761 HOTEL ASSOCIATES, GRANTOR and PARC 51 ASSOCIATES, GRANTEE - DECISION - 06/10/97

Transcription

1 761 HOTEL ASSOCIATES, GRANTOR and PARC 51 ASSOCIATES, GRANTEE - DECISION - 06/10/97 In the Matter of 761 HOTEL ASSOCIATES, GRANTOR and PARC 51 ASSOCIATES, GRANTEE TAT (E) (RP) - DECISION TAT (E) (RP) NEW YORK CITY TAX APPEALS TRIBUNAL APPEALS DIVISION REAL PROPERTY TRANSFER TAX - THE NOTICES OF DETERMINATION WERE TIMELY MAILED W ITHIN THE THREE YEAR PERIOD OF THE FILING OF THE RPTT RETURN. THE DEPARTMENT ESTABLISHED THAT THE NOTICES WERE DELIVERED INTO THE CUSTODY OF THE POST OFFICE OFFICIALS BEFORE THE EXPIRATION OF SUCH PERIOD. PETITIONER'S ALLOCATION OF A PORTION OF THE PURCHASE PRICE TO GOODWILL WAS APPROPRIATE IN THAT; (A) THE PARTIES TO THE TRANSACTION DEALT WITH EACH OTHER AT ARMS-LENGTH; (B) THE ALLOCATION WAS REASONABLE IN LIGHT OF THE APPRAISALS SUBMITTED BY BOTH PETITIONERS AND RESPONDENT; AND (C) THERE WAS NO OTHER REASON TO QUESTION THE BONA FIDES OF THE TRANSACTION. JUNE 10, 1997

2 New York City Tax Appeals Tribunal x : In the Matter of : : DECISION 761 HOTEL ASSOCIATES, Grantor : and : TAT (E) (RP) PARC 51 ASSOCIATES, Grantee : TAT (E) (RP) : Petitioners. : :: x The Commissioner of Finance of the City of New York ("Commissioner" or "Respondent") filed an Exception, and Parc 51 Associates, Grantee ("Parc 51") and 761 Hotel Associates, Grantor ("Hotel Associates") [collectively, the "Petitioners"] filed Cross- Exceptions, to the Determination of an Administrative Law Judge ("ALJ") dated April 18, The ALJ found that the Notices of Determination ("Notices") issued by the New York City Department of Finance (the "Department") to Petitioners with respect to real property transfer tax ("RPTT") assessments in connection with an August 14, 1989 transfer of real property were timely; however, the ALJ cancelled the Notices, based on the substantive issues raised by Petitioners. Respondent appeared by Amy F. Nogid, Esq., Assistant Corporation Counsel, New York City Law Department. Parc 51 appeared by Will B. Sandler, Esq., Parker Chapin Flattau & Klimpl,

3 LLP; Hotel Associates appeared by James L. Tenzer, Esq., Margolin, Winer & Evens LLP. Respondent and Parc 51 filed briefs; oral argument was not requested. 1 In 1989, Parc 51 considered purchasing from Hotel Associates the land, building, furniture, fixtures and equipment located at 152 West 51st Street, in New York City (the "City"), which location 2 was then known as the Grand Bay Hotel (the "Hotel"). To that end, Parc 51 retained Arthur Andersen & Co. ("Andersen") to appraise the Hotel (the "Andersen Appraisal"). The Andersen Appraisal valued the Hotel, as of June 9, 1989, at $55,000,000, based on the income approach (with a capitalization rate of 11%) and at $62,300,000 based on the market approach. It then stated that the value of the Hotel was $60,000,000. The Andersen Appraisal allocated the $60,000,000 by attributing $40,500,000 to the value of the building; $13,000,000 to the value of the land; $4,400,000 to the value of the furniture, fixtures and equipment which it had appraised; and $2,100,000 to the value of the remaining furniture, 1Hotel Associates did not file a separate brief in this matter. However, by letter dated October 3, 1996, Hotel Associates informed the Tribunal that it "fully adopts and incorporates with the same effect as if set forth in its cross exception all of the arguments set forth in the brief filed by Parc 51 Associates in support of its cross exception and in support of its opposition to the Commissioner's exception with regard to this matter." Therefore, all references to arguments contained in the brief submitted by Parc 51 will identify such brief as "Petitioners' brief." 2 The ALJ's findings of fact, which are based in part on a Stipulation between the parties dated February 1, 1995, have been paraphrased and amplified where necessary. The only finding of fact to which exception has been taken is Fact No. 11, which has been modified to reflect the testimony. -2-

