If a corporation voluntarily dissolved decades ago but keeps title to and rents out the same real property, does it still owe New York franchise tax, and can it elect New York S corporation status?

Plain-English summary

Judsu Realty Corp. was voluntarily dissolved on November 1, 1965. Since then, it has continued to hold fee title to, and continue the rental operation of, the same rental real property in New York City -- filing and paying franchise tax every year since dissolution. It became a federal S corporation on January 1, 1987 and has been seeking to elect New York S status for years since. It asked whether it remains subject to Article 9-A tax after dissolution, and if so, whether it can elect New York S corporation treatment.

The answer on taxability: yes. Tax Law section 209.3 provides that a dissolved corporation that continues to conduct business remains subject to Article 9-A. Regulations section 1-2.2 carves out an exception only where a dissolved corporation's activities are limited to winding up its affairs, disposing of assets outside the ordinary course of business, and distributing proceeds -- true liquidation, in other words. That exception did not apply to Judsu: unlike prior rulings where a dissolved corporation merely held bare record title as nominee while otherwise inactive (Eugene Strasser, TSB-A-88(18)C; Babson Bros., TSB-A-88(19)C), Judsu's post-dissolution activities are identical to its pre-dissolution business -- it kept fee ownership and kept operating the rental business exactly as before, going well beyond the mere holding of title (compare Joseph Barsh and Abe Schwartz, TSB-A-90(21)C). So Judsu remains taxable under Article 9-A for every year since its 1965 dissolution, for as long as it continues that business.

On the S-corporation election: yes, if the requirements are met. Under Tax Law section 660(a), if a corporation that is a federal S corporation is subject to Article 9-A tax, its shareholders may elect New York S corporation treatment by properly filing Form CT-6 -- but the election is effective only if all shareholders join in it. Note that for taxable years beginning after 1989, a New York S corporation computes its franchise tax under the special rules of Tax Law section 210.1(g).

What this means for you

Corporations that dissolved but never actually wound down

Simply filing dissolution paperwork doesn't end your New York tax obligations if you keep running the same business afterward. The test is functional, not formal -- what matters is whether your activities are true winding-up/liquidation, or a continuation of ordinary business (like ongoing rental operations here).

Real estate holding companies considering dissolution

If you dissolve but intend to keep the property and keep collecting rent, expect continued Article 9-A liability -- dissolution alone doesn't change the analysis unless you actually stop the underlying business and limit activity to liquidating and distributing assets.

S corporations with legacy dissolved-but-active entities

A federal S election doesn't automatically carry over to New York -- you need an affirmative Form CT-6 election, joined by all shareholders, and post-1989 New York S corporations compute tax under the special section 210.1(g) rules.

Common questions

Q: Does dissolving a corporation end its New York franchise tax obligation?
A: Not if it keeps conducting the same business afterward. Only genuine liquidation activity (winding up affairs, distributing assets, disposing of property outside the ordinary course) escapes Article 9-A tax post-dissolution.

Q: What's the difference between this case and the "inactive nominee" cases the Department distinguished?
A: In those cases, the dissolved corporation held bare record title only, doing nothing else. Here, the corporation kept actively operating its rental business exactly as before dissolution.

Q: How does a federal S corporation elect New York S status?
A: By filing Form CT-6 under Tax Law section 660(a), with all shareholders joining in the election; post-1989 New York S corporations compute tax under section 210.1(g).

Citations and references

Statutes and regulations:

• Tax Law section 209.1 (Article 9-A franchise tax imposition)
• Tax Law section 209.3 (dissolved corporation continuing business remains taxable)
• Business Corporation Franchise Tax Regulations section 1-2.2 (liquidation-only activity exception)
• Business Corporation Franchise Tax Regulations section 2-3.1 (tax through date franchise ceases)
• Tax Law section 660(a) (New York S corporation election); section 210.1(g) (post-1989 S corporation tax computation)

Cases and prior opinions cited in the ruling:

