Our partnership's founding families disputed a 1977 agreement to divide up jointly-owned properties, litigated for years, and finally settled in 1988 with a different split than the 1977 agreement's terms implied. Can the 1988 settlement's property distribution still qualify as exempt from New York's Real Property Transfer Gains Tax as a transfer made pursuant to a written contract signed before the tax existed in 1983?

Plain-English summary

This tax no longer exists. New York's Real Property Transfer Gains Tax (former Article 31-B of the Tax Law) was a 10% tax on the GAIN from transferring New York real property where consideration was $1 million or more. It was repealed for any transfer occurring on or after June 15, 1996. This 1989 opinion is preserved here for historical and research value, not as current law.

Goldlex Holding Company was a New York partnership created by a 1974 Joint Venture Agreement between Alexander DiLorenzo, Jr. and Sol Goldman, under which the two men (and, through separate arrangements, Irving Goldman) held various New York properties as nominees on the partnership's behalf, including the Great South Bay Company Properties. DiLorenzo and Goldman each held 37.5% of the Great South Bay interest; Irving claimed a disputed 25% share (contested by the DiLorenzo side), pointing to diverted funds and consistent tax-return reporting as evidence of his stake. After DiLorenzo died in 1975, his estate (the "AD Estate") sought to liquidate the partnership. On June 30, 1977, the AD Estate, Goldman, and Irving signed a short agreement stating only that Great South Bay would "be divided forthwith" and "completed by no later than July 30, 1977" -- without spelling out exactly how the division would work, leaving the estate to argue the split should follow the reported 37.5%/37.5%/25% interests. Goldman simply refused to comply. Litigation followed starting in 1984, and -- after Goldman's own death -- the parties finally reached a Liquidation and Settlement Agreement in 1988, distributing the remaining Great South Bay properties in THREE roughly EQUAL groups (drawn by lot), one to each of the AD Estate, Goldman's estate, and Irving -- a materially different split than the 37.5%/37.5%/25% division the 1977 agreement's terms had implied.

The estate argued the 1988 distribution should still qualify for the gains tax's grandfather exemption, since it traced back to a written contract (the 1977 agreement) signed years before the tax's 1983 effective date. The Department rejected this on two separate, independently sufficient grounds. First, its own regulation (former 20 NYCRR § 590.20) requires more than a signed document -- the grandfather exemption demands INDEPENDENT EVIDENCE, like recording the contract or paying a deposit, that the parties genuinely committed themselves to a binding transaction. The brief, never-recorded 1977 agreement didn't even specify the actual division terms (those had to be INFERRED from separate joint venture and nominee agreements), and the parties then simply blew past their own July 30, 1977 completion deadline without consequence -- undercutting any claim that the 1977 document reflected a truly binding commitment. Second, and independently fatal: even assuming the 1977 agreement HAD qualified, the actual 1988 settlement distributed the properties on DIFFERENT terms (equal thirds by lot, rather than 37.5%/37.5%/25%) -- and the regulations are explicit that ANY change in the amount of consideration or interests actually received automatically counts as a "substantial" change, forfeiting grandfathered status regardless of how the change came about.

What this means for you

Partnerships and family real estate ventures relying on old, informal division agreements

Under this now-repealed tax, a brief, unrecorded agreement that merely states an intention to divide property "forthwith" -- without laying out the actual mechanics -- likely wouldn't satisfy the grandfather exemption's demand for independent evidence of a genuinely binding commitment, especially if the deadline in that very agreement was missed.

Estate attorneys and litigators settling long-running partnership disputes involving real estate

This opinion is a cautionary tale for structuring a litigation settlement around an old pre-tax agreement: if the FINAL settlement terms end up different from what the OLD document specified or implied, that difference alone defeats grandfathered treatment, no matter how directly the settlement traces back to the earlier dispute.

Real estate attorneys evaluating whether an old contract satisfies the grandfather clause

The two independent grounds here -- (1) lack of independent evidence of a binding commitment, and (2) a later substantial change in terms -- are a useful checklist for assessing whether ANY old, informal agreement can support a grandfathered-transfer exemption claim.

Common questions

Q: Does this grandfather-clause evidentiary standard still matter today?
A: Not under this specific tax -- it was repealed for transfers on or after June 15, 1996. Current New York real estate taxes have their own separate rules for pre-existing contracts.

Q: What kind of evidence WOULD have satisfied the grandfather exemption here?
A: The statute itself gives two examples: recording the contract, or payment of a deposit -- both signal a level of binding commitment beyond simply signing a document. Neither happened with the 1977 agreement.

Q: Why did missing the July 30, 1977 deadline matter to the Department's analysis?
A: Because it undercut the claim that the parties were truly, firmly bound by the 1977 agreement -- if they had been, presumably the division would have actually happened on schedule instead of dragging into litigation seven years later.

