IN RE: PROSKAUER ROSE (2008)

Determination of respondent Tax Appeals Tribunal of the City of New York, dated November 5, 2007, sustaining deficiencies of New York City unincorporated business tax found by respondent Commissioner of Finance of the City of New York as a result of disallowing certain unincorporated business deductions claimed by petitioner, unanimously confirmed, the petition denied, and the proceeding brought pursuant to CPLR article 78 (transferred to this Court by order of the Supreme Court, New York County [Emily Jane Goodman, J.], entered June 5, 2008), dismissed, without costs.

Petitioner law firm did not sustain its burden of establishing its entitlement to the specific deductions it claims (see Administrative Code of City of N.Y. § 11-529[e];  Matter of Colt Indus. v. New York City Dept. of Fin., 66 N.Y.2d 466, 471, 497 N.Y.S.2d 887, 488 N.E.2d 817 [1985] ).   The payments to retired partners under the Optional Service Plan cannot be for goodwill, because section 13 of the partnership agreement expressly prohibits payments for goodwill (Matter of Citrin Cooperman & Co., LLP v. Tax Appeals Trib. of City of N.Y., 52 A.D.3d 228, 859 N.Y.S.2d 158 [2008] ).   The Tax Appeals Tribunal's interpretation that the subject payments were for services rendered by the retiring partners is supported by substantial evidence and has a rational basis in the law (see Matter of American Tel. & Tel. Co. v. State Tax Commn., 61 N.Y.2d 393, 400, 474 N.Y.S.2d 434, 462 N.E.2d 1152 [1984] ).   Petitioner's contention that the payments were made to compensate the retiring partners for their contribution to the intangible value of the firm is unavailing because a contribution to the intangible value of the firm has its basis in the doing of work and the performing of services.   Further, the calculation of the payments to the retiring partners takes into account their earnings and years of services.   Thus, the payments fit squarely within the plain language of Administrative Code § 11-507(3) (“No deduction shall be allowed ․ for amounts paid or incurred to a proprietor or partner for services or for use of capital”).

Petitioner's federal tax deductible contributions to deferred compensation plans on behalf of active partners, while made not to the partners but directly to the plans, clearly are for the direct benefit of the partners and thus are also not deductible under Administrative Code § 11-507(3) (see Matter of Horowitz v. New York City Tax Appeals Trib., 41 A.D.3d 101, 837 N.Y.S.2d 89 [2007], lv. denied 10 N.Y.3d 710, 859 N.Y.S.2d 395, 889 N.E.2d 82 [2008] ).