Sec. 137.2. Special rules as to New York State sources

Tax Law, § 637(b)

(a) In determining the sources (as either within or without New York State) of a nonresident partner's share of partnership income, no effect is given to a provision in a partnership agreement which characterizes payments to a partner as salary or other consideration paid or distributable for services rendered to the partnership by the partner, or as being interest or other consideration paid or distributable for the use of capital of a partner.

(b) Likewise, except where otherwise authorized in accordance with section 137.4 of this Part, no effect is given to a provision in a partnership agreement which allocates to a nonresident partner, as income or gain from sources outside New York State, a greater proportion of his distributive share of partnership income or gain than the ratio of partnership income or gain form sources outside New York State to partnership income or gain from all sources. For example, if the total distributive share of a nonresident partner from all sources is $5,000 and 60 percent of the partnership's income is from New York State sources, the nonresident partner is required to report on his New York State nonresident personal income tax return $3,000 (60 percent of $5,000) as his distributive share of partnership income, even though, under the partnership agreement, his share of the total New York income of the partnership may have been fixed at less than $3,000.

(c) Likewise, except where otherwise authorized in accordance with section 137.4 of this Part, no effect is given to a provision in a partnership agreement which allocates to a nonresident partner a greater proportion of a particular partnership item of loss or deduction connected with New York State sources than his proportionate share for Federal income tax purposes of partnership loss or deduction generally. For example, if the share of a nonresident partner of partnership losses in 50 percent for Federal income tax purposes, he is not permitted to deduct on his New York State nonresident personal income tax return more than 50 percent of any particular partnership loss or deduction connected with New York State sources, regardless of any special provision of the partnership agreement assigning a larger percentage of the specific loss or deduction to him.