Sec. 112.5. Modification of Federal adjusted gross income by partners and shareholders of S corporations

Tax Law, § 612(e)

(a)

(1) Where a resident individual is a member of:

(i) a partnership; or

(ii) a shareholder of an S corporation which is not a New York C corporation subject to tax under article 9-A of the Tax Law and;

(a) for which the election to be treated as a New York S corporation under section 660(a) of the Tax Law is in effect; or

(b) a shareholder of an S corporation that cannot make the election provided for under section 660(a) of the Tax Law, because the S corporation is a foreign S corporation (i.e., an S corporation that is not incorporated in New York State) that does not do business in New York State, or because the S corporation is an S corporation that is taxed under article 9 of the Tax Law, then, the applicable modifications referred to in this Part which relate to partnership or S corporation items of income, gain, loss or deduction which are included in adjusted gross income, must be made by such individual as determined under section 617 of the Tax Law. These modifications are applicable since, under the Tax Law, each item of partnership or S corporation income, gain, loss or deduction has the same character for a partner or S corporation shareholder as for Federal income tax purposes. Where the partnership or S corporation item is not characterized for Federal income tax purposes, such item has the same character for the partner or shareholder as if such item were realized directly by such partner or shareholder from the source from which realized by the partnership or S corporation, or incurred by such partner or shareholder in the same manner as incurred by the partnership or S corporation.

(2) In the case of a resident individual shareholder of an S corporation which can make the election provided for by section 660(a) of the Tax Law but does not, the modifications in this Part which relate to the corporation's items of income, loss and deduction shall not apply, except for the modifications referred to sections 112.2(p) and 112.3(r) of this Part. (It should be noted that where the election provided for by section 660[a] of the Tax Law could have been made but was not, in the current taxable year or in prior taxable years subsequent to 1980, such S corporation shareholder would also be required to make the modifications referred to in sections 112.2[q], 112.2[r], 112.3[q] and 112.9 of this Part.)

(3) In the case of an individual who is a shareholder of an S corporation during a year which is 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) for such corporation, the amounts of the modifications to be made in accordance with this section which relate to S corporation's items of income, loss, deduction and reductions for taxes (as described in section 1366[f][2] and [3] of the Internal Revenue Code) shall be adjusted in the same manner as the S corporation's items are adjusted under section 612(s) of the Tax Law (see section 112.12 of this Part).

(b) It should be noted that these modifications pertain to partnership and S corporation items included in Federal adjusted gross income. Modifications to be made by a partner or shareholder pertaining to items of deduction of a partnership or S corporation that constitute itemized deductions of such partners or shareholders are covered by section 115.4 of this Article.

(c) In the case of a resident individual or partner of a partnership doing business as a member of the New York Insurance Exchange, as described in section 6201 of the Insurance Law, the modifications prescribed in sections 112.2(ab) and 112.3(z) of this Part are to be made with reference to items of income, gain, loss or deduction of such business.