New York Codes, Rules and Regulations › Title 20 - DEPARTMENT OF TAXATION AND FINANCE › Chapter II - Income Taxes and Estate Taxes › Subchapter A - New York State Personal Income Tax Under Article 22 Of The Tax Law › Article 1 - General › Part 105 - Accounting Periods And Methods And Resident Defined › Accounting Methods › Section 105.12 - Change other than from accrual to installment method of accounting

Current through Register Vol. 46, No. 28, July 10, 2024
Tax Law, § 605(a)(4)(B)
(a) Where a taxpayer's method of accounting
						is changed, other than from an accrual to an installment method, there must be
						taken into account in computing New York taxable income for the taxable year of
						the change (or in the taxable years such change is recognized for Federal
						income tax purposes) those adjustments pertaining to inventories, accounts
						receivable, accounts payable, etc., which are determined to be necessary to
						prevent amounts from being duplicated or omitted. Where the change has occurred
						by reason of a change in such taxpayer's method of accounting for Federal
						income tax purposes, the adjustments will generally be reflected in such
						taxpayer's Federal adjusted gross income and itemized deductions and therefore
						in such taxpayer's New York adjusted gross income and itemized deduction. The
						year of the change is the taxable year for which the taxable income of the
						taxpayer is computed under a method of accounting different from that used for
						the preceding year.
(b)
(1) The adjustments necessitated by reason of
						such change in accounting method may result in an amount of New York State
						personal income tax for the year of the change in excess of the New York State
						personal income tax which would have been determined had there not been such a
						change in the method of accounting. In such event, the additional New York
						State personal income tax shall not be greater than if such adjustments were
						ratably allocated and included for the taxable year of the change and the
						preceding taxable years, not in excess of two, during which the taxpayer used
						the method of accounting from which the change was made.
(2) The taxpayer must submit a statement with
						such taxpayer's New York State personal income tax return for the year of the
						change, setting forth the following information and calculations:
(i) each adjustment necessitated by the
						change;
(ii) the net amount of the
						adjustments. This means the consolidation of the adjustments (whether the
						amounts thereof represent increases or decreases in items of income or
						deductions) arising with respect to balances in various accounts at the
						beginning of the taxable year of the change. Where the change in the method of
						accounting occurs by reason of a change for Federal income tax purposes, the
						net amount of the adjustment must be the same for New York State personal
						income tax purposes as it is for Federal income tax purposes, except to the
						extent of any modifications required by this Subchapter pertaining to such
						adjustments;
(iii) The New York
						State personal income tax for the taxable year of the change with the net
						amount of the adjustments included in the computation of New York taxable
						income;
(iv) the New York State
						personal income tax for the taxable year of the change computed as if the net
						amount of the adjustments were not included in the computation of New York
						taxable income;
(v) the additional
						New York State personal income tax, if any, incurred solely by reason of the
						net amount of the adjustments included in New York taxable income, computed by
						subtracting subparagraph (iv) of this paragraph from subparagraph (iii) of this
						paragraph;
(vi) the allocation of
						the net amount of the adjustments (subparagraph (ii) of this paragraph) to the
						taxable year of the change and the preceding taxable year or years, not in
						excess of two, during which the taxpayer used the method of accounting from
						which the change is made. The amount to be allocated to each such year is
						determined by dividing the net amount of the adjustments into as many equal
						parts as there are taxable years involved (either two taxable years or three
						taxable years, including the taxable year of the change);
(vii) the New York taxable income for the
						year of the change and for the preceding year or two years, as the case may be,
						computed both (
a
) without any amount of the net adjustments,
						and (
b
) with the addition of the appropriate share of the net
						adjustments as determined under subparagraph (vi) of this paragraph;
(viii) the additional New York State personal
						income tax which would result for each of the above taxable years by the
						addition to the New York taxable income in each such year of the appropriate
						share of the net adjustments; and
(ix) the total amount of such additional New
						York State personal income tax for the years involved.
