A New York State administrative law judge recently held that a nonresident partner improperly included a loss from the disposition of a partnership interest as New York source income, while gain from the partnership’s sale of New York real estate was properly included as New York source income. The nonresident partner, Craig A. Olsheim, was a limited partner in a partnership whose only asset was a New York City office building. There was a disparity in Mr. Olsheim’s inside and outside bases because he had recently inherited his partnership interest. In addition to reporting his pro rata share of the gain from the sale of the office building, Mr. Olsheim also claimed a capital loss resulting from the difference between his outside and inside bases. While current New York law would allow Mr. Olsheim to properly allocate the loss to New York, the law that existed at the time of the sale and liquidation of the partnership did not. The provision in the law that currently allows the sourcing of these types of losses to New York was not added until 2009 and was not made retroactive. Thus, the ALJ held that the loss was improperly sourced to New York. In re Craig A. Olsheim, DTA No. 824218 (May 9, 2013).

Co-author - Patrick Smith, Director Baker Tilly Virchow Krause, LLP

Mr. Ely is a partner and Messrs. Thistle and Rhyne are associates with the multistate law firm of Bradley Arant Boult Cummings LLP in its Birmingham, Alabama office. Mr. Ely is Chair of the firm’s State & Local Tax Practice Group. Messrs. Ely, Thistle, and Rhyne co-author a chapter on the state taxation of PTEs in the treatise “Keatinge, Conaway and Ely on Choice of Business Entity” (West). Mr. Smith is the Tax Director at Baker Tilly Virchow Krause, LLP and is head of State & Local Tax Services for the firm’s Chicago office. Mr. Smith is a co-author of “State Taxation of Pass-Through Entities and Their Owners,” a treatise published by Warren Gorham and Lamont/West since 2005. Messrs. Ely and Smith have co-presented on this topic at NYU’s Institute on Federal Taxation, as have Messrs. Thistle and Smith for a webinar hosted by Strafford Publications in early June.