Many people assume that an individual who receives a Schedule K-1 from an entity must be a partner of that entity. The law of "tax estoppel" is not so simple. In fact, a string of decisions, including the First Department's recent decision in Tradesman Program Managers v. Doyle, 202 A.D.3d 456 (1st Dept. Feb. 3, 2022) (Tradesman), have held that issuance of a K-1 alone is not determinative of partnership. Since partnership disputes often involve threshold questions of whether a partnership interest exists, this article provides a detailed look at New York's tax estoppel doctrine and the various exceptions recognized by New York courts.

Tax Estoppel Doctrine

In New York, the doctrine of tax estoppel generally applies when a party seeking to contradict statements in tax returns "signed the tax returns, and has failed to assert any basis for not crediting the statements." PH-105 Realty v. Elayaan, 183 A.D.3d 492 (1st Dept. 2020) (citing Cusimano v. Wilson, Elser, Moskowitz, Edelman & Dicker, 118 A.D.3d 542 (1st Dept. 2014); Stevenson-Misischia v. L'Isola D'Oro SRL, 85 A.D.3d 551 (1st Dept. 2011)).