Robert Redford Sues New York over $1.6M Tax Tab

[kcjenkins]

Robert Redford Sues New York over $1.6M Tax Tab for Selling Sundance Channel

New York (August 8, 2014)
By Michael Cohn

Actor Robert Redford has filed a lawsuit against the state of New York for billing him $1.6 million in taxes related to the sale of the Sundance Channel, claiming he already paid taxes to the state of Utah.

 

Redford sold part of his share of the cable TV channel in 2005. New York State’s Department of Taxation and Finance claims he owes a total of $1,568,470 for that tax year, which includes $845,066 in unpaid taxes and $727,404 in interest. However, Redford sued, saying he already paid taxes in Utah, according to Courthouse News Service.

 

In his lawsuit, Redford is reportedly seeking “a declaratory ruling on a pure question of law concerning the constitutionality of imposing on plaintiff, a nonresident of the State of New York, a personal income tax on the gain derived from the sale of an ownership interest in a limited liability company.”

 

The lawsuit contends that since Redford’s ownership interest was in an S corporation, which is a pass-through entity, so he paid the taxes on his individual return in Utah and should not be subject to double taxation. The lawsuit argues that the entity operated from Utah and he had no property, payroll or receipts in New York.

 

Redford and his partners at NBCUniversal and CBS sold the rest of the Sundance Channel in 2008 to Cablevision’s Rainbow Media unit, which later spun off and became AMC Networks, according to the Hollywood Reporter. The channel, which was named after the Sundance Film Festival that Redford founded in Utah and his co-starring role in the 1969 Western, "Butch Cassidy and the Sundance Kid," is now known as SundanceTV.

[Jack from Ohio]

I think he is in for a rude awakening!!  He chose to live in New York.

[Gail in Virginia]

I think he is in for a rude awakening!!  He chose to live in New York.

I think that is why he is fighting this - he did not choose to live in New York, he lives in Utah.  While not personally acquainted, I don't believe he has ever lived in New York.  But I could be wrong, I don't follow stars' lives.  But the OP quotes the lawsuit as stating he is a "nonresident of the State of New York."

[Pacun]

You don't have to live in NY to be taxed by NY, correct?

[jklcpa]

Was this a NY state S Corp, and was the sale somehow connected to NY?  That might be the reason for the gain being taxable in that state, whether he is a nonresident or not. The article states that the S Corp didn't have property, payroll or receipts, generally the 3 areas used for apportionment of income, but doesn't specifically state about the gain.

 

This is why Delaware, where we have a lot of companies that have incorporated and operate here, many years ago put in a law that S corps and partnerships having nonresident shareholders must withhold at the highest state individual income tax rate on the nonresident shareholders' porportional share of income and turn those payments in to the state with the partnership or corp return, because those partners and shareholders didn't always didn't report and pay the taxes due to the State of DE. It is then reported like an estimated payment on the partners' or shareholders' DE nonresident return, and they can claim the taxes paid to other states on their resident state return.

[JohnH]

If Utah has a 3 year SOL, he may have a huge problem. Assuming NY wins the lawsuit, he won't be able to amend the Utah return and claim a credit for the taxes paid to NY.  

[Pacun]

If Utah has a 3 year SOL, he may have a huge problem. Assuming NY wins the lawsuit, he won't be able to amend the Utah return and claim a credit for the taxes paid to NY.  

 

Unless Utah has a 9 year SOL, he will have issues since they are talking about 2005.

[kcjenkins]

I'm wondering about the residency issue, too.  NY is notorious for their aggressive stance on residency, so that even if you don't own anything in NY, if you live there for a significant portion of the year, you are taxed there as a 'statutory resident'.  

 

Here's a link to a very interesting description of some of NY's tax positions.

 http://taxprof.typepad.com/taxprof_blog/2011/06/zelinsky-nys-.html

 

Also, here's a good Am. Bar Assoc. piece on the residency issue

http://www.americanbar.org/content/dam/aba/events/taxation/taxiq-fall11-weintraub-home-paper.authcheckdam.pdf

[kcjenkins]

Unless Utah has a 9 year SOL, he will have issues since they are talking about 2005.

Also, many States take the position that credit is allowed only for taxes “properly due” another state. Thus, the fact that income tax was paid to another state may not preclude an argument over whether the tax was “properly due.”  A possible 'double whammy' even if there was no SOL issue.  NY & CT are the classic case.

[Gail in Virginia]

As far as the residency issue, I noticed that Redford had partners "at NBCUniversal and CBS" and I wonder if they had enough nexus with New York to cause New York to go after the profits on the sale from all of the partners.  Even if Redford is a non-resident, if the LLC is either formed in New York or has sufficient nexus to New York, he could be personally liable for taxes to New York I would think, since an LLC is typically a pass though entity.   Hard to do anything but speculate without more details.

[Gail in Virginia]

I found a little more information by Googling, and I quote:

 

At its heart, this whole matter is about the fact that Sundance Television Ltd was an S Corporation. Such a status means that the privately held entity doesn’t pay federal taxes because its profits and losses are directly passed on to it small group of shareholders. They, like Redford in this case, report that information on their personal income tax filings. Redford owned all of Sundance T.V., which owned 20% of Sundance Channel before the 2005 sale.  “Plaintiff did not use his ownership interest in INC, nor did he use his indirect ownership interest in Limited or Channel, in any trade or business carried on by him in New York,’ the July 30 filing for Redford by Stephen Solomon of NYC firm Hutton & Solomon says. “Further, plaintiff did not have any property, payroll or receipts located in or deemed attributable to the conduct of a trade or business in New York.’ Redford’s lawyer wants a ruing that his client doesn’t owe NY the money plus all legal fees paid for by the state.

 

What makes this more complicated is that in 2008 Sundance T.V. and its Sundance Channel co-owners CBS and NBCUniversal sold the outlet to the Cablevision owned Rainbow Media. Now known as AMC Networks, they gave the Channel the new moniker SundanceTV starting in February this year. In that 2008 sale the state of New York agreed with the very argument that Redford is making now over the 2005 partial sale.

[kcjenkins]

I found a little more information by Googling, and I quote:

 

In that 2008 sale the state of New York agreed with the very argument that Redford is making now over the 2005 partial sale.

In that case, he should win.  Does not mean he will, however, as NY courts have a bad record of ruling for the state in spite of such facts.   Hope he does.  

[JohnH]

Maybe some good could come out of this. The stakes are so high that Robert Redford can fight it to the max. If he wins, then possibly something in the decision might set a precedent which could be used in other cases with smaller amounts at risk. Nothing better than to see a greedy state overreach and get its hands slapped permanently.

Years ago something along those lines happened to North Carolina. The legislature tried to welch on a promise it made to retirees. When somebody took the state to court, our genius of an attorney general at the time decided to fight it. He wasted tremendous amounts of the taxpayers' money on a fools errand, and the resulting "Bailey decision" cost the state tons of money for many years afterward.