Tax Estoppel Barred Allegations Regarding Company’s Ownership

On October 6, 2021, the Second Department issued a decision in Matter of Coven v. Neptune Equities, Inc., 2021 NY Slip Op. 05334, holding that tax estoppel barred allegations regarding a company’s ownership, explaining:

Here, the petitioner established by a preponderance of the evidence that Walter owned 50% of Neptune’s shares at the time of his death. Although neither the credit shelter trust nor Walter were listed as shareholders on Neptune’s corporate ledger or issued stock certificates, the mere fact that a corporation did not issue any stock certificates does not preclude a finding that a particular individual has the rights of a shareholder. In the absence of any stock certificate, a court must examine other available evidence to determine the validity of a putative shareholder’s claim. Such evidence may include ‘corporate tax forms, or any other indicia of shareholder status.

After Stanley’s death, for every year between 2011 and 2016, Neptune’s S Corporation tax returns provided a Schedule K-1 reporting Walter as a shareholder. Neptune cannot take a position in this proceeding contrary to the position taken on its tax returns. Although the appellants contend that the decision to provide Schedule K-1s to Walter stemmed from Siegel’s legal advice, which they maintain was erroneous, the appellants did not contest from the time of Stanley’s death in 2011 until Walter’s death in 2016, that Walter had inherited the shares in Neptune. Further, Staci, as a corporate officer of Neptune, authorized the electronic filing of those tax returns.

(Internal quotations and citations omitted).

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