Sec. 18-3.10. Ineligible funding amount

Tax Law, § 1453(f)(5)

(a) The ineligible funding amount of the IBF is determined by multiplying eligible net income (see section 18-3.3[a] of this Subpart) by the following fraction:

(1) The numerator of the fraction is the average aggregate amount of all liabilities and other sources of funds of the IBF for the taxable year which were not owed to or received from foreign persons (the term foreign person is defined in section 18-3.2[h] of this Subpart).

(2) The denominator of the fraction is the average aggregate amount of all liabilities and other sources of funds of the IBF for the taxable year.

(b) “All liabilities and other sources of funds of the IBF” include deposits, advances from the head office or other places of business of the taxpayer, accounts payable, notes and bonds payable, accrued expenses, deferred income, contingent liabilities, taxes payable, appropriated retained earnings (such as reserve for deferred taxes, dividends payable, etc.), unappropriated retained earnings, etc. Certain liabilities that are determined not to be sources of funds may be excluded with the permission of the Tax Commission. The average aggregate amount of all liabilities and other sources of funds of the IBF for the taxable year must be computed on a quarterly basis or, at the option of the taxpayer, on a more frequent basis such as monthly, weekly or daily. When the taxpayer's usual accounting practice does not permit a quarterly or more frequent computation of the average aggregate amount of all liabilities and other sources of funds, a semiannual or annual computation may be allowed when it appears that no distortion of the average aggregate amount of all liabilities and other sources of funds will result. Different periods of averaging may be used for different classes of liabilities. If, because of variations in the amount or value of any class of liabilities or other sources of funds, it appears to the Tax Commission that averaging on an annual, semiannual or quarterly basis does not properly reflect the average aggregate amount of all liabilities and other sources of funds, the Tax Commission may require averaging on a more frequent basis. The method of determining the average aggregate amount of all liabilities and other sources of funds must be consistent and may not be changed on any subsequent return without the written consent of the Tax Commission.

(c) The principles of separate accounting must be applied in determining the amount of liabilities and other sources of funds, including retained earnings, which were not owed to or received from foreign persons. Unless the taxpayer can substantiate that liabilities and other sources of funds, including retained earnings, were owed to or received from foreign persons, they are deemed to be owed to or received from other than foreign persons and included in the numerator described in paragraph (a)(1) of this section.