Assigning a Contract of Sale For Real Property Is Taxable

A contract of the sale of real property may be assigned. However, any consideration received for the assignment of the contract may be taxed by New York State but not New York City.

Let’s say that the Owner of a house in New York City enters into a contract of sale with the Contract Buyer for $750,000.00. The Contract Buyer sells his right to buy the house to the Final Buyer for $250,000.00. The Final Buyer will pay $1 million for the house: $750,000.00 ends up in the Owner’s pockets while $250,000.00 ends up in the Contract Buyer’s pockets. What taxes are due and who pays?

This is tricky. New York State assesses a real estate transfer tax (RETT) on the assignment of a contract of sale for real property. See New York Tax Law Sec. 1401(f):

“Interest in the real property” includes title in fee, a leasehold interest, a beneficial interest, an encumbrance, development rights, air space and air rights, or any other interest with the right to use or occupancy of real property or the right to receive rents, profits or other income derived from real property. It shall also include an option or contract to purchase real property. It shall not include a right of first refusal to purchase real property.

However, New York City does not assess a real property transfer tax (NYC-RPTT) on the sale of an assignment. NYC Administrative Code Sec. 11-2102 does not mention a tax on the assignment of a contract of sale. Practically, look at the forms. The NYS RETT form (TP-584) specifically has a check box for contract assignment. The NYC RPTT form does not.

In this case, the Seller files a NYS-RETT and NYC-RPTT for the $750,000.00 he receives. The Contract Buyer files a NYS-RETT for the $250,000.00 he receives.

Note that the above is not legal or tax advice. If you have any questions, feel free to call us.

IRS Website Hacked – Tax Transcripts At Risk

The IRS announced that about 100,000 taxpayer accounts were comprised when one of its websites was hacked. About 200,000 accounts were targeted in total. The website in question, the Get Transcript Application, allows a taxpayer to access their previous tax returns. The IRS allowed taxpayers to register using sensitive information. The compromise resulted from hackers using this information, which they had obtained through other nefarious means, to register for the Get Transcript website. As a result, the hackers were able to access the tax returns and transcripts of over 100,000 taxpayers.

The IRS notes that the website and computer systems related to tax return filings and the payment of taxes were not compromised. It appears that the computer system was not breached through technical means. Rather, the system functioned as designed under the mistaken assumption that only the taxpayer would have the sensitive information used to verify accounts.

The IRS will be sending letters to all taxpayers whose accounts were involved in this computer security breach. Free credit monitoring will be offered to those whose accounts were successfully breached. Again, note that this compromise targeted taxpayers whose sensitive information was compromised through other means, such as malware, and perhaps, weak passwords on other financial sites.

How to Protect Yourself

Computer security is becoming increasingly important. Use strong passwords for all websites and consider using a password manager such as Lastpass or 1Keepass. (We do not have any financial interest in either service.) Do not use the same passwords on multiple websites; otherwise, the compromise of one set of passwords would lead to the compromise of all other websites using that login-password combination.

It is imperative that personal email accounts are protected. Many websites allow passwords to be reset if the hacker has access to the email account on file. To protect your personal email, consider using a two-factor authentication system. Google, for instance, offers two-step verification for their services. At our firm, we use a FIDO U2F USB dongle for further protection of our emails and we recommend that everyone do the same. The dongle costs less than 20 dollars, takes 20 minutes to set up, and strengthens data security immeasurably. Furthermore, all of our computer systems and mobile phones are also encrypted to prevent loss of sensitive data, and we recommend this as well.

The IRS Get Transcript website is currently down for maintenance. When the IRS bring the website back up again, it is recommended that everyone create an account using a strong password. This way, hackers will not be able to use stolen information to steal even more taxpayer information.

Lawsuit Against World-Famous Architect Tossed To Chicago

The firm successfully defended Marshall Strabala from a federal lawsuit filed by his former employer, Skidmore, Owings, and Merrill (“SOM”). Marshall specializes in the design of super-tall skyrises. He worked as a studio head under Adrian Smith on the designs of the Burj Khalifa in Dubai and the  Nanjing Greenland Financial Center in Nanjing, China. He left SOM to work for Gensler. There, he worked on the design of the Shanghai Tower. He eventually left Gensler to start his own firm, 2DEFINE Architecture, where he continues to work on the Shanghai Tower at the behest of the client.

SOM and Gensler were not happy that Marshall started his own architectural firm, so they filed coordinated lawsuits in different states to harass him. SOM sued him in New York on June 8, 2011, and Gensler sued him in Chicago on June 9. We represented Marshall in New York, and moved to dismiss the action because he had nothing to do with New York—in fact, he has not been here since 2007.

The Court in Chicago dismissed Gensler’s lawsuit against Marshall, so we had a tough act to follow. The New York Court allowed SOM to take discovery into Marshall’s ties to New York. After discovery turned up no new evidence tying Marshall to New York, Judge Miriam Goldman Cedarbaum issued an Order Transferring Case to Chicago, Illinois.

The case was captioned Skidmore, Owings & Merrill LLP v. Strabala, 11-cv-3906 (MGC). William Chuang was lead counsel for Marshall Strabala.

Second Avenue Deli Wins Trademark Challenge From Heart Attack Grill

Last year, the Second Avenue Deli received a letter from the Heart Attack Grill demanding that it stop selling the Instant Heart Attack Sandwich, which is a double-deck sandwich made with latkes—potato pancakes. The Grill claimed that the name of the Sandwich was too similar to their trademarks. The Grill threatened to sue. Rather than to submit to this bullying, the Deli retained our firm to protect its trademark rights. We filed a lawsuit in the Southern District of New York seeking a declaration that the Deli was not infringing the Grill’s trademarks.

Today, Judge Paul A. Engelmayer issued an Opinion and Order that allowed the Deli to continue using the “Instant Heart Attack Sandwich” in Manhattan. The Court also expressly left the door open for the Deli to seek further rights before the United States Patent and Trademark Office. Additionally, the Deli was allowed to start serving the “Triple Bypass Sandwich,” which is a triple-decker also made with potato latkes. Last, but not least, the Court found that the Deli was a “longstanding New York institution” that serves “iconic dishes and food items”—certainly you’re doing something right when a federal court recognizes that your restaurant is special.

William Chuang was lead counsel for the Second Avenue Deli in this case, Lebewohl et al. v. Heart Attack Grill, et al., 11-cv-3153 (PAE)(JCF).

An Intro to Copyright Fair Use

People often claim one thing or another must surely be protected by “fair use.” It is used quite lightly in casual speech. This phrase, however, has a specific legal meaning and context. So let’s define it a little more specifically before moving on. [Read more…]