4 fixtures and equipment, the value of which Parc 51 had determined. 3 In July of 1989, a Sale-Purchase Agreement (the "Agreement") was entered into in which Hotel Associates agreed to sell the Hotel to Parc 51 for $61,283,334. The Agreement provided that the purchase price would be allocated as follows: $49,283,334 to the building and land; $6,500,000 to the furniture, fixtures and equipment; and $5,500,000 to goodwill (the "Allocation"). The Allocation was the result of negotiations between the parties. The record indicates that Hotel Associates had wanted to allocate $9,500,000 to goodwill but, after extensive negotiations with Parc 51, agreed to an allocation of $5,500, Pursuant to the Agreement, on August 14, 1989, Hotel Associates transferred the Hotel to Parc 51 for $61,283,334 (the "Conveyance"). Fifty-five million dollars of the sales price was paid by a purchase money note secured by a mortgage from the grantor, dated August 14, On August 31, 1989, the mortgage was recorded and a UCC-1 financing agreement ("UCC-1") was filed. The UCC-1 created a security interest in, and lien upon, both the 3A formal written appraisal from Andersen, which is dated November 22, 1989 (some three months after the sale), was introduced into evidence. Petitioners' contention, which was not challenged and is accepted for purposes of this decision, is that the substance of this formal appraisal was made available to Parc 51, in written or oral form, prior to negotiating the purchase price of the Hotel. 4 When Hotel Associates purchased the Hotel in 1988, $9,500,000 had been allocated to goodwill. -3-

5 Hotel's real and personal property. Petitioners filed an RPTT return dated August 31, 1989 (the "Return") in which they reported and paid $1,293, of RPTT. The amount of tax was determined by applying a 2.625% tax rate to the $49,283,334 that had been allocated to the building and land. Based on the Allocation's attribution of $6,500,000 of the purchase price to furniture, fixtures and equipment, Parc 51 also paid $536,250 in New York State and City sales and use tax. The Allocation was also used as the basis for the following filings made as a result of the Conveyance: (a) an Internal Revenue Service Asset Acquisition Statement, Form 8594; (b) a New York State Real Property Transfer Gains Tax Questionnaire Form TP-580; and (c) a New York State Combined Real Property Transfer Gains Tax Affidavit, Real Estate Transfer Tax Return, and Credit Line Mortgage Certificate, Form 7P In 1992, the Department audited the Return. By cover letter dated September 1, 1992, Parc 51 submitted a letter from Andersen, dated August 27, 1992 (the "Andersen Letter") to the Department's auditor. The Andersen Letter compared the allocation in the Andersen Appraisal (which Andersen had prepared for Parc 51 in 5The New York State Department of Taxation and Finance audited the Gains Tax Return and did not change the allocation. (We have modified the ALJ's footnote 4 to reflect the record.) -4-