Q: Can another partnership settling a similar old dispute rely on this exact ruling?
A: No, apart from the repeal -- an Advisory Opinion binds the Department only as to the petitioner and facts presented, and this result depended on the specific weakness of the 1977 agreement's terms and the specific way the final 1988 settlement diverged from it.

Citations and references

Statutes and regulations:

• former Tax Law § 1443.6 (grandfather exemption for a transfer pursuant to a written contract entered into before the gains tax's March 28, 1983 effective date, with the execution date confirmed by independent evidence such as recording the contract or paying a deposit)
• former 20 NYCRR § 590.20 (the grandfather exemption requires independent evidence, beyond the mere signing of a contract, that the parties committed themselves to the transaction -- guided by the statutory examples of recording or a deposit, both conveying binding action beyond signing)
• former 20 NYCRR § 590.21 (a grandfathered pre-March 28, 1983 contract remains exempt after a later amendment only if the amendment is nonsubstantial; any change in the amount of consideration for the real property automatically results in a non-grandfathered, taxable transfer)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_prop_tran_ao_1989.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/real_property/a89_1r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-89 (1) R
Real Property
Transfer Gains Tax
January 13, 1989

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M880916A

On September 16, 1988, a Petition of Advisory Opinion was received on behalf of Goldlex
Holding Company located at 640 Fifth Avenue, New York, New York 10019.
The issue raised concerns the application of the Real Property Transfer Gains Tax imposed
by Article 31-B of the Tax Law (hereinafter the "Gains Tax") to the liquidating distribution of
property owned by Petitioner, in particular the Great South Bay Company Properties, pursuant to
contracts entered into prior to March 28, 1983, the effective date of the Gains Tax Statute.
The facts as presented are that Petitioner is a New York partnership. The holders of
partnership interests in Petitioner are DiLorenzo Properties Company, as successor to the Estate of
Alexander DiLorenzo, Jr. which, in turn, was the successor to Alexander DiLorenzo, 3r. (collectively
referred to as the "AD Estate"), the Estate of Sol Goldman, as successor to Sol Goldman (hereinafter
referred to as "Goldman), and Irving Goldman ("Irving").
Petitioner was created pursuant to a Joint Venture Agreement entered into on September 19,
1974 between Alexander DiLorenzo, Jr. ("DiLorenzo") and Goldman. Such Joint Venture
Agreement (and a Nominee Agreement entered into at the same time) provided that DiLorenzo and
Goldman held as tenants-in-common, and/or through other entities, interests in various properties
and that upon the execution of these agreements, they would be deemed to hold these properties as
nominees on behalf of Petitioner.
Pursuant to the Joint Venture Agreement, DiLorenzo and Goldman owned collectively 75%
(each of the joint venturer's ownership being 37½% of the whole) of the interest in Great South Bay
Company Properties. The beneficial owner of the remaining 25% was Irving.
It was Irving's contention that he was partner in Petitioner, and should be held to have a 33

a% interest in the capital of the Great South Bay division. Irving's basis for this contention is the

allegation that during 1976-1978, monies from the Great South Bay division were diverted to
subsidize the properties owned in the other divisions of Petitioner, of which he holds an interest.
Also, it is stated that Irving was consistently reported as having an interest in Petitioner on
Petitioner's Federal and state tax returns. Irving's partner status was contested by AD Estate.
On September 5, 1975, DiLorenzo died. Accordingly, AD Estate became the successor to his
property interest, and sought to liquidate Petitioner.
An agreement dated June 30, 1977 was entered between the AD Estate, Goldman and Irving
to provide that all of the assets of Great South Bay were to be distributed by July 30, 1977. The
agreement stated:

TP-9 (9/88)

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Real Property
Transfer Gains Tax
January 13, 1989

