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Posted 08-14-2019 15:12
Any input would be greatly appreciated!
1. An owner of a building in New York City wants to vacate a number of rent regulated tenants whose rents are below fair market. In order to do this, the owner has agreed to purchase condominium units in its own name and thereafter allow the tenants to use and occupy the condominium apartments pursuant to a written agreement at rents that are consonant with those below market rents that are currently being charged for their occupancies in the building which he is trying to vacate.
2. Some of tenants' tax professionals are saying that the differential between the fair market value of the rents that the owner could have gotten for the condominium it is purchasing and the below market rent regulated rents that are being charged to these tenants, as set forth in their agreements, could be deemed taxable income to the tenants.
3. I do not believe that this differential would be considered taxable income because of the fact that I have never seen the IRS look behind a written lease agreement and state that the tenant's below market "benefit of the bargain" could be deemed to be taxable income. We have already committed not to filing 1099 miscellaneous forms with respect to the differential between the rents they are paying and the rents we could have otherwise collected. Moreover, I do not even understand how it would be determined what this taxable difference could be inasmuch as it would leave the IRS in a position to determine fair market rental value for each unit.
4. Lastly, the law also indicates when you move a rent regulated tenant to another location owned by you, that their rent regulated tenancy, including the below market rents that they are then paying, transitions with them to the alternate relocation apartment and if this is a result which is mandated by law, then surely there shouldn't be a tax consequence.
Please contact Mr. Frank Cicarelli at 516-496-9500 with any input you may have.
IVES & SULTAN, LLP
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