6 contemplation of the negotiations concerning the sale of the Hotel) with the allocation in the Agreement (which the parties had negotiated at the same time they negotiated the other terms of the Conveyance). The Andersen Letter states: The building and land allocation of $49,283,334 is within 8.5% of our valuation. Generally, a valuation is considered accurate with a 10% to 15% variance to sales price. Since the allocation is well within the variance, we consider the purchase agreement allocation to be reasonable. The Andersen Letter did not opine as to the reasonableness of the $6,500,000 allocated to furniture, fixtures and equipment. 6 As to goodwill, the Andersen Letter states, in part, that: Goodwill is considered a premium over market value that is paid to acquire an asset. Goodwill is a residual that is measured by the difference between total sale price and the sum of the land, building and FF&E [furniture, fixtures and equipment] values. The Andersen Letter went on to describe the factors which justified Parc 51's claim that it paid a premium for goodwill.... The $5,500,000 allocated to goodwill in connection with the subject property is further supported by the fact that it was arrived at in arms length negotiations between the buyer and seller. We further note that when a buyer voluntarily agrees to an allocation for goodwill, the buyer loses the ability to depreciate such sum. For all of the foregoing reasons... the sum paid for goodwill appears to be reasonable. 6The propriety of the $6,500,00 allocation to furniture, fixtures and equipment was conceded by the Department at the Hearing. -5-

7 The Department issued Notices to the Petitioners, dated August 31, 1992, asserting an RPTT liability with respect to the Conveyance in the amount of $429, (the "Deficiency") -- consisting of a principal tax liability of $315,000 and interest thereon calculated from September 13, 1989 of $114, The asserted liability was premised on the Department's attributing the entire $61,283,334 to the land and building. Because the Notices were dated one day before the date on the letter transmitting the Andersen Letter, it may be inferred that the Department's auditor did not have an opportunity to review the Andersen Letter prior to asserting the Deficiency. In connection with the Notices, the Department prepared a onepage United States Postal Service ("USPS") Postal Form 3877 (the "Manifold") which listed two articles as having been sent by certified mail. The first Article, number P905372, was the Notice of Determination issued to Hotel Associates, which, the Manifold indicates, was mailed to Hotel Associates at 150 Broadway, New York, New York. The second Article, number P905373, was the Notice of Determination issued to Parc 51, which, the Manifold indicates, was mailed to Parc 51 at One Hallidie Plaza, San Francisco, California. The Manifold lists the number of pieces of mail recorded by the sender, (the Department), as "2," and bears a hand-stamped USPS postmark, dated August 31, 1992, indicating Brooklyn, New York as the place of mailing. The Manifold, however, does not contain: (a) a number placed on it by a USPS employee reflecting the total number of items received by the USPS; or (b) the signature of the USPS employee who accepted the articles listed on the Manifold. -6-

8 At the hearing, the Department called its mailroom supervisor, Bettie Coleman, who had been employed by the Department since 1976 and who had been mailroom supervisor since As evidenced by her testimony, the Department's mailroom received mail from various units of the Department and then delivered that outgoing mail to the Post Office. Although the Department's mailroom employees did not actually prepare the envelopes or the mail manifolds, they (a) counted the number of pieces of mail enclosed in each mail manifold; (b) marked that number on the back of each mail manifold; (c) totalled up the cost of postage; (d) affixed the postage on each envelope by use of a Pitney-Bowes postage meter; (e) bundled the mail inside the mail manifold; and (f) delivered each bundle to the Post Office. Ms. Coleman testified that it was office practice for the individual who delivered the bundles to the Post Office to make sure that each mail manifold was date-stamped, i.e., postmarked by the USPS clerk. Each mail manifold was then brought back to Ms. Coleman, who checked to make sure that the manifold contained such USPS stamp, which indicated to her that the Post Office received 7 that manifold on that date from the Department. Ms. Coleman then sent each mail manifold back to the unit that originally forwarded it to the mailroom. The two pieces of mail listed in the Manifold at issue here, were sent in two envelopes. The two envelopes bear: (a) article numbers P and P905373, respectively (the same article numbers listed in the Manifold); (b) the handwritten notations: (i) "JM" -- which are the initials of the Department's auditor, Jitendra Mehtal, (ii) the audit number "B11095" -- which is the audit number listed on the Notices, and (iii) the date "8/31/92" -- the date listed on the Notices; (c) a Pitney-Bowes postage meter stamp with the postmark date of August 31, 1992; and (d) a USPS machine- 7See fn. 2 supra -7-

