Sec. 112.12. Modification relating to S corporation termination

Tax Law, § 612(s)

(a) General.

In the case of a New York S termination year (as defined in section 208[1-A] of the Tax Law to mean any taxable year of a corporation during which the New York S election terminates on a day other than the first day of such year) the amount of any item of S corporation income, loss and deduction included in the shareholder's Federal adjusted gross income and any reductions for taxes as described under section 1366(f)(2) and (3) of the Internal Revenue Code, relating to the tax imposed on built-in gains and to the tax imposed on excess net passive income, shall be adjusted in accordance with the allocation methods provided in paragraphs (1) or (2) of subdivision (b) of this section.

(b) Allocation methods.

(1) Pro rata allocation. Unless paragraph (2) of this subdivision applies, the pro rata allocation is determined as follows:

(i) assign an equal portion of each S corporation item, as described in subdivision (a) of this section, to each day of the S corporation's taxable year for Federal income tax purposes;

(ii) multiply each of the amounts in subparagraph (i) of this paragraph by a fraction, the numerator of which is the number of days in the S short year, (as defined in section 208[1-A] of the Tax Law to mean the portion of the taxable year ending before the first day for which the S termination is effective) and the denominator of which is the number of days in the S termination year;

(iii) the amounts so determined in subparagraph (ii) of this paragraph are the pro rata shares of such S corporation items described in subdivision (a) of this section. The pro rata share of such items determined with respect to the reductions for taxes under section 1366(f)(2) and (3) of the Internal Revenue Code is subject to the modification required by section 612(b)(18) of the Tax Law (see section 112.2 [o] of this Part);

(iv) the balance of the amounts so determined in subparagraph (ii) of this paragraph are attributable to the C short year (as defined in section 208[1-A] of the Tax Law to mean the portion of the taxable year beginning on the first day the New York S election terminates) and are subject to the modifications required by sections 612(b)(19), 612(b)(20) and 612(c)(22) of the Tax Law (see, respectively, sections 112.2[p], 112.2[q] and 112.3[r] of this Part).

(2) Allocation based on normal tax accounting rules. The portion of each S corporation item described in subdivision (a) of this section, shall be allocated to the S short year (as defined in section 208[1-A] of the Tax Law to mean the portion of the taxable year ending before the first day for which the S termination is effective) and the C short year (as defined in section 208[1-A] of the Tax Law to mean the portion of the taxable year beginning on the first day the New York S election terminates) using normal accounting rules if:

(i) there is a sale or exchange of 50 percent or more of the stock in such corporation during the New York S termination year (as defined in section 208[1-A] of the Tax Law to mean any taxable year of a corporation during which the New York S election terminates on a day other than the first day of such year); or

(ii) the corporation elects to use normal tax accounting rules, where all persons who are shareholders in the corporation at any time during the New York S short year and all persons who are shareholders in the corporation on the first day of the New York C short year consent to such election. Such election shall be made by providing information that the department may require through forms and instructions.