Sec. 261.13. Change from accrual to installment method of accounting

Tax Law, § 5(d)(3) of § 1340(c); Codes and Ordinances of the City of Yonkers, § 92-102(d)(3)

(a) General.

If a nonresident taxpayer has changed his method of accounting from an accrual to an installment method for Federal income tax purposes, any installment payments actually received in the year of change or in subsequent taxable years (such year or years being referred to as “adjustment years”), on account of sales or other dispositions of property made in any taxable year prior to the year of the change, are required to be included in Federal net earnings from self-employment, and consequently are included in City of Yonkers net earnings from self-employment. Therefore, profits attributable to installment sales which were taxed in the year of sale because the taxpayer was then on the accrual method of accounting would also be taxed in the adjustment years (i.e.,during the years the installments are actually received after the change to the installment method of accounting). To avoid such duplication of City of Yonkers earnings tax, any additional tax for the adjustment years attributable to the receipt of installment payments properly accrued in a prior year must be reduced by an amount equal to the portion of the City of Yonkers earnings tax for any year or years preceding the year of change attributable to the prior accrual of income from installment sales included in City of Yonkers net earnings in the adjustment years.

(b) Reduction in City of Yonkers earnings tax for adjustment year.

To give effect to the foregoing, the City of Yonkers earnings tax for an adjustment year must be reduced by the lower of the following amounts:

(1) that proportion of the City of Yonkers earnings tax for the prior year (in which the installment sales were reported on the accrual basis) which the amount of installment sales gross profits reportable in the prior year of the sale and in the adjustment year bears to the City of Yonkers net earnings for such prior year of sale; or

(2) the excess, if any, of the amount of City of Yonkers earnings tax for the adjustment year on the entire City of Yonkers earnings, over the amount of the City of Yonkers earnings tax for such year, computed without regard to the amount of the installment sales gross profits reported in both the prior year of accrual and in the adjustment year.

Where previously reported installments received in an adjustment year include installments on sales made in more than one prior year, the reduction allowable with respect to the installments for each prior year must be computed separately. In such a case, the excess City of Yonkers earnings tax, calculated under paragraph (2) of this subdivision, computed with respect to the installments from all prior years, must be prorated over the several prior years in proportion to the amount of the duplicated installment sales profits attributable to each such prior year.

(c) Change by a partnership from accrual to installment method of accounting.

In the case of a change by a partnership from the accrual method of accounting to the installment method of accounting, partnership income includes, for each adjustment year, any installment payments actually received in such year, even though such amounts were included in partnership income for prior years under the accrual method. Each partner must determine separately his distributive share of profits attributable to installment payments included in partnership income in the year of sale and in any adjustment year, and must compute his City of Yonkers earnings tax reduction with respect thereto in accordance with the provisions of this section.

(d) Statement to be attached to City of Yonkers earnings tax return.

A nonresident taxpayer who changes from the accrual method of accounting to the installment method of accounting must attach a statement to the City of Yonkers earnings tax return for each adjustment year. This statement must show:

(1) the pertinent facts as to sales in each year preceding the year of change;

(2) the number of remaining taxable years over which it will be necessary to compute adjustments; and

(3) a schedule showing the computation of the adjustment for the taxable year.