(3) If the amount described in subparagraph
						(ix) of paragraph (2) of this subdivision exceeds the amount described in
						subparagraph (v) of paragraph (2) of this subdivision, the taxpayer must
						compute such taxpayer's New York State personal income tax for the year of the
						change without a ratable allocation of the net adjustments to any preceding
						year or years. If the amount described in such subparagraph (v) exceeds the
						amount described in such subparagraph (ix), the amount of the excess must be
						subtracted from the New York State personal income tax for the year of the
						change as determined under subparagraph (iii) of paragraph (2) of this
						subdivision. The result is the amount of New York State personal income tax due
						for the taxable year of the change.
Example:
Assume that a resident individual entitled to claim
						  head of household filing status and one dependent exemption used the cash
						  method in 1990 and 1991. In 1992 such taxpayer changes to the accrual basis,
						  has New York adjusted gross income of $119,150 and has New York taxable income
						  of $110,000 figured on the accrual basis. Such taxpayer's books at the
						  beginning of 1992 included the following accounts: accounts receivable of
						  $9,000; accounts payable of $8,000; inventory of $5,000. The amount of New York
						  State personal income tax due for the taxable year of the change is computed in
						  the following manner:
Subject to the amount of any modifications required
						  under this Subchapter, the New York taxable income for the year of the change,
						  including the net amount of adjustments (see subparagraphs (i) and (ii) of
						  paragraph (2) of this subdivision), would be determined as follows:
New York taxable income on accrual basis (new
									 method but before adjustments)
$110,000
(i) Adjustments:
Add: Items not previously reported as
									 income:
Accounts receivable, January 1, 1992
$ 9,000
Items previously deducted but constituting
									 marketable business assets: Inventory, January 1, 1992
5,000
Total to be added
$14,000
Subtract: Items not previously deducted: Accounts
									 payable, January 1, 1992
8,000
(ii) Net amount of adjustments (increase)
6,000
New York taxable income after adjustments
$116,000
The net additional New York State personal income tax
						  due (including the supplemental tax relating to the tax table benefit
						  recapture) for the year of the change described in subparagraph (v) of
						  paragraph (2) of this subdivision is determined as follows:
(iii)
New York State personal income tax due (including
									 supplemental tax) for the year of change, including the net amount of
									 adjustments ($116,000)
$8,894.58
(iv)
New York State personal income tax due (including
									 supplemental tax) for taxable year of change, excluding above adjustments
									 ($10,000)
8,364.03
(v)
New additional New York State personal income tax
									 due
$ 530.55
Since the taxpayer used the cash method of the two
						  years preceding the changeover year and the adjustments for 1992 increased New
						  York adjusted gross income and New York taxable income by $6,000, the taxpayer
						  may reduce the New York State personal income tax on the increase by allocating
						  $2,000 to 1990, $2,000 to 1991, and $2,000 to 1992 (see subparagraphs (vi)
						  through (viii) of paragraph (2) of this subdivision). The net New York State
						  personal income tax (including the supplemental tax relating to the tax table
						  benefit recapture) due for the year of change is then determined in the
						  following manner:
Taxable year
New York taxable income before
									 adjustments
New York taxable income after
									 adjustments
New York State personal income tax
									 (including supplemental tax) before adjustments
New York State personal income tax
									 (including supplemental tax) after adjustments
New York State personal income tax
									 due to adjustments
1990
$ 11,000
$ 13,000
$ 475.00
$ 595.00
$120.00
1991
18,000
20,000
933.75
1,091.25
157.50
1992
110,000
112,000
8,364.03
8,540.88
176.85
Total increase in New York State personal income
									 tax attributable to adjustments (see subparagraph [ix] of paragraph [2] of this
									 subdivision)
$ 454.35
Net additional New York State personal income tax
									 determined at subparagraph (v) of this paragraph
$ 530.55
Excess ($530.55 - $454.35)
$ 76.20
Total New York State personal income tax
									 determined at subparagraph (iii) of this paragraph
$8,894.58
Excess shown above
76.20
New York State personal income tax (including the
									 supplemental tax due for the year of change)
$8,818.38