9 stamped postmark date of September 2, It is undisputed that these envelopes contained the Notices and were received by the Petitioners on September 8, 1992 and September 9, 1992, respectively. Therefore, the crucial issue is: what is the mailing date of such Notices? Hotel Associates filed a Petition for Hearing dated September 25, 1992; Parc 51 filed a Petition for Hearing dated September 29, Each Petition sought a redetermination of the amounts on the separate Notices issued to the Petitioners. By letter dated August 3, 1993, the Department forwarded to Petitioners an appraisal of the value of the Hotel's real estate (the "City Appraisal") which had been prepared by Anthony Arcuri, whose title was "City Assessor Equalization." The City Appraisal stated that it was based "on the Income Approach to value and accepted Department of Finance hotel valuation procedures." Mr. Arcuri estimated total hotel net income to be $4,370,000 (allowing $410,000 a year as expenses for furniture, fixtures and equipment). He then applied a capitalization rate of 8.5% to derive a value of $51,411,765 for the Hotel which he rounded to $51,500,000. Although $6,500,000 of the purchase price was allocated by Petitioners to furniture, fixtures and equipment, and was treated as taxable by the Department in computing the amount of the Deficiency, the Department conceded at the Hearing, that Petitioner "properly made an allocation of $6,500,000 to furniture, fixtures and equipment that is not subject to the tax." 8 8The New York State and City sales tax rate paid on the $6,500,000 was significantly higher than the RPTT rate. -8-

10 At the Hearing, Petitioners asserted that the Notices were time-barred since the envelopes containing the Notices each bore a USPS postmark dated September 2, 1992, which was two days after the expiration of the applicable statute of limitations. Petitioners argued that the Manifold offered by the Department to establish mailing on August 31, 1992, as evidenced by the hand-stamped USPS postmark thereon, was insufficient to prove mailing on that date since the USPS employee receiving the mail failed to sign the Manifold, and failed to list the number of pieces of mail received. 9 With respect to the merits of the case, Petitioners contended that the evidence demonstrated that they made a good faith allocation of the purchase price to the land and building, which they argued, under the statute, must be respected by the Department. In response, the Department asserted that, as evidenced by the Manifold and the testimony of its mailroom supervisor, the Notices were properly delivered to the Post Office on August 31, 1992 and therefore were timely issued. In addition, the Department contended that it is not required to accept a "good faith allocation," and, alternatively, that Petitioners' allocation was not made in good faith. With respect to determining the value of the real property at the time of Conveyance, the Department's litigating position at the hearing was that the realty should be valued at $53,500,000, as determined in the pre-sale Andersen Appraisal. Only as an alternative argument did the Department assert that the value of the realty was $51,500, the value determined by its own 9See also discussion p. 15 infra regarding use of hand-stamped USPS postmark. -9-

