NY Tax L § 632 (2021)
2021 New York Laws TAX - Tax Article 22 - Personal Income Tax Part 3 - Nonresidents and Part-Year Residents 632 - Nonresident Partners and Electing Shareholders of S Corporations.

§   632.   Nonresident   partners   and  electing  shareholders  of  S corporations.  (a) Portion derived from New York sources.  (1) In determining New York source income of a nonresident partner  of any  partnership,  there shall be included only the portion derived from or connected with New York sources of such partner's distributive  share of  items  of partnership income, gain, loss and deduction entering into his federal adjusted gross income, as such portion shall  be  determined under  regulations  of the tax commission consistent with the applicable rules of section six hundred thirty-one of this part. If  a  nonresident is a partner in a partnership where a sale or transfer of the membership interest  of  the  partner  is  subject  to  the  provisions  of section one-thousand  sixty  of  the  internal  revenue  code,  then  any   gain recognized on the sale or transfer for federal income tax purposes shall be  treated  as  New York source income allocated in a manner consistent with the applicable methods and rules for allocation under this  article in the year that the assets were sold or transferred.  (2) In determining New York source income of a nonresident shareholder of an S corporation where the election provided for in subsection (a) of section  six  hundred sixty of this article is in effect, there shall be included only the portion  derived  from  or  connected  with  New  York sources  of  such shareholder's pro rata share of items of S corporation income, loss and deduction entering  into  his  federal  adjusted  gross income,  increased  by  reductions for taxes described in paragraphs two and three of subsection (f) of section thirteen hundred sixty-six of the internal revenue  code,  as  such  portion  shall  be  determined  under regulations  of  the commissioner consistent with the applicable methods and  rules  for  allocation  under  article  nine-A  of  this   chapter, regardless  of  whether  or  not  such  item or reduction is included in entire  net  income  under  article  nine-A  for  the  tax  year.  If  a nonresident  is  a  shareholder  in  an S corporation where the election provided for in subsection (a) of section  six  hundred  sixty  of  this article  is  in  effect,  and  the  S  corporation  has  distributed  an installment  obligation  under  section  453(h)(1)(A)  of  the  Internal Revenue  Code,  then any gain recognized on the receipt of payments from the installment obligation for  federal  income  tax  purposes  will  be treated  as New York source income allocated in a manner consistent with the applicable methods and rules for allocation under article nine-A  of this  chapter in the year that the assets were sold. In addition, if the shareholders of the S corporation have made an  election  under  section 338(h)(10) of the Internal Revenue Code, then any gain recognized on the deemed asset sale for federal income tax purposes will be treated as New York  source income allocated in a manner consistent with the applicable methods and rules for allocation under article nine-A of this chapter in the year that the shareholder made the section 338(h)(10) election.  For purposes   of   a   section  338(h)(10)  election,  when  a  nonresident shareholder exchanges his or her S corporation  stock  as  part  of  the deemed  liquidation, any gain or loss recognized shall be treated as the disposition of an intangible asset and will not increase or  offset  any gain  recognized  on  the  deemed assets sale as a result of the section 338(h)(10) election.  (b) Special rules as to New York sources. In determining  the  sources of  a  nonresident  partner's  income,  no  effect  shall  be given to a provision in the partnership agreement which--  (1) characterizes payments to the partner as being for services or for the use of capital, or  (2) allocates to the partner, as income or gain from  sources  outside New  York, a greater proportion of his distributive share of partnership income or gain than the ratio of partnership income or gain from sources  outside New York to partnership income or gain from all sources,  except as authorized in subsection (d), or  (3)  allocates  to  the  partner a greater proportion of a partnership item of loss or deduction connected  with  New  York  sources  than  his proportionate  share,  for  federal  income tax purposes, of partnership loss or deduction generally, except as authorized in subsection (d).  (c)  Partner's  and  shareholder's  modifications.  Any   modification described  in subsection (b) or (c) of section six hundred twelve, which relates to an item of partnership or S corporation income, gain, loss or deduction, shall be made in accordance with the  partner's  distributive share  or  the  shareholder's  pro  rata  share  for  federal income tax purposes of the item to which the modification relates, but  limited  to the  portion  of  such  item  derived  from  or  connected with New York sources.  (d)  Alternate  methods.  The  tax  commission  may,  on  application, authorize  the  use  of  such other methods of determining a nonresident partner's portion of partnership items derived from  or  connected  with New  York  sources,  and  the  modifications  related thereto, as may be appropriate and equitable, on  such  terms  and  conditions  as  it  may require.  (e)  Application  of  rules  for resident partners and shareholders to nonresident partners and shareholders.  (1) A  nonresident  partner's  distributive  share  or  S  corporation shareholder's  pro  rata  share  of  items  shall  be  determined  under subsection (a) of section six hundred seventeen.  (2)  The  character  of  partnership  or  corporation  items   for   a nonresident  partner  or  S  corporation shareholder shall be determined under subsection (b) of section six hundred seventeen.  (3) The effect of a  special  provision  in  a  partnership  agreement (other  than  a provision referred to in subsection (b) of this section) having the principal purpose of avoidance or evasion of tax  under  this article  shall be determined under subsection (c) of section six hundred seventeen.