imposed by article 9-A.

(b) A foreign corporation is doing business, employing capital, owning or leasing property, maintaining an office, or deriving receipts from activity in New York State if:

(1) it is a limited partner of a partnership, other than a portfolio investment partnership, that is doing business, employing capital, owning or leasing property, maintaining an office, or deriving receipts from activity in New York State and

(2) it is engaged, directly or indirectly, in the participation in or the domination or control of all or any portion of the business activities or affairs of the partnership. Such foreign corporations that are limited partners of such partnerships (other than corporate partners that are or would be subject to franchise tax under article 9 or 33) are subject to the tax imposed by article 9-A. A foreign corporation is engaged, directly or indirectly, in the participation in or the domination or control of all or any portion of the business activities or affairs of the partnership if one or more of certain factual situations, including but not limited to the following, exist during the taxable year or, except for subparagraph (i) of this subdivision, any previous taxable year:

(i) The foreign corporation has a 1% or more interest as a limited partner in a partnership and/or the basis of the foreign corporation's interest in the limited partnership, determined pursuant to IRC section 705, is more than $1 million. For purposes of determining whether the level of interest in the partnership or level of basis of the interest in the partnership is met, the percentage of interest in the partnership, and basis of interest in the partnership of members of the foreign corporation's affiliated group, of officers or directors of the foreign corporation, or of officers or directors of members of the foreign corporation's affiliated group, are added to the foreign corporation's interest in the partnership or the basis of its interest in the partnership, respectively.

(ii) An officer, employee, or director of the foreign corporation, or an officer, employee, or director of a member of an affiliated group that includes such foreign corporation or a member of such an affiliated group, is a general partner of the partnership.

(iii) The foreign corporation or a member of an affiliated group that includes the foreign corporation is a 5% or more stockholder in a general partner of the partnership.

(iv) One or more officers, employees, directors or agents of the foreign corporation, or of a member of an affiliated group that includes such foreign corporation, perform acts usually performed by a general partner.

(v) The foreign corporation becomes a limited partner after one or more officers, employees, directors or agents of such corporation, or of a member of an affiliated group that includes such foreign corporation, negotiates the terms of the partnership agreement instead of merely accepting an existing agreement.

(vi) There is substantial communication between one or more officers, employees, directors or agents of the foreign corporation, or of a member of an affiliated group that includes such foreign corporation, and the general partner regarding the business activities or affairs of the partnership.

(vii) The foreign corporation, a member of an affiliated group that includes such foreign corporation, or an officer, employee, or director of the foreign corporation or of a member of such an affiliated group, guarantees payment of one or more loans to the partnership.

(viii) The foreign corporation, a member of an affiliated group that includes such foreign corporation, or an officer, employee, or director of the foreign corporation or of a member of such an affiliated group, makes loans to the partnership.

(ix) The foreign corporation is a limited partner that for purposes of IRC section 469 is materially participating in the partnership as defined in 26 CFR 1.469-5 T(e). For purposes of this subparagraph, references to taxpayer in such section 469 is deemed to mean any person, as defined in IRC section 7701(a)(1).

(x) The foreign corporation entered into the limited partnership arrangement not for a valid business or economic purpose, but for the principal purpose of avoiding or evading the payment of tax.

(c) Other factual situations, during the taxable year or any previous taxable year, to be considered as indications that a foreign corporation is engaged, directly or indirectly, in the participation in or the domination or control of all or any portion of the business activities or affairs of the partnership, include the following:

(1) The foreign corporation, or a member of an affiliated group that includes such foreign corporation, sells its products and/or services to the partnership.

(2) The foreign corporation, or a member of an affiliated group that includes such foreign corporation, purchases the partnership's products and/or services.

(3) The foreign corporation, or a member of an affiliated group that includes such foreign corporation,

is engaged in a similar or identical business to that of the partnership.

