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2010-2 N.Y. Tax Cas. J-1 (2010)

handle is hein.nytax/nytcas0065 and id is 1 raw text is: 2010 New York Tax Cases J- 1 STATE OF NEW YORK DIVISION OF TAX APPEALS In the Matter of the Petitions of THOMAS AND LINDA LEON DANIEL LEON AND ALISON KOOBA DETERMINATION JONATHAN LEON DTA NOS. 822339, 822340 AND 822341 for Redetermnination of Deficiencies or for Refund of Personal Income Tax under Article 22 of the Tax Law for the Years 2003, 2004 and 2005. Petitioners, Thomas and Linda Leon, Daniel Leon and Alison Koobaf-W and Jonathan Leon, filed petitions for redetermnination of deficiencies or for refund of personal income tax under Article 22 of the Tax Law for the years 2003, 2004 and 2005. A hearing was held before Joseph W. Pinto, Jr., Administrative Law Judge, at the offices of the Division of Tax Appeals, 641 Lexington Avenue, New York, New York, on March 27, 2009, at 10:3 0 A.M., with all briefs submitted by July 13, 2009, which date began the six-month period for the issuance of this determination. Petitioners appeared by Dickstein Shapiro LLP (Lawrence D. Garr, Esq., of counsel). The Division of Taxation appeared by Daniel Smirlock, Esq. ( Marvis A. Warren, Esq., of counsel). ISSUE Whether certain flow-through losses deducted by petitioners on their individual resident income tax retumns for the years in issue were properly disallowed by the Division of Taxation because petitioners lacked sufficient shareholder basis to justify said deductions. FINDINGS OF FA CT The parties entered into a Stipulation of Facts, dated March 17, 2009, containing ten numbered paragraphs, all of which have been incorporated into the Findings of Fact below. 1. During 2003, 2004 and 2005 (the audit period), petitioners owned Apothecus Pharmaceutical Corp. (Apothecus), a New York corporation that was incorporated in 1974. For each of the years in the audit period, Apothecus elected to be taxed as a Subchapter S corporation under federal tax law and New York tax law. 2. Apothecus was a closely held corporation, entirely owed by petitioners, and held during the audit period in the following percentages: Thomas Leon, 26.23% Linda Leon, 4.87% Daniel Leon, 43.9% Jonathan Leon, 25%

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