New York Tax Appeals Division Finds Goodwill Triggers Mandatory S Corporation Election

The New York Division of Tax Appeals (DTA) determined that Division of Taxation properly applied the tax law in determining that the self-created goodwill by a federal S corporation, during the course of its business operations, should be included in its investment income. The Division conducted an audit of the corporation and determined that a long-term capital gain came from a sale of goodwill, and the self-created goodwill was investment income. The investment income percentage triggered a mandatory S corporation election at the state level, resulting in net taxable gain flowing through to its individual taxpayer shareholders. The taxpayers argued ...