11 appraiser. 10,11 In granting the Petitions of Hotel Associates and Parc 51 and cancelling the Notices, the ALJ concluded that: (A) The Notices were not time-barred, since they were delivered to the Post Office, and thus met the definition of being mailed, on the date stamped on the Manifold -- August 31, His decision was based on the fact that: (1) the only two articles on the Manifold were the Notices sent to Petitioners; (2) a USPS stamp dated August 31, 1992 was affixed to the Manifold; and (3) both Notices were received by Petitioners The ALJ noted in his Determination that the Department abandoned its initial position, as reflected in the Notices, that the entire purchase price of $61,283,344 was consideration for the land and building. The ALJ further stated that the Department also effectively abandoned its first litigating position that, although its own appraisal was $51,500,000, the taxable consideration was, under of the New York City Administrative Code (the "Code"), the full amount of the $55,000,000 mortgage even though it encumbered furniture, fixtures and equipment worth $6,500,000 as well as the real property). 11 A fourth issue, whether the Department could simultaneously assert an RPTT deficiency against both grantor, Hotel Associates, and grantee, Parc 51, was not addressed by the ALJ. The ALJ concluded that the issue did not need to be addressed since his Determination cancelled the Notices. See, Determination at fn. 7. As this issue was not raised by Hotel Associates or Parc 51 in either of their Cross-Exceptions, such issue has been deemed abandoned. 12 It is also noted that the last hearing session in this case occurred in February Thereafter, the ALJ denied the Department's motion to reopen the record to admit the affidavit, dated August 4, 1995, of George P. Buonocore, Station Manager of the United States General Post Office at 271 Cadman Plaza, Brooklyn, New York because the ALJ found that: (1) evidence already in the record was sufficient to prove the timely mailing of -10-

12 (B) With respect to the merits of the Deficiency, Petitioners' allocation of a somewhat smaller portion of the purchase price to the real property (which allocation was only 4.3% less than the City's own appraisal) was made in good faith and must be respected under d of the Code and 19 RCNY since: (1) it was reasonable on its face; (2) Petitioners had adverse tax interests with respect to the allocation; and (3) the allocation was the result of arm's-length negotiations. In his Exception, Respondent contends that, since the transfer in question was by deed, the ALJ erred in his reference to and reliance on d of the Code, in that such provision is by its very terms inapplicable to transfers by deed. Respondent argues that, inasmuch as d is inapplicable, whether the apportionment of the purchase price was made in "good faith" is not the relevant inquiry. To the contrary, Respondent argues, there is no requirement in the RPTT statute that the Commissioner must accept a taxpayer's apportionment of the purchase price where the the Notices; (2) the affidavit was not newly discovered evidence which could not have been submitted prior to the closing of the record; and (3) Petitioners would not have the opportunity to cross-examine affiant. However, the ALJ also noted that Mr. Buonocore stated in his affidavit that the "presence of a postmark on a Form 3877, even without the initials or other markings by the clerk, demonstrates that a postal clerk has followed the usual procedures for accepting and verifying certified items." (See Determination, at fn. 15) Since Respondent affirms that the affidavit was not received from the Post Office until early August after a six month discussion period between the USPS and the Department - the ALJ's conclusion that it was "not newly discovered evidence" may be questionable. However, our decision renders it unnecessary to decide such issue. -11-

13 property is transferred by deed. Respondent asserts that Petitioners did not meet their burden of proving that the value reported as consideration for the realty was correct. In his Brief, Respondent contends that the consideration for the realty should be found to be between $54,611,112 and $54,783, Petitioners take issue with the Commissioner's argument that, because the transfer was by deed, d of the Code is inapplicable. However, Petitioners also assert that, even if the Tribunal adopts the Commissioner's interpretation of d of the Code, the following factors are sufficient in themselves to sustain the ALJ's Determination: (1) the allocation was reasonable on its face; (2) the taxpayers negotiated at arms-length and in good faith; and (3) the taxpayers had adverse tax interests. 13As support for his argument, Respondent offers the following analysis: 1. $54,783,334 [Purchase Price - Furniture, Fixtures and Equipment; no allowance for goodwill.] 2. $54,611,112 [Grantor took back a note [Purchase Money Mortgage] for $55,000,000 secured by tangible realty and personalty transferred. Respondent maintains that the value of $54,611,112 is based on the presumption that the Grantor would only extend a loan for 90% of the value of the property inclusive of the $6,500,000 attributable to the furniture, fixtures and equipment. Again, the result is that there is a zero value attributed to good will.] -12-

