Keywords: Internal Revenue Code; Section 277; Section 216b; Coops; Cooperative Apartment Corporation; Taxation.

The threat is gone?? Check your coop plan or your latest financial statement and see how your friendly accountant has hedged his/her bet on whether or not certain income of your coop is taxable by the IRS under section 277.

Well, recently the tax court ruled favorable to all coops that qualify under section 216 (b) of the code (which permits you to take tax deductions for your pro rata share of interest and real estate taxes in the same manner as a condo or single family homeowner would).

But and that's a BIG BUT, the tax court also said that the coop qualifies under subchapter T. Subchapter T does not permit non-shareholders income to be offset by shareholder deductions.

That means that your coop could still be assessed a large tax on net non-shareholder income. While the decision is a step in the right direction, the game is not over. In Thwaites (see cite below) the taxpayer did not provide proof of deductions and the IRS collected a large tax.

For the masochist out there, I refer you to Thwaites Terrace House Owners Corp. vs. Comm., TC Memo 1996-406 and for the rest of the world, if you have a question drop us a line.