N.Y.
Tax Law Section 632
Nonresident partners and electing shareholders of S corporations
(a)
Portion derived from New York sources.(1)
In determining New York source income of a nonresident partner of any partnership, there shall be included only the portion derived from or connected with New York sources of such partner’s distributive share of items of partnership income, gain, loss and deduction entering into his federal adjusted gross income, as such portion shall be determined under regulations of the tax commission consistent with the applicable rules of § 631 (New York source income of a nonresident individual)section six hundred thirty-one of this part. If a nonresident is a partner in a partnership where a sale or transfer of the membership interest of the partner is subject to the provisions of section one-thousand sixty of the internal revenue code, then any gain recognized on the sale or transfer for federal income tax purposes shall be treated as New York source income allocated in a manner consistent with the applicable methods and rules for allocation under this article in the year that the assets were sold or transferred.(2)
In determining New York source income of a nonresident shareholder of an S corporation where the election provided for in subsection (a) of § 660 (Election by shareholders of S corporations)section six hundred sixty of this article is in effect, there shall be included only the portion derived from or connected with New York sources of such shareholder’s pro rata share of items of S corporation income, loss and deduction entering into his federal adjusted gross income, increased by reductions for taxes described in paragraphs two and three of subsection (f) of section thirteen hundred sixty-six of the internal revenue code, as such portion shall be determined under regulations of the commissioner consistent with the applicable methods and rules for allocation under article 9-A (Franchise Tax On Business Corporations)article nine-A of this chapter, regardless of whether or not such item or reduction is included in entire net income under article nine-A for the tax year. If a nonresident is a shareholder in an S corporation where the election provided for in subsection (a) of § 660 (Election by shareholders of S corporations)section six hundred sixty of this article is in effect, and the S corporation has distributed an installment obligation under section 453(h)(1)(A) of the Internal Revenue Code, then any gain recognized on the receipt of payments from the installment obligation for federal income tax purposes will be treated as New York source income allocated in a manner consistent with the applicable methods and rules for allocation under article 9-A (Franchise Tax On Business Corporations)article nine-A of this chapter in the year that the assets were sold. In addition, if the shareholders of the S corporation have made an election under section 338(h)(10) of the Internal Revenue Code, then any gain recognized on the deemed asset sale for federal income tax purposes will be treated as New York source income allocated in a manner consistent with the applicable methods and rules for allocation under article 9-A (Franchise Tax On Business Corporations)article nine-A of this chapter in the year that the shareholder made the section 338(h)(10) election. For purposes of a section 338(h)(10) election, when a nonresident shareholder exchanges his or her S corporation stock as part of the deemed liquidation, any gain or loss recognized shall be treated as the disposition of an intangible asset and will not increase or offset any gain recognized on the deemed assets sale as a result of the section 338(h)(10) election.(b)
Special rules as to New York sources. In determining the sources of a nonresident partner’s income, no effect shall be given to a provision in the partnership agreement which-- (1) characterizes payments to the partner as being for services or for the use of capital, or(2)
allocates to the partner, as income or gain from sources outside New York, a greater proportion of his distributive share of partnership income or gain than the ratio of partnership income or gain from sources outside New York to partnership income or gain from all sources, except as authorized in subsection (d), or(3)
allocates to the partner a greater proportion of a partnership item of loss or deduction connected with New York sources than his proportionate share, for federal income tax purposes, of partnership loss or deduction generally, except as authorized in subsection (d).(c)
Partner’s and shareholder’s modifications. Any modification described in subsection (b) or (c) of section six hundred twelve, which relates to an item of partnership or S corporation income, gain, loss or deduction, shall be made in accordance with the partner’s distributive share or the shareholder’s pro rata share for federal income tax purposes of the item to which the modification relates, but limited to the portion of such item derived from or connected with New York sources.(d)
Alternate methods. The tax commission may, on application, authorize the use of such other methods of determining a nonresident partner’s portion of partnership items derived from or connected with New York sources, and the modifications related thereto, as may be appropriate and equitable, on such terms and conditions as it may require.(e)
Application of rules for resident partners and shareholders to nonresident partners and shareholders.(1)
A nonresident partner’s distributive share or S corporation shareholder’s pro rata share of items shall be determined under subsection (a) of section six hundred seventeen.(2)
The character of partnership or corporation items for a nonresident partner or S corporation shareholder shall be determined under subsection (b) of section six hundred seventeen.(3)
The effect of a special provision in a partnership agreement (other than a provision referred to in subsection (b) of this section) having the principal purpose of avoidance or evasion of tax under this article shall be determined under subsection (c) of section six hundred seventeen.
Source:
Section 632 — Nonresident partners and electing shareholders of S corporations, https://www.nysenate.gov/legislation/laws/TAX/632 (updated Apr. 14, 2017; accessed Oct. 26, 2024).
