The New York Tax Appeals Tribunal affirmed a Division of Tax Appeals (DTA) ruling, holding that deferred compensation earned by a partnership should be allocated to New York based on the business allocation percentage (BAP) from the year in which the services were performed, rather than the year in which the deferred income was recognized.

Taxpayers were individual nonresident partners of a partnership that recognized management fees in 2017 that it had earned and deferred in prior years pursuant to IRC § 457A. The partnership had operated exclusively in New York during the years in which the fees were earned and deferred, such that the BAP for those years would be 100%, but operated on a multistate basis in 2017, with a resulting lower BAP. Taxpayers sought to apportion the deferred fees recognized in 2017 using the lower BAP for that year. The Tribunal held that the deferred compensation is allocated by utilizing the BAP of the partnership for each of the tax years the services were performed, despite the compensation having been only been recognized in 2017. The Tribunal also upheld penalties, despite the taxpayer’s reliance on written advice from an accounting firm, stating that the taxpayer had failed to show that its reliance was reasonable where the professional advice contradicted guidance provided by the State.

Decision Nos. 830479 and 830481, N.Y. Tax App. Trib. (12/12/24).