(4) 50% or more of the foreign corporation's assets or those of a member of an affiliated group that includes such foreign corporation are a limited partnership interest in the partnership.

(5) The business carried on by the partnership is integrally related to the business of the foreign corporation or a member of an affiliated group t h a t includes such foreign corporation.

(6) The foreign corporation exercises its voting rights as a limited partner to remove a general partner, to approve the sale of the partnership assets, to amend the partnership agreement or to dissolve the partnership.

(7) The foreign corporation, or a member of an affiliated group that includes such foreign corporation, is interrelated with the partnership through one or more of the following factors:

(i) common management;

(ii) common policy and directives, including policy and directives relating to legal services, assignment or transfer of executive personnel, determination and enforcement of procedures to ensure compliance with the law, salary guidelines or uniform pay scale and/or labor relations activities;

(iii) common or inter-entity use of intellectual property, such as patents, trademarks or copyrights;

(iv) common or inter-entity use of product distribution systems and/or warehousing functions;

(v) common or inter-entity use of facilities, equipment, or employees;

(vi) common or inter-entity personnel recruitment;

(vii) common or inter-entity research and development activities;

(viii) common or inter-entity marketing and/or advertising;

(ix) common or inter-entity information processing and computer support, printing, telecommunications, and/or other support services;

(x) common or inter-entity transfer or pooling of technical information;

(xi) common or inter-entity pension plans and/or insurance plans; or

(xii) common or inter-entity credit analysis and coordination of credit extension.

(d) If a limited liability company that is treated as a partnership for tax purposes, other than a limited liability company that is treated as a portfolio investment partnership, is doing business, employing capital, owning or leasing property, maintaining an office or deriving receipts from activity in New York State, then all of its members that are foreign corporations (other than foreign corporations that are or would be subject to tax under article 9 or 33) are subject to the tax imposed by article 9-A; provided, however, that if the operating agreement of such limited liability company imposes limitations on the foreign corporate member's participation in the management of the limited liability company either equivalent to or more stringent than the limitations on the participation in the control of the business of a limited partnership imposed on limited partners under article 8-A of the New York Partnership Law, the foreign corporate member will be subject to the rules applicable to foreign corporate limited partners set out in this section.

(e) As used in this section, the following terms have these meanings:

(1) The term "1% or more interest" means a distributive share of 1% or more of a limited partnership's income, gain, loss, deduction, or credit determined pursuant to IRC section 704.

(2) The term "inter-entity" means business activities or affairs carried on between a foreign corporation that is a limited partner of a partnership, or a member of an affiliated group that includes such foreign corporation, and such partnership.

(3) The term "affiliated group" has the same meaning as such term is defined in IRC section 1504, except that the term "common parent corporation" is deemed to mean any person, as defined in IRC section 7701(a)(1), and except that references to at least 8 0 % in such section 1504 are read as more than 50%. IRC section 1504 is read without regard to the exclusions provided for in section 1504(b).

(4) The term "portfolio investment partnership" means a limited partnership that meets the gross income requirement of IRC section 851(b)(2). For purposes of the preceding sentence, income and gains from commodities (not described in IRC section 1221) or from futures, forwards, and options with respect to such commodities are included in income that qualifies to meet such gross income requirement. Such commodities must be of a kind customarily dealt in on an organized commodity exchange and the transaction must be of a kind customarily consummated at such place, as required by IRC section 864(b)(2)(B)(iii). To the extent that such a partnership has income and gains from commodities (not described in IRC section 1221) or from futures, forwards, and options with respect to such commodities, such income and gains must be derived by a partnership that is not a dealer in commodities and is trading for its own account as described in IRC section 864(b)(2)(B)(ii). The term portfolio investment partnership does not include a dealer (within the meaning of IRC section 1236) in stocks or securities.

N.Y. Comp. Codes R. & Regs. Tit. 20 §§ 1-2.3

Adopted New York State Register December 27, 2023/Volume XLV, Issue 52, eff. 12/27/2023