14 In their Cross-Exceptions, however, Petitioners assert that the ALJ erroneously concluded that the Notices were timely mailed on August 31, They argue that such Notices were in fact mailed on September 2, 1992, as evidenced by the machine-stamped USPS postmark on the envelopes containing the Notices. Therefore, Petitioners argue, the assessments were time-barred. Petitioners contend that where, as in this case, the machine-stamped USPS postmark on the envelopes containing the Notices, conflicts with a hand-stamped USPS postmark on an incomplete Form 3877, and where the Commissioner fails to submit credible evidence as to both his own mailing procedures in general, and the following of such procedures in this case in particular, the date of the machinestamped USPS postmark on the envelopes must control. The Commissioner contends that the ALJ correctly concluded that the Notices in question were mailed on August 31, 1992, the date stamped by the Post Office on the Form 3877 (mail manifold) and were, therefore timely. This inquiry, according to Respondent, was satisfied by the cumulative effect of the following facts: (a) the Commissioner established that he delivered the Notices into the custody of post office officials; (b) the Petitioners received the Notices; (c) the envelopes containing the Notices bore the same certified mail article numbers as those on the Manifold; and (d) the Manifold has a USPS postmark dated August 31,

15 For the reasons set forth below, we affirm the ALJ's Determination. We first address the issue of whether the Notices were timely mailed within the three year period of the filing of the Return, i.e., by August 31, See b of the Code. We agree that, as Respondent asserts, the Notices were "mailed" at the point they were delivered into the custody of the post office officials. The relevant inquiry, of course, is whether Respondent has established that such delivery occurred on August 31, 1992 under the instant fact pattern. Petitioners claim that the Notices are untimely because they were "mailed" to them on September 2, 1992, which was two days after the close of the statutory period for assessment. Petitioners contend that September 2, 1992 was the mailing date because that is the date of the USPS postmark on the face of the envelopes which contained the Notices. The Commissioner asserts that the Notices are timely because they were "mailed" on August 31, The Commissioner contends that August 31, 1992 is the mailing date because that is the date of the USPS postmark on the Manifold. Based on our review of the record before us, we find, as did the ALJ, that the Manifold, in conjunction with the testimony offered by the supervisor of the mailroom which processed the mail, -14-

16 was sufficient to prove that the Notices were delivered to the Post Office and thus mailed on August 31, Admittedly, the Manifold is missing the signature of the postal employee who received the items and acknowledgement from such employee as to how many items were received. However, it does contain a timely handstamped USPS postmark. Petitioners, in their brief and at the Hearing below, appear to be contending, in part, that the USPS postmark on the envelopes which contained the Notices should control because such machinemade postmark is more reliable than the hand-stamp postmark on the 14 Manifold. We reject such position. Not only is there an absence of anything in the record that would support Petitioners' theory, but its validity is belied by the fact that USPS postmarks on certified mail sender's receipts, which are generally used by taxpayers to prove the timely mailing of documents such as petitions, exceptions, and indeed tax returns, are traditionally hand-stamped. Were we to assume that such hand-stamps are inherently unreliable, we would be calling into question the very piece of evidence that is called for to establish the date of 15 mailing in a myriad of factual settings. 14Although the ALJ did not address this issue, we feel compelled to do so as Petitioners have reasserted this position in their brief. 15 In addition, the integrity of the USPS itself would be called into question with the (unstated) implication that the handstamp was misused. That is an inferential step we decline to take. However, it should be noted that our decision that the USPS postmark on the manifold constituted the date of mailing here, does -15-

