Closing the Real Property Tax Law Section 420-a “Tax Loophole”
It is well-established that New York courts will not permit the erosion of the local tax base by creating a “tax loophole” by the granting of a Real Property Tax Law (“RPTL”) section 420-a exemption where one would not otherwise exist. To this end, the Not-For-Profit Corporation Law (“N-PCL”) and the Religious Corporation Law (“RCL”) must be read in conjunction with the Real Property Tax Law to evaluate whether an entity that is applying for a RPTL §420-a exemption meets the test of eligibility by demonstrating that it is organized or conducted exclusively for tax-exempt charitable purposes. See RPTL §420-a(1)(a).
The Court of Appeals recently rejected the claim for a RPTL §420-a exemption by an exempt entity that leased space to a for-profit “disassociated enterprise” in Matter of Brookdale Physicians’ Dialysis Assoc., Inc. v. Department of Finance of the City of New York, 41 N.Y.3d 608, 620 (2024), holding that the involvement of that for-profit business entity destroyed the exemption. Similarly, and following the Court of Appeals’ decision in Matter of Brookdale Physicians’ Dialysis Assoc., Inc., the Supreme Court, County of Rockland (Hon. Amy S. Puerto, J.S.C.) granted the Town of Ramapo’s motion for summary judgment, dismissing the petitioner’s RPTL Article 7 tax certiorari proceedings seeking a RPTL §420-a exemption in the Matter of Congregation Radin Development, Inc. v. Town of Ramapo, where the petitioner failed to establish that it was organized or conducted exclusively for exempt purposes where the evidence established that the petitioner did not comply with the N-PCL and RCL.
The court found that the evidence in Matter of Congregation Radin Dev., Inc. demonstrated that the petitioner did not maintain organizational records such as corporate books or records, as required by N-PCL §§519-521, did not have a sufficient number of trustees pursuant to N-PCL §702, did not have any congregants, and its only members were its founding trustees and the members of a single family. The court found that the petitioner transferred millions of dollars of assets, without documentation, among related entities that were controlled by the same individual family members, including a for-profit limited liability company that had already been denied exemption because profit could inure to those same people through its organizational structure. Similar to the holding of Matter of Brookdale Physicians’ Dialysis Assoc., Inc., the court held that the involvement of that for-profit entity destroyed petitioner’s eligibility for the RPTL §420-a exemption. Matter of Congregation Radin Dev., Inc. signifies a further closing of the “tax loophole” by considering evidence of the petitioner’s corporate governance and formalities, along with its compliance with the N-PCL and RCL, in determining its eligibility for the RPTL §420-a exemption.
This is not intended to be legal advice. You should contact an attorney for advice regarding your specific situation.
Kara Cavallo is a partner and practices Tax Certiorari, Litigation & Appeals, and Appellate Practice. She can be reached by phone at 845-764-9656 and by email.