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 105.13 - Change from accrual to installment method of accounting

Current through Register Vol. 46, No. 28, July 10, 2024
Tax Law, § 605(a)(4)(C)
(a)
General.
Where a taxpayer has changed such taxpayer's 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 subsequent year or years being referred to as
						  "adjustment years'), on account of sales or other disposition of property made
						  in any taxable year prior to the year of the change, are required to be
						  included in Federal adjusted gross income and consequently are included in New
						  York adjusted gross income. 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 New York State personal income tax, any additional New York
						  State personal income 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 New York State personal income tax for any year
						  or years preceding the year of change attributable to the prior accrual of
						  income from installment sales included in New York gross income in the
						  adjustment years.
(b)
Reduction in New York State personal income tax for adjustment
						year.
To give effect to the foregoing, the New York State personal
						income tax for an adjustment year must be reduced by the lower of the following
						amounts:
(1) that proportion of the New York
						State personal income 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 New York adjusted gross income for such prior year of sales;
						or
(2) the excess, if any, of the
						amount of New York State personal income tax for the adjustment year on the
						entire New York taxable income over the amount of New York State personal
						income 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 New York State personal
						  income 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.
Example:
The determination of the reduction of New York State
						  personal income tax, for a single individual, for adjustment years is
						  illustrated by the following example:
1990
1991
1992
Year 1
Year 2
Year 3
(accrual
									 basis)
(adjustment
									 year)
(adjustment
									 year)
Gross profit from installment sales (receivable
									 in five installments)
50,000
$10,000 (from year 1 sales)
$10,000 (from year 1 sales)
Other income
50,000
20,000
17,000
New York adjusted gross income
$100,000
$ 30,000
$ 27,000
Allowable deductions
25,000
10,000
15,000
New York taxable income
$75,000
$20,000
$12,000
New York State personal income tax on New York
									 taxable income
$ 5,547.50
$1,216.25
$ 595.00
Computation of adjustment - year 2.
New York State personal income tax attributable to year
						  1 installment payments in year 2 (first adjustment year), the year in which the
						  change was made from the accrual basis to the installment basis:
New York State personal income tax on New York
									 taxable income, including gross profit from year 1 sales
$1,216.25
New York State personal income tax on New York
									 taxable income, excluding such gross profit: New York taxable income as
									 above
$20,000
Less gross profit from year 1 sales accrued in
									 prior year
10,000
Revised New York taxable income
$10,000
New York State personal income tax on revised New
									 York taxable income
465.00
Additional New York State personal income tax on
									 New York taxable income attributable to prior year installment payments
									 ($1,216.25 - $465.00)
$751.25
New York State personal income tax on New York taxable
						  income attributable to prior inclusion in year 1:
$10,000 gross profit from year 1 sales
/
$100,000 New York adjusted gross income
×
$5,547.50 New York State personal income tax on
									 New York taxable income for year 1
= $554.75
Therefore, the New York State personal income tax on
						  New York taxable income for year 2 (first adjustment year) may be reduced by
						  $554.75, the lesser of $751.25 or $554.75.
Computation of adjustment - year 3.
New York State personal income tax attributable to year
						  1 installment payments in year 3 (second adjustment year):
New York State personal income tax on New York
									 taxable income, including gross profit from year 1 sales
$595.00
New York State personal income tax on New York
									 taxable income, excluding such gross profit:
New York taxable income, as above
$12,000
Less gross profit from year 1 sales accrued in a
									 prior year
10,000
Revised New York taxable income
$2,000
New York State personal income tax on revised New
									 York taxable income
80.00
Additional New York State personal income tax on
									 New York taxable income attributable to prior year installment payments
									 ($595.00 - $80.00)
$515.00
New York State personal income tax on New York taxable
						  income attributable to prior inclusion in year 1:
$10,000 gross profit from year 1 sales
/
$100,000 New York adjusted gross income
×
$5,547.50 New York State personal income tax on
									 New York taxable income for year 1
= $554.75
Therefore, the New York State personal income tax on
						  New York taxable income for year 3 (second adjustment year) may be reduced by
						  $515.00, the lesser of $515.00 or $554.75.