2023 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.