New York Codes, Rules and Regulations › Title 20 - DEPARTMENT OF TAXATION AND FINANCE › Chapter I - Franchise and Certain Business Taxes › Subchapter A - Business Corporation Franchise Tax › Part 9 - SPECIAL ENTITIES › Subpart 9-2 - CORPORATE PARTNERS › Section 9-2.3 - Computation of tax under the aggregate method

Current through Register Vol. 46, No. 28, July 10, 2024
(a)
(1)
					 Under the aggregate method, the corporation's distributive share (see IRC
					 section 704) of each partnership item of receipts, income, gain, loss, and
					 deduction and the corporation's proportionate part of each partnership asset
					 and liability and each partnership activity are included in the computation of
					 the corporation's business income base, capital base, and the fixed dollar
					 minimum tax and will have the same source and character in the hands of the
					 corporate partner for article 9-A purposes as such item has in t h e hands of
					 the partnership for Federal income tax purposes. Where an item, amount or
					 activity of the partnership is not characterized for Federal income tax
					 purposes or is not required to be taken into account for Federal income tax
					 purposes, the source and character of each item, amount or activity of the
					 partnership will be determined as if such item, amount or activity realized,
					 incurred or experienced by the partnership were realized, incurred or
					 experienced directly by the corporate partner.
(2) A corporation's proportionate part of the
					 partnership's assets and liabilities and activities is determined in accordance
					 with the corporation's capital interest in the partnership. If using a
					 corporation's capital interest in a partnership to determine the corporation's
					 share of partnership items constituting business capital and investment capital
					 does not properly reflect the corporation's share of partnership items
					 constituting business income, investment income, and other exempt income, then
					 the corporation's proportionate part of the partnership's assets and
					 liabilities and activities is determined using the percentage resulting from
					 the manner in which the partners divide the partnership's profits in a profit
					 year and losses in a loss year.
(i) Example.
Corporations A and B are partners in Partnership P. A
						will perform services for a 40% interest in the profits and losses of
						Partnership P and B will contribute $1,000 for a 60% interest in the profits
						and losses of Partnership P. B's capital interest is 100% and A's capital
						interest is zero. Partnership P's only asset is $500 of stock, which pays
						dividends of $30 during the taxable year.
Based on capital interests, A's proportionate part of P's
						stock is zero ($500 x 0%) and B's proportionate part of P's stock is $500 ($500
						x 100%). In this case, using capital interests does not properly reflect A's
						share of P's stock. This is because A receives 40% of P's dividends and using
						capital interests attributes none of P's stock to A. Likewise, B receives 60%
						of P's dividends and using capital interests attributes all of P's stock to
						B.
In this case, both A and B must determine their
						proportionate part of P's assets and liabilities in accordance with their
						profits and loss interest (40% and 60%, respectively) in P. As a result, A's
						distributive share of the dividends is $12 ($30 multiplied by 40%) and B's
						distributive share is $18 ($30 multiplied by 60%).
(3)
(i) An
					 allocation of an item, amount or activity, even if recognized for Federal
					 income tax purposes, will not be recognized where it has as a principal purpose
					 the avoidance or evasion of any tax imposed on the corporation, or the combined
					 group of which the corporation is a member, by New York State or any of its
					 political subdivisions. Where an allocation is not recognized, the
					 corporation's distributive share will be determined in accordance with the
					 partner's interest in the partnership (determined by taking into account all
					 facts and circumstances).
(ii) The
					 determination of whether a principal purpose of an allocation of an item,
					 amount or activity is the avoidance or evasion of any tax imposed on the
					 corporation, or the combined group of which the corporation is a member, by New
					 York State or any of its political subdivisions depends on all the surrounding
					 facts and circumstances. Among the relevant circumstances to be considered are
					 the following:
(a) whether the allocation has
					 substantial economic effect;
(b)
					 whether the related items of partnership income, gain, loss, and deduction from
					 the same source are subject to the same allocation;
(c) whether the allocation was made without
					 recognition of normal business factors and only after the amount of the
					 allocated item could reasonably be estimated;
(d) the duration of the allocation;
					 and
(e) the overall tax
					 consequences of the allocation.
(iii) A special allocation to a corporate
					 partner of a New York tax credit that is computed at the partnership level may
					 be allowed only if the following conditions are satisfied:
(a) the sole component in the calculation of
					 the tax credit is a partnership expenditure;
(b) the tax credit is allocated in the same
					 way as that expenditure is allocated among the partners;
(c) the allocation of the tax credit does not
					 have as a principal purpose the avoidance or evasion of any tax imposed on the
					 corporation, or the combined group of which the corporation is a member;
					 and
(d) the allocation of the
					 expenditure has substantial economic effect.
(4) Where a corporation is a partner in an
					 upper tier partnership that is a partner in a lower tier partnership, the
					 source and character of such corporation's distributive share or proportionate
					 part, as the case may be, of each partnership item of receipts, income, gain,
					 loss, deduction, asset, liability, and activity of the upper tier partnership
					 that is attributable to the lower tier partnership retains the source and
					 character determined at the level of the lower tier partnership. Such source
					 and character are not changed by reason of the fact that such item flows
					 through the upper tier partnership to such partner.