§ 3-02 Accounting Periods and Methods.

   (a)   Accounting periods. 

      (1)   General. (Administrative Code, § 11-638(b); § 11-639(a))

         (i)   Generally, for Federal income tax purposes, a taxpayer's taxable year is the same as its accounting period. In most cases, the taxable year for which the banking corporation tax is to be computed and for which a tax return is to be filed shall be the same as the taxpayer's taxable year for Federal income tax purposes or that portion of the Federal taxable year for which the taxpayer is subject to the banking corporation tax. (See: 19 RCNY § 3-01(b) "taxable year"). The taxable year under the banking corporation tax law will, generally, be the accounting period covered by the taxpayer's Federal income tax return whether such period be a calendar year, a properly established fiscal year, an accounting period consisting of 52 or 53 weeks or an accounting period of less than 12 months as permitted or required under the Internal Revenue Code. If a taxpayer does not have a taxable year for Federal income tax purposes, the tax must be computed and a return must be filed for a calendar year, unless the Commissioner of Finance authorizes the use of some different accounting period.

         (ii)   The banking corporation tax is imposed for each fiscal or calendar year of the taxpayer, or any part thereof, during which the taxpayer is doing business in a corporate or organized capacity in New York City. Therefore, for purposes of the banking corporation tax, the taxpayer's first taxable year begins on the date it commences doing business in a corporate or organized capacity in New York City and ends on the last day of its fiscal or calendar year or the last day it is subject to the banking corporation tax, whichever comes first.

      (2)   Calendar year taxpayers.

         (i)   A taxpayer which reports on the basis of a calendar year for Federal income tax purposes must report on the same basis for purposes of the banking corporation tax. A calendar year is a period of 12 calendar months ending on December 31, or a period of less than 12 calendar months beginning on the date a taxpayer becomes subject to tax and ending on December 31. A calendar year also includes, in the case of a taxpayer which changes the period on the basis of which it keeps its books from a fiscal year to a calendar year, the period from the close of its last fiscal year to and including the following December 31.

         (ii)   A taxpayer shall use a calendar year as its accounting period and report on a calendar year basis in the following situations:

            (A)   the taxpayer keeps its books on the basis of a calendar year;

            (B)   the taxpayer keeps its books on the basis of any period ending on any day other than the last day of a calendar month except in the case of a taxpayer which keeps its books on the basis of a 52-53 week accounting period;

            (C)   the taxpayer does not keep books; or

            (D)   the taxpayer is not required to file a Federal income tax return, unless the use of a fiscal year or a 52-53 week period basis of reporting has been authorized by the Commissioner of Finance.

      (3)   Fiscal year taxpayers.

         (i)   A taxpayer which reports on the basis of a fiscal year for Federal income tax purposes must report on the same basis for purposes of the banking corporation tax. A fiscal year is a period not longer than 12 calendar months, or any shorter period beginning on the date the taxpayer becomes subject to tax and ending on the last day of any month other than December. A fiscal year also includes, in the case of a taxpayer which changes the period on the basis of which it keep its books from a calendar year to a fiscal year or from one fiscal year to another fiscal year, the period from the close of its last calendar or fiscal year up to the date designated as the close of its new fiscal year. A fiscal year also includes a 52-53 week accounting period if such period has been elected by the taxpayer.

         (ii)   A taxpayer reporting on a fiscal year basis must keep its books on such basis.

      (4)   52-53 week fiscal year taxpayers.

         (i)   A taxpayer which reports on the basis of a 52-53 week accounting period for Federal income tax purposes must report on the same basis for purposes of the banking corporation tax. A 52-53 week period must end on the same day of the week each year and end always on whatever date that day of the week last occurs in a calendar month, or on whatever date that day of the week falls which is nearest the last day of a calendar month.

         (ii)   If a 52-53 week accounting period is used and the period starts within seven days from the first day of any calendar month, the taxable year will be deemed to have begun on the first day of such calendar month. If a 52-53 week accounting period ends within seven days from the last day of any calendar month, the taxable year will be deemed to have ended on the last day of such month.

         (iii)   If a taxpayer uses a 52-53 week accounting period for Federal income tax purposes and becomes subject to the banking corporation tax, the taxpayer may be required to file returns for two taxable years during an accounting period for which one Federal return is required. For example, a banking corporation commences doing business in New York City on Monday, October 29, 1984. The corporation uses a 52-53 week accounting period ending on the Saturday nearest the last day of October for Federal income tax purposes. The 52-53 week accounting period for which the corporation computes its tax for Federal income tax purposes begins October 28, 1984 and ends Saturday, November 2, 1985. For purposes of the banking corporation tax, the period from October 29, 1984 to October 31, 1984, inclusive, is deemed to be the first period for which a return is due and a tax payable. The next taxable period is deemed to be from November 1, 1984 to October 31, 1985 and is based on the accounting period ending November 2, 1985.

