When landlords offer buyouts to tenants of rent regulated apartments, the money received by the tenant is typically considered a long term capital gain for tax purpose.
In addition, while it is advisable to have an experienced attorney negotiate the actual buyout, the agreement with the attorney might require that up to one-third of the total amount be paid to the attorney for his or her services.
If the tenant is represented, the tax liability could depend on whether the check from the landlord goes first to the tenant, or to the tenant's attorney. From what we've heard, if the check goes first to the tenant's lawyer, he/she takes their cut and sends the remainder to the tenant, who is then liable for taxes on the amount less the attorney's fee.
But if the check goes to the tenant, and the tenant pays the attorney, then the tenant would likely be liable for taxes on the entire amount.
Either way, it's good to get professional advice. While it is always advisable to consult with a tax attorney on tax issues -- and beyond the scope of a landlord/tenant forum -- we have obtained some material that can be useful.