Sec. 117.3. Modification of partnership items in partner's New York State personal income tax return

Tax Law, § 617(a)

(a) In determining New York adjusted gross income of a resident partner, any of the modifications referred to in section 112.2, 112.3, 112.4, 112.7, 112.8 or 112.9 of this Article which relate to a partnership item of income, gain, loss or deduction must be made with respect to the distributive share of the partner in such item as determined for Federal income tax purposes. Such modification, if applicable, must be made regardless of whether, in the partner's Federal income tax return, the partnership item is reflected in his distributive share of partnership taxable income or loss reported in accordance with section 702(a)(8) of the Internal Revenue Code or is one of the items separately reported under the other paragraphs of such section 702(a).

(b) If a resident partner claims the New York itemized deduction, the modifications referred to in section 115.2 and in subdivisions (b) and (c) of section 115.3 of this Article must also be made, if applicable. However, if the New York standard deduction is claimed, no such modification is required since the Federal itemized deductions are not taken into consideration.

(c) The modifications covered by this Part do not apply to any item attributable to the partner directly and not reflected on the New York State partnership return, such as a gain he realized on the sale of his partnership interest.

(d) In determining his New York taxable income, a resident partner combines the modification relating to his share of any partnership item with the modification relating to any similar item from sources other than the partnership. For example, if some of the partnership income is derived from interest on bonds of another state, not subject to Federal income tax, and if the individual income of a resident member of the partnership also includes similar bond interest, he must add to his Federal adjusted gross income both his distributive share of the partnership income from such bonds and the interest from similar bonds which he received individually rather than from the partnership.

(e) The amount of any modification to be made by a partner with respect to a partnership item of income, gain, loss or deduction is determined in accordance with his distributive share for Federal income tax purposes of the item to which the modification relates. For example, if a modification pertains to a long-term capital gain of the partnership, the amount of each partner's modification is determined by his respective distributive share of such gain for Federal income tax purposes. Similarly, if a modification relates to any item subject to special allocation among the partners under the partnership agreement, which item is therefore accounted for separately for Federal income tax purposes, the amount of each partner's share of the modification is determined by his respective distributive share of such item for Federal income tax purposes.

(f) If a modification pertains to an item which is included in computing the partnership's taxable income or loss generally (i.e., that portion of Federal adjusted gross income described in paragraph [8] of subsection [a] of section 702 of the Internal Revenue Code), other than an item of income, gain, loss or deduction subject to a special allocation under the partnership agreement which differs from the allocation of partnership taxable income or loss generally, each partner's modification relating to that item is determined by his respective distributive share for Federal income tax purposes of the taxable income or loss of the partnership required to be reported in accordance with paragraph (8) of subsection (a) of section 702 of the Internal Revenue Code.

(g) If a modification relates to an item that is not taken into account for Federal income tax purposes (such as interest on bonds of other states) and such item is not one which is subject to a special allocation under the partnership agreement which differs from the allocation of partnership taxable income generally, a partner's modification in respect to such an item is determined by his distributive share for Federal income tax purposes of the taxable income or loss of the partnership described in paragraph (8) of subsection (a) of section 702 of the Internal Revenue Code. A partner's modification in relation to an item not taken into account for Federal income tax purposes, which is subject to a special allocation, as just described, is determined by the allocation provided for in the partnership agreement.

(h) Where a partnership realizes a gain from the sale of property which had a higher basis under the former New York State Personal Income Tax Law (Tax Law, article 16) than under the Federal income tax law, a partner is entitled to a modification of his share of the gain as provided under section 112.3(d) of this Article.

(i) Where the partnership files its Federal and New York State partnership returns on a calendar year basis, a partner's modification with reference to his share of the gain must be based upon the difference between the New York State and Federal bases of the property to the partnership, as of December 31, 1959.

(j) Where the partnership files its Federal and New York State partnership returns on a fiscal year basis, the modification is based upon the difference between the New York State and Federal bases of the property to the partnership as of the end of the last fiscal year of the partnership covered by article 16 of the Tax Law (ordinarily a fiscal year ending in 1960).

(k) The provisions of this section may be illustrated by the following:

Example:

A and B are equal partners under an agreement which contains no special provision for allocation of particular items of partnership income, gain, loss or deduction. During the taxable year, the partnership receives $2,000 interest income from obligations of the United States used as security for the performance of partnership contracts. It pays interest of $500 on money borrowed to purchase such obligations. In determining their respective New York adjusted gross incomes for the taxable year, A and B each subtracts from his Federal adjusted gross income $1,000 as his share of the New York State modification for interest income from obligations of the United States under section 112.3(a) of this Article, and each adds to his Federal adjusted gross income $250 as his share of the New York modification under section 112.2(d) of this Article for interest paid to carry securities the income from which is exempt from New York State personal income tax.