17 As Respondent points out, it is undisputed that: (1) the envelopes containing the Notices bear the same certified mail numbers as appear on the Manifold; (2) the Manifold bears a USPS postmark of August 31, 1992: and (3) Petitioners received the Notices. The Commissioner has also established the general mailing procedures that were used by the Department wherein the Department delivered the Notices into the custody of the post office officials, i.e., mailed the Notices. The existence of the USPS stamped manifold indicates that such procedures were followed in this case. As the ALJ found, despite the lack of a USPS employee's handwritten number indicating the number of pieces of mail received, and despite the fact that the USPS employee did not affix his/her signature to the Manifold, it is highly unlikely that a USPS employee would have miscounted two items of mail and/or placed a postmark on the Manifold without having received the two pieces of not preclude a taxpayer's argument that, if there is a conflict, his/her period to file a Petition generally begins with the USPS postmark date on the envelope. While logical consistency would militate in favor of allowing only one "mailing date", the pursuit of such consistency cannot be permitted to abridge the rights of the parties. When Respondent delivered the mail to the Post Office, he had done all that he could do. Respondent could not be burdened with an unanticipated delay of a postal clerk in affixing a USPS postmark on the envelope. Similarly, a taxpayer receiving a Notice of Determination should generally be entitled to rely on the USPS postmark on the envelope in calculating the time to appeal. (Significantly, the timeliness of the Petitions is not at issue here.) Thus, in affording each party its due, a single point in time can be on different days depending on the factual circumstances and issues at bar. See generally Coleman v. Commissioner, 94 T.C. 82, (1990); Lundy v. Commissioner, T.C. Memo (and cases cited therein). -16-

18 mail listed. See generally Matter of Sy Associates, (New York State Tax Appeals Tribunal, August 3, 1995). Moreover, the record does not offer any support for drawing such a conclusion. In fact, Ms. Coleman testified that she had received manifolds from the Post Office that did not contain the number of items on the manifold and/or signature of a postal employee and, that when she inquired, she was told by a postal supervisor that they did not put the number of items received on the manifold because it was unnecessary. 16 Having found that the Notices were timely, we will now turn to the issue of whether Petitioners reported the proper amount of consideration for the real property on the Return; specifically, whether Petitioners' allocation of $5,500,000 of the purchase price 16The State Tax Appeals Tribunal cases referred to by Petitioners in support of their contention that the omissions on the Manifold are fatal, are inapplicable to the instant facts, because they involve discrepancies that suggest uncertainty as to whether the notices in question were actually delivered to the Post Office on the day in question. In Matter of Katz (New York State Tax Appeals Tribunal, November 14, 1991), the taxpayer alleged that he did not receive the statutory notice and the page on which the taxpayer's notice was listed (page 43 of a Form 3877) had no postmark. In addition, there was a change in the total number of items presented for mailing, and it was not clear who had made such change and when. In Matter of 25 Tudor Associates, (New York State Tax Appeals Tribunal, June 18, 1992) while the taxpayer did not deny that it had received the statutory notice, there was no evidence to indicate that the page on which taxpayer's notice had been listed was part of a group of pages and no USPS postmark appeared on such page. Lastly, in Matter of Turek, (New York State Tax Appeals Tribunal, January 19, 1995) the taxpayer contended that he never received a copy of a Conciliation Order and the State Tribunal found that it was not clear from the notation on the manifold that all 14 pieces listed were received by the Post Office. -17-

19 to goodwill was appropriate. Pursuant to a of the Code, the RPTT is imposed on "each deed at the time of delivery by a grantor to a grantee when the consideration for the real property and any improvement thereon... exceed twenty-five thousand dollars." Consideration is defined at of the Code as "[t]he price actually paid or required to be paid for the real property..." It is clear that, where assets in addition to real property are transferred, RPTT is imposed only on that portion of the purchase price attributable to the real property. Indeed, Respondent's acceptance of such principle is implicit in his agreement that $6,500,000 of the purchase price of $61,283,334 is properly allocable to furniture, fixtures and equipment. Therefore, irrespective of whether the ALJ is correct in looking to d of the Code for the analysis to be used in determining whether or not the apportionment should be respected (i.e., whether the apportionment was made in "good faith"), the critical inquiry is: what is the consideration for the real property alone, absent any additional assets that were also transferred and included in the aggregate purchase price? 17 17Respondent argues that d of the Code (which refers to a "good faith" apportionment between real property and other assets) is inapplicable in the instant case because that section of the statute is limited to a "transaction", which by statutory definition, excludes those transfers evidenced by a deed. See of the Code. -18-

