(a) Partner's and shareholder's modifications. In determining city adjusted gross income and city taxable income of a city resident partner or a city resident shareholder of an S corporation (other than an S corporation which is a New York C corporation), any modification described in subdivision (b), (c) or (d) of section 11-1712, or subdivision (c) of section 11-1715 or paragraph two or three of subdivision (d) of such section, 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. Where a partner's distributive share or a shareholder's pro rata share of any such item is not required to be taken into account separately for federal income tax purposes, the partner's or shareholder's share of such item shall be determined in accordance with his or her share, for federal income tax purposes, of partnership or S corporation taxable income or loss generally. In the case of a New York S termination year, his or her pro rata share of any such item shall be determined under subdivision (s) of section 11-1712.
(b) Character of items. Each item of partnership and S corporation income, gain, loss, or deduction shall have the same character for a partner or shareholder under this subchapter as for federal income tax purposes. Where an item is not characterized for federal income tax purposes, it shall have the same character for a partner or shareholder as if realized directly from the source from which realized by the partnership or S corporation or incurred in the same manner as incurred by the partnership or S corporation.
(c) City tax avoidance or evasion. Where a partner's distributive share of an item of partnership income, gain, loss or deduction is determined for federal income tax purposes by special provision in the partnership agreement with respect to such item, and where the principal purpose of such provision is the avoidance or evasion of tax under this chapter, the partner's distributive share of such item, and any modification required with respect thereto, shall be determined as if the partnership agreement made no special provision with respect to such item.