It is agreed between the parties hereto that Great South Bay shall be divided forthwith and
that the distribution to Irving Goldman shall not be hindered by any other contractual arrangements
between Sol Goldman, for himself, and the Estate of Alex DiLorenzo, Jr. Said distribution shall be
completed by no later than July 30, 1977.
Thus, it is contended that it is clear that the partners executed agreements prior to March 28,
1983 which required that Petitioner be liquidated.
Moreover, it is contended that since the agreements did not specify the terms of liquidation,
it must be inferred that the agreements required that the properties of Petitioner be distributed in
accordance with the partners' relative interests in each division as set forth in the Joint Venture and
Nominee Agreements and as consistently reported for Federal and State income tax purposes (i.e.,
for the Great South Bay division, 37.5% for the AD Estate, 37.5% for Goldman, and 25% for Irving).
Goldman refused to distribute the remaining assets of Petitioner in compliance with the Split
Agreements and the June 30, 1977 Agreement.
In 1984, the AD Estate commenced an action in the New York Supreme Court, New York
County, against Petitioner, Goldman, Irving and various of Petitioner's divisions and nominees. The
complaint alleged that the liquidation of Petitioner (including its Great South Bay division) was
required by contracts (entered into before March 28, 1983), and that the defendants had breached
such contracts.
In July 1988, after various litigation and appeals, and the death of Goldman, the parties
agreed to a draft of a proposed Liquidation and Settlement Agreement. In the settlement, Petitioner
will distribute to each of Goldman, Irving and the AD Estate, one group of Petitioner's remaining
properties in the Great South Bay division. Each group represents approximately 33 a% in value
of the remaining net assets of Petitioner. The AD Estate, Goldman and Irving will each draw one of
the groups of properties by lot (as the other divisions of Petitioner were divided under the Split
Agreements).
Thus, it is contended that the liquidation of Petitioner in accordance with the proposed
settlement agreement would be exempt from the Gains Tax, because the liquidating transfers are
being made pursuant to written contracts entered into before March 28, 1983.
Section 1443.6 of the Tax Law provides, in part, that a Gains Tax shall not be imposed:
Where a transfer of real property occurring after the effective date of
this article is pursuant to a written contract entered into on or before
the effective date of this article, provided that the date of execution
of such contract is confirmed by independent evidence, such as

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Real Property
Transfer Gains Tax
January 13, 1989

recording of the contract, payment of a deposit or other facts and
circumstances as determined by the tax commission.
Gains Tax Regulation 590.20 provides, in part, that:
The intent of the Legislature, in our judgment, was to exempt those
contracts pursuant to which the parties, through some evidence
external and in addition to the contracts, committed themselves to the
transaction. The statute leaves discretion to the State Tax
Commission to determine what sort of [independent] evidence is
acceptable. However, that discretion is to be guided by the two
examples set forth in the law, namely the payment of a deposit or the
recording of the contract.
Each of these statutory examples conveys a sense of binding action
by the parties, above and beyond the signing of a contract. The
exercise of discretion on the part of the department in this area is to
be guided in a similar way. (emphasis added).
Also, Gains Tax Regulation 590.21 provides, in part, that:
(a) Question: If a contract entered into on or before March 28, 1983
is amended after such date, will the contract continue to be exempt by
reason of section 1443(6) of the Tax Law?
Answer: Yes. As long as the amendment is of a nonsubstantial
nature. The determination of what constitutes a nonsubstantial change
will be made on a case-by-case basis. However, any change in the
amount of consideration for the real property automatically results in
a transfer which is not pursuant to a written contract entered into on
or before March 28, 1983, and thus such transfer is taxable. (emphasis
added).
Accordingly, based on the foregoing, the agreement entered into on June 30, 1977 for the
distribution of the Great South Bay does not support a claim of exemption as a "grand fathered
contract". While the agreement provides that the Great South Bay is to be distributed to Irving,
Goldman and the AD Estate, such agreement fails to include important terms and conditions which
the Petitioner claims are "inferred" or "implicit" through other agreements. Thus, the agreement fails
to show that the parties committed themselves to the transaction and fails to convey a sense of
binding action by the parties.
Moreover, the fact that the parties failed to record the agreement shows that the parties were
not binding themselves to the agreement. The nature of both examples that are stated in the statute
(i.e. the recording of the contract or payment of a deposit) indicate that the statute looks to evidence

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Real Property
Transfer Gains Tax
January 13, 1989

which manifests the parties' intention to be firmly bound by the contract at a date on or before the
effective date of the tax through some action other than the mere signing of documents.
Further, it is clear that the parties made substantial changes to the agreement after the
effective date of the gains tax. The agreement set forth that the distribution shall be completed by
no later than July 30, 1977. This was not done. Rather, Goldman refused to distribute the assets in
accordance with the agreement. Thus, in 1984, litigation was commenced to arrive at an acceptable
settlement reached in 1988, which settlement established that Irving, Goldman and AD Estate are
each to receive individually a 33 a% value of the assets in the distribution rather the percentages
said to be inferred in the June 30, 1977 agreement by the joint venture and nominee agreements. The
joint venture and nominee agreement provided that DiLorenzo (succeeded by AD Estate) and
Goldman each held a 37.5% interests in Great South Bay Company properties. Irving is not a party
to the joint venture or nominee agreement. Such a change in the interest to be received by the parties
is a substantial change in nature which precludes qualification as a grand fathered contract.
Therefore, the distribution of the Great South Bay Company Properties by Petitioner is
subject to the Gains Tax.

DATED: January 13, 1989

s/FRANK J. PUCCIA
Director
Technical Services

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