20 As noted, Respondent concedes that the amount of the purchase price attributable to the furniture, fixtures and equipment, may be subtracted from the purchase price. Moreover, and most significantly, Respondent does not argue that goodwill cannot be a component of the purchase price; he simply argues that Petitioners have not met their burden of proving that the "amount of the purchase price they apportioned to goodwill was not consideration for the transfer of the real property." See City Brief at 3. Nor do we see any reason why, in a transfer such as this, goodwill cannot be a component of the purchase price. In general, we do not disagree with Respondent's position that, in any transfer, an allocation made by the parties to a transaction may be scrutinized by the Commissioner to determine the merits of such allocation. Indeed, if it is revealed that the parties did not have adverse interests and were thus not bargaining at arms' length, their allocation need not be respected. Black Industries, Inc. v. Commissioner, T.C. Memo (1979) 18 However, that is not the case here. Rather, the uncontroverted testimony of Petitioners' witness, as well as a review of the various appraisals, establishes that: 18To the extent that, as Respondent argues, the ALJ concluded that any allocation made by the parties is binding on the Commissioner, we reject such finding. However, it is not at all clear that the ALJ made such a conclusion on a general basis, or whether he meant to conclude that where, as here, the allocation could be assumed to have been made "in good faith", because the parties dealt with each other at arms length, with adverse tax interests, and arrived at an allocation that was reasonable on its face, it should be respected. -19-

21 1) goodwill may be a component in a hotel transfer. 2) the amount of $9,500,000 was allocated to goodwill in the prior purchase of the hotel by the sellers one year earlier. 3) the parties were unrelated and engaged in protracted negotiations wherein the sellers wanted a higher value attributed to goodwill than that which was ultimately agreed upon. 4) the resultant value of $49,000,000 for the realty alone is well within an acceptable variance range from the pre-sale Andersen Appraisal. It is also within 4% of Respondent's appraisal of $51,000,000. Under these facts, and bearing in mind that valuation is not an exact science, we agree with the ALJ that Petitioners' allocation should be accepted. Respondent has not offered any proof to counter the testimony that bona-fide and protracted negotiations resulted in the agreed-to allocation for goodwill. At this juncture, Respondent offers its own versions of what the residual price of the real property should be (i.e., between the purchase price, or 90% of the purchase money mortgage, minus the furniture, fixtures and equipment, and with a zero amount for goodwill). Yet, Respondent does not indicate why goodwill is not to be considered at all appropriate here. Petitioners have presented uncontroverted testimony that goodwill may be a component -20-

22 in a hotel sale and Anderson has offered its opinion to the same effect. Respondent has not offered anything substantive to counter such presentation. Therefore, the evidence adduced by Petitioners is sufficient to meet their burden of proof. Respondent alleges that the record does not support the ALJ's conclusion that the parties had adverse tax interests, because there is nothing in the record regarding the relative positions of the parties from a tax standpoint. However, in light of the factors cited above, and in the absence of anything in the record to support Respondent's speculations that the parties could have been in positions that put them in a non-adverse negotiating position, we decline to accept Respondent's argument. We therefore conclude that since; (a) the parties to the transaction dealt with each other at arms-length; (b) the allocation is reasonable in light of the appraisals submitted by both Petitioners and Respondent; and (c) there is no other reason to question the bona fides of the transaction; Petitioners' allocation will be 19 respected. 19We have considered all remaining arguments raised and find them unpersuasive. -21-

23 Accordingly the ALJ Determination is sustained. Dated: June 10, 1997 New York, New York SUSAN GROSSMAN Commissioner MARK FRIEDLANDER Commissioner and President -22-