FACTS:

1. Dispute Resolution: Eliminating Future Controversies For GCT Business Allocation Purposes Which Corporations Qualify as Manufacturing BusinessesRCNY 11-63(c)(4) FACTS: • Patricof Productions, Inc. is formed to produce an educational film called “Rebuilding Ground Zero.” • All the filming will be done in the five boroughs, hundreds of extras will be hired and all the pre- and post-production work will take place in the City.

2. Dispute Resolution: Eliminating Future Controversies For GCT Business Allocation Purposes… (2) FACTS: • When all the production work is completed the final version of the movie will be contained in a master print at a studio facility in Manhattan. • Theaters, businesses and individuals who wish to license the movie for their use will have the option of receiving a digital download or a print. (Most licensees will opt for the digital copy.)

3. Dispute Resolution: Eliminating Future Controversies For GCT Business Allocation Purposes… (3) FACTS: • More than 50% of Patricof’s gross receipts for the year are derived from the sale of the film. On its GCT return, Patricof elects to double weight the receipts factor. During the course of an audit, the auditor disallows the double weighting, claiming that the Company did not produce and sell any goods.

4. Dispute Resolution: Eliminating Future Controversies For GCT Business Allocation Purposes… (4) ISSUE: • Did Patricof Productions qualify as a manufacturing business for General Corporation Tax purposes?

5. DisputeResolution: Eliminating Future Controversies Internal Revenue Code §1031 (Like-Kind Exchanges) FACTS: • Corporation A owns the Sheraton New York hotel in midtown. Corporation B owns the New York Hilton Hotel across the street from the Sheraton. The tax basis and fair market value for each property is identical: basis of $50 million and a value of $500 million.

6. Dispute Resolution: Eliminating Future Controversies Internal Revenue Code §1031 (Like-Kind Exchanges) (2) FACTS: • Corporation A swaps the Sheraton for a newer hotel downtown that also has a fair market value of $500 million and defers Federal, State and City income tax on the gain of $450 million.

7. Dispute Resolution: Eliminating Future Controversies Internal Revenue Code §1031 (Like-Kind Exchanges) (3) FACTS: • Corporation B swaps the Hilton for a hotel in beautiful downtown Buffalo worth $500 million and defers Federal income tax on the gain of $450 million. The State and City income tax on the gain is permanently eliminated.

8. Dispute Resolution: Eliminating Future Controversies Internal Revenue Code §1031 (Like-Kind Exchanges) (4) FACTS: • On audit, to avoid the permanent loss of tax revenue, the Department of Finance takes the position that the appropriate year to report deferred gain is actually the year of exchange. The auditor believes it would be “unfair” for the City to lose the tax after the Hilton “reaped the benefits of being located in the heart of the City for many years.”

9. Dispute Resolution: Eliminating Future Controversies Internal Revenue Code §1031 (Like-Kind Exchanges) (5) ISSUE: • Should the Department of Finance seek to decouple from the Federal §1031 rules?

10. Dispute Resolution: Eliminating Future Controversies Discretionary Adjustments to Business Allocation Percentage RCNY 11-67 FACTS: • CompuHelp is a computer service company headquartered in Queens. • Its customers reside primarily in New York City. • It assists businesses in resolving computer software problems and maintains/repairs computer hardware.

11. Dispute Resolution: Eliminating Future Controversies Discretionary Adjustments…(2) FACTS: • Prior to 2003, its staff of computer technicians were all on payroll as employees. • Commencing in 2003, CompuHelp outsourced the service technician function to third-party individuals and local businesses. Prior to 2003, its payroll factor was 100% but decreased to 10% beginning with the 2003 tax year.

12. Dispute Resolution: Eliminating Future Controversies Discretionary Adjustments…(3) FACTS: • During an audit of the 2003 GCT return, the auditor proposed an adjustment creating a fourth business allocation factor, which he labeled “Technician Fees.” The factor was computed to be 100%.

13. Dispute Resolution: Eliminating Future Controversies Discretionary Adjustments…(4) ISSUE: • Did the Audit Division have a legal basis upon which to make the discretionary adjustment to the business allocation factor?

14. Dispute Resolution: Eliminating Future Controversies Criteria for Combined Returns RCNY 11-91 FACTS: • Drugs-R-Us is an international pharmaceutical company headquartered in Staten Island. • Its most valuable asset is the patent it holds for the drug TranquilTax. TranquilTax is designed to relieve anxiety from tax audits.

15. Dispute Resolution: Eliminating Future Controversies Criteria for Combined Returns (2) FACTS: • Third-party drug manufacturing companies pay Drugs-R-Us royalties to manufacture TranquilTax pills. 75% of Drugs-R-Us’ net income ($500 million) is derived from these licensing agreements.

16. Dispute Resolution: Eliminating Future Controversies Criteria for Combined Returns (3) FACTS: • In 2004, a special purpose entity (“SPE”) is formed in Delaware by Drugs-R-Us. Drugs-R-Us transfers its TranquilTax patent to SPE in exchange for all its stock. • The $500 million of net income is no longer reported to New York City, and SPE avoids significant tax in Delaware as the income is attributable to the holding of an intangible.

17. Dispute Resolution: Eliminating Future Controversies Criteria for Combined Returns (4) FACTS: • On audit, the auditor proposes that Drugs-R-Us and SPE file combined returns. The auditor’s principal argument is that there was no valid business purpose for the transfer of the patent.

18. Dispute Resolution: Eliminating Future Controversies Criteria for Combined Returns (5) ISSUE: • Should the Audit Division be able to require the filing of combined returns from Drugs-R-Us and SPE?