      (5)   Change of accounting period.

         (i)   If a taxpayer's accounting period for Federal income tax purposes is changed, the taxable year and accounting period for which the taxpayer's return is filed under the banking corporation tax must be changed at the same time to coincide with the new Federal income tax accounting period and taxable year. (See: 19 RCNY § 3-05(a)(2) – Short period returns.)

         (ii)   Where a taxable year or accounting period of less than 12 months results from a change of accounting period, the taxpayer must file a return and pay the tax due for the period beginning from the close of the last taxable year or accounting period for which a return was required to be filed to the date designated as the close of its new accounting period or taxable year. Where a change in a taxable year from or to a 52-53 week accounting period, or from one 52-53 week period to a different 52-53 week period, results in a period of either 359 days or more or six days or less the 359 day or more period must be computed as if it were a full taxable year, and the period of six days or less must be added to and deemed part of the following taxable year. In the case of a period consisting of more than six days and less than 359 days, a return must be filed for such period.

         (iii)   A taxpayer whose accounting period is changed for Federal income tax purposes is not required to apply for or obtain permission to make a similar change with respect to returns required under the banking corporation tax. In such a case, however, the taxpayer must submit with the first return filed for the new accounting period under the banking corporation tax a copy of the consent of the Commissioner of Internal Revenue to the change for Federal income tax purposes. A taxpayer which changes its accounting period for Federal income tax purposes without the prior approval of the Commissioner of Internal Revenue must submit with the first return filed for the new accounting period under the banking corporation tax law, a statement indicating the authority for the change of the Federal accounting period.

         (iv)   In the case of a taxpayer which has an established accounting period for Federal income tax purposes, no change of accounting period for purposes of the banking corporation tax (other than one required by reason of a change of the Federal accounting period as set forth in subparagraph (i) of this paragraph) will be permitted.

   (b)   Accounting methods.

      (1)   General. (Administrative Code, § 11-641(m); § 11-641.1; § 11-643.5(b))

         (i)   The accounting method or basis on which entire net income, alternative entire net income or taxable assets is to be computed must be the same as the taxpayer's method of accounting for Federal income tax purposes. However, when the Commissioner of Finance deems it necessary in order to properly reflect the entire net income or alternative entire net income of the taxpayer, he may determine the taxable year or period in which any item of income or deduction must be included, without regard to the method of accounting used by the taxpayer. (See: 19 RCNY § 3-03(b)(6) – Taxable year in which income or deduction is included in entire net income and 19 RCNY § 3-03(d)(3) – Taxable year in which income or deduction is included in alternative entire net income.) When the Commissioner of Finance deems it necessary in order to properly reflect the taxable assets of the taxpayer, he may determine the taxable year or period in which any adjustment to the value of an asset may be claimed, without regard to the method of accounting used by the taxpayer.

         (ii)   In the absence of an accounting method for Federal income tax purposes, entire net income, alternative entire net income or taxable assets must be computed in accordance with the method regularly employed in keeping the books of the taxpayer, provided such method properly reflects entire net income, alternative entire net income or taxable assets. If the books of a taxpayer do not properly reflect entire net income, alternative entire net income or taxable assets or if no books are kept, the computation of entire net income, alternative entire net income or taxable assets must be made in such manner as the Commissioner of Finance deems necessary to properly reflect entire net income, alternative entire net income or taxable assets.

      (2)   Change of accounting method.

         (i)   If a taxpayer's method of accounting for Federal income tax purposes is changed, the accounting method employed in determining entire net income, alternative entire net income or taxable assets for purposes of the banking corporation tax must be changed at the same time to the method approved for Federal income tax purposes. When a change of accounting method is made, any adjustments which are determined to be necessary solely by reason of the change in order to prevent amounts from being duplicated or omitted must be taken into account to the extent they are required to be taken into account in determining the taxpayer's Federal taxable income.

         (ii)   A taxpayer whose method of accounting is changed must submit with its first return in which the new accounting method is used a copy of the consent of the Commissioner of Internal Revenue, together with complete details of any adjustments with respect to items of income or deduction or adjustments to the value of assets.