• Eugene Strasser, TSB-A-88(18)C
• Babson Bros. Co. of New York Inc., TSB-A-88(19)C
• Joseph Barsh and Abe Schwartz, TSB-A-90(21)C
• Wilcox, 43 BTA 931, affd 137 F2d 136; Hellman v Helvering, 68 F2d 763; Zimmerman, 31 BTA 754

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1991.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a91_22c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-91 (22) C
Corporation Tax
November 8, 1991

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C910822A

On August 22, 1991, a Petition for Advisory Opinion was received from Judsu Realty Corp.,
317 West 88th Street, New York, New York 10013.
The issue raised by Petitioner, Judsu Realty Corp., is whether it is subject to tax under Article
9-A of the Tax Law after it was dissolved and if it is taxable, can it elect to be treated as a New York
S corporation.
Petitioner was voluntarily dissolved on November 1, 1965. Since that time, Petitioner has
remained in fee ownership of rental real property at 315-317-319 West 88th Street, New York, New
York. Petitioner has filed and paid franchise tax for taxable years since the dissolution. Petitioner
is an S corporation for federal income tax purposes beginning January 1, 1987 and has sought to
elect New York S status for all years subsequent to January 1, 1987.
Section 209.1 of the Tax Law imposes a franchise tax on domestic and foreign corporations
for the privilege of exercising its corporate franchise or 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.
Section 2-3.1 of the Business Corporation Franchise Tax Regulations. (hereinafter
"Regulations") provides that every domestic 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 possess a franchise.
. 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. Eugene Strasser, Adv
Op St Comm T & F, September 1, 1988, TSB-A-88(18)C and Babson Bros. Co. of New York Inc.,
Adv Op St Comm T & F, September 1, 1988, TSB-A-88(19)C.
Federal courts have defined a complete liquidation as the operation of winding up the
corporation's affairs by settling its debts, realizing upon and distributing its assets. (Wilcox, 43
BTA 931, affd 137 F2d 136; Hellman v Helvering, 68 F2d 763.) However, if normal corporation
operations are continued, not even the cancellation of the corporate charter for failure to pay the
annual state franchise tax will be sufficient to provide liquidation. (Zimmerman, 31 BTA 754)
TP-9 (9/88)

-2­
TSB-A-91 (22) C
Corporation Tax
November 8, 1991
See also, Joseph Barsh and Abe Schwartz, Adv Op Comm T & F, October 12, 1990, TSB-A­
90(21)C.
Herein, while Petitioner was incorporated it had fee ownership of real estate and its business
was the rental of such property. Since it voluntarily dissolved in 1965, Petitioner has continued to
hold fee title to the property and to continue its real property rental operation. Petitioner's activities
after the dissolution are the same as before the dissolution.
Accordingly, Petitioner has continued to do business after it voluntarily dissolved. Like
Joseph Barsh, supra, Petitioner's activities have exceeded the mere holding of record title to real
property and the liquidating of its business affairs.
Therefore, pursuant to section 209.3 of the Tax Law, Petitioner is subject to the franchise tax
imposed under Article 9-A of the Tax Law for all taxable years since it was dissolved on November
1, 1965 to the date it ceases to conduct business.
Section 660(a) of the Tax Law provides that:
(a) Election. If a corporation which is an S corporation for federal income tax
purposes is subject to tax under article nine-a of this chapter, the shareholders of the
corporation may elect in the manner set forth in subsection (b) of this section to take
into account, to the extent provided for in this article, the S corporation items of
income, loss, deduction and reductions for taxes described in paragraphs two and
three of subsection (f) of section thirteen hundred sixty-six of the internal revenue
code which are taken into account for federal income tax purposes for the taxable
year. No election under this subsection shall be effective unless all shareholders of
the corporation have so elected.
If Petitioner has met the requirements of section 660(a) of the Tax Law, and it has made the
section 660 election by properly filing Form CT6 - Election by a Small Business Corporation,
Petitioner will be treated as a New York State S corporation for the taxable years for which such
election is effective.
It should be noted that for taxable years beginning after 1989, a New York State S
corporation must compute its franchise tax pursuant to section 210.1(g) of the Tax Law.

DATED: November 8, 1991

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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