Does an out-of-state shell corporation that only holds title to New York land, as a nominee to hide the real buyers' identity from neighbors, owe New York corporate franchise tax?

Plain-English summary

Five New York residents formed a partnership in February 1986 to buy vacant lots in New York City, and put title in the name of an old, inactive Florida corporation (incorporated 1978) purely to hide the true buyers' identity from neighboring property holders -- the corporation never opened a bank account or did anything else, and the partnership itself filed all tax returns and handled all money. The corporation was formally dissolved in March 1987. The question was whether this "shell" corporation owed New York corporate franchise tax for holding the land.

The Department split the answer by time period. While the corporation existed (1986 and 1987), merely holding record title to New York property as nominee for others is enough activity to trigger Article 9-A tax under § 209.1 and the specific regulation on nominee holdings (§ 1-3.2(d), which states flatly that "property held as a nominee for the benefit of others creates taxable status"). After dissolution (1988 onward), the same passive title-holding stopped being taxable, because § 209.3 only reaches a dissolved corporation that continues "conducting business," and merely holding nominee title isn't that.

What this means for you

Anyone using a corporate nominee to hold New York real estate

A corporation set up purely to obscure ownership from the public doesn't escape New York franchise tax while it's a live corporate entity — the regulations specifically target nominee title-holding as a taxable activity, regardless of how passive or purposeless the corporation otherwise is. The tax exposure only ends once the corporation is formally dissolved (and even then, only if it does nothing more than hold the property).

Accountants and tax professionals

This ruling and its same-week companion, TSB-A-88(19)C, establish the same rule from both directions: an EXISTING corporation holding nominee title IS doing business (§ 209.1, § 1-3.2(d)); a DISSOLVED corporation with no beneficial interest and no other activity is NOT (§ 209.3, § 1-2.2). The dividing line is corporate existence, not the passivity of the title-holding itself — filing a certificate of dissolution is what flips the analysis.

Common questions

Q: If a corporation never does any business except hold title as a nominee, is it exempt from franchise tax?
A: No — while the corporation legally exists, nominee title-holding alone is enough to make it subject to Article 9-A tax, per Regulations § 1-3.2(d).

Q: Does dissolving the corporation retroactively erase franchise tax owed for the years it held the property?
A: No. Tax accrues for the years 1986-1987 that the corporation existed and held title. Dissolution only stops NEW tax from accruing going forward (here, 1988 onward).

Q: Can another taxpayer using a similar nominee structure rely on this opinion?
A: No. It binds the Department only for this petitioner's specific facts and cannot be relied upon by anyone else.

Citations and references

Statutes and regulations:

• Tax Law § 209.1 (Article 9-A tax on foreign corporations owning/leasing NY property)
• Tax Law § 209.3 (dissolved corporation conducting business remains taxable)
• Business Corporation Franchise Tax Regulations § 1-3.2(d) (nominee holding creates taxable status)
• Business Corporation Franchise Tax Regulations § 2-3.1(a) (tax through date activity ceases)
• Business Corporation Franchise Tax Regulations § 1-2.2 (liquidation-only exception)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1988.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a88_18c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-88 (18)C
Corporation Tax
September 1, 1988

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C880622A

On June 22, 1988, a Petition for Advisory Opinion was received from Eugene Strasser, 1675
46th Street, Brooklyn, New York 11204.
The issue raised is whether an inactive Florida corporation, that is record title holder of a
parcel of New York State real estate as nominee for a New York partnership, is subject to New York
State Franchise Tax under Article 9-A of the Tax Law.
Petitioner formed a partnership with four other New York residents on February 23, 1986.
The partnership bought a number of vacant lots in New York City on February 24, 1986. The
partners had title to the lots registered in the name of a Florida corporation to obscure from
neighboring property holders the true owner of the lots being acquired. The Florida corporation never
engaged in any activity, never even opening a bank account, from its incorporation on March 21,
1978 to its formal dissolution on March 5, 1987.
The corporation never filed a federal corporation tax return. The partnership files a federal
partnership return and reports all transactions applicable to the property. Each partner reports his
proportionate share of partnership income and loss on his personal federal income tax return. The
partnership maintains a bank account into which all receipts are deposited and out of which all
expenses are paid. The partnership has filed information returns for New York State. Each of the
partners reports his proportionate share of partnership income and loss on his New York State
income tax return.
Section 209.1 of the Tax Law imposes a franchise tax on foreign corporations for the
privilege of doing business, or of employing capital, or of owning or leasing property in New York
State in a corporate or organized capacity, or of maintaining an office in New York State for all or
any part of each of its fiscal or calendar years.
Section 1-3.2(d) of the Business Corporation Franchise Tax Regulations (hereinafter
"Regulations) provides that "[t]he owning or leasing of real or personal property within New York
State constitutes an activity which subjects a foreign corporation to tax... Property held as a nominee
for the benefit of others creates taxable status .... "
Therefore, a foreign corporation that is merely a record title holder of real property located
in New York State as nominee for the benefit of others is subject to tax under Article 9-A.
Section 2-3.1 (a) of the Regulations provides that a foreign corporation "is required to pay
a tax measured by entire net income (or other applicable basis) up to the date on which it ... ceases
to do business, employ capital, own or lease property in e corporate or organized capacity or
maintain an office in this State."

-2­
TSB-A-88 (18)C
Corporation Tax
September 1, 1988

Section 209.3 of the Tax Law provides that a dissolved corporation which continues to
conduct business shall be subject to tax under Article 9-A. Section 1-2.2 of the Regulations provides
further that where the activities of a dissolved corporation are limited to the liquidation of its
business and affairs, the disposition of its assets (other than in the regular course of business) and
the distribution of the proceeds, the dissolved corporation is not subject to tax under Article 9-A.
Therefore, a dissolved corporation that is merely a record title holder of real property located
in New York State as nominee for the benefit of others, and is otherwise inactive, is not conducting
business in New York State as contemplated by section 209.3 of the Tax Law.
Accordingly, the Florida corporation that is record title holder of real property located in New
York State is subject to the franchise tax imposed by Article 9-A of the Tax Law, pursuant to section
209.1 of such law and section 1-3.2(d) of the Regulations, for the taxable years during which it was
in existence and held title to such property; that is, taxable years 1986 and 1987. After its formal
dissolution, the Florida corporation will not be subject to tax under Article 9-A unless it conducts
business in New York. Pursuant to section 209.3 of the Tax Law, merely holding property as
nominee for the benefit of others is not sufficient activity to subject the dissolved Florida corporation
to tax under Article 9-A.

DATED: September 1, 1988

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.