   (c)   Cessation periods. (Administrative Code, § 11-639(a))

      (1)   The banking corporation tax is imposed for each taxable year during which a taxpayer does business in a corporate or organized capacity in New York City. Accordingly, for purposes of the banking corporation tax, every taxpayer is subject to tax up to the date on which it ceases to do business in a corporate or organized capacity in New York City.

      (2)   A taxpayer may cease to be subject to the banking corporation tax because of a change in classification. (See: 19 RCNY § 3-01(c)(5) – Change in classification.) In some cases, a corporation may then become subject to tax under some other subchapter of Chapter 6 of Title 11 or some other chapter of Title 11 of the Administrative Code.

      (3)   For rules concerning the time for filing cessation returns, see 19 RCNY § 3-05(d)(3).

§ 3-03 Computation of Tax.

   (a)   Introduction.

      (1)   General. (Administrative Code, § 11-643.5(a) and (b))

         (i)   Every corporation subject to the banking corporation tax must compute its basic tax (See: 19 RCNY § 3-03(b) – Basic tax – measured by entire net income) and its alternative minimum tax. (See: subdivisions (d), (e), (f) and (g) of this 19 RCNY § 3-03.) Every taxpayer must pay the basic tax unless the alternative minimum tax is greater, in which case the taxpayer must pay the alternative minimum tax.

         (ii)   The basic tax is measured by the taxpayer's entire net income, or portion thereof allocated to New York City, and is imposed at the rate of nine percent.

         (iii)   The alternative minimum tax is the largest of three bases.

            (A)   The bases are: (a) (1) except for a corporation organized under the laws of a country other than the United States, and except as provided in subparagraph (iii)(B) of this paragraph, 0.1 of the mill upon each dollar of taxable assets, or portion thereof allocated to New York City (See: 19 RCNY § 3-03(e) – Alternative minimum tax measured by taxable assets); or (2) for a corporation organized under the laws of a country other than the United States, 2.6 mills upon each dollar of the taxpayer's issued capital stock, or portion thereof allocated to New York City, on the last day of its taxable year (See: 19 RCNY § 3-03(f) – Alternative minimum tax measured by issued capital stock); (b) three percent of alternative entire net income, or portion thereof allocated to New York City (See: 19 RCNY § 3-03(d) – Alternative minimum tax measured by alternative entire net income); and (c) $125 (See: 19 RCNY § 3-03(g) – Alternative minimum tax measured by the fixed minimum amount.)

            (B)   A taxpayer which has an outstanding net worth certificate issued to the Federal Deposit Insurance Corporation or to the Federal Savings and Loan Insurance Corporation and which meets certain other requirements is not subject to the alternative minimum tax measured by taxable assets for that portion of the taxable year in which such certificate is outstanding and such requirements are met. (See: 19 RCNY § 3-03(e)(1) – Computation of the alternative minimum tax measured by taxable assets.)

      (2)   Computing tax on combined returns. (Administrative Code, § 11-646(f)) Where corporations report on a combined basis, the tax is measured by the combined entire net income (See: 19 RCNY § 3-03(b)(6)), or by the combined alternative entire net income (See: 19 RCNY § 3-03(d)(2)), or by the combined taxable assets (See: 19 RCNY § 3-03(e)(6) of all of the corporations included in the combined return. Each taxpayer included in the combined return (other than the taxpayer paying the combined tax) is required to pay an alternative minimum tax of $125. The corporation paying the combined tax will pay the alternative minimum tax of $125 (See: 19 RCNY § 3-03(g)(2)) when it is the greatest alternative minimum base and the alternative minimum tax is greater than the basic tax. As to when combined returns will be required or permitted, see 19 RCNY § 3-05(b) – Combined returns.

      (3)   Correcting distortion of income or assets. (Administrative Code, § 11-646(g))

         (i)   In case it shall appear to the Commissioner of Finance that any agreement, understanding or arrangement exists between the taxpayer and any other corporation or any person or firm, whereby the activity, business, income or assets of the taxpayer within New York City is improperly or inaccurately reflected, the Commissioner of Finance may, in his discretion, make such adjustments as he deems necessary in order to accurately reflect the tax liability of the taxpayer. In exercising his discretion, the Commissioner of Finance is empowered to adjust:

            (A)   items of income or deduction in computing entire net income or alternative entire net income;

            (B)   assets;

            (C)   wages, salaries and other personal service compensation, receipts or deposits in computing any allocation percentage, provided only that entire net income or alternative entire net income be adjusted accordingly and that any asset directly traceable to the elimination of any receipt be eliminated from taxable assets so as to accurately determine the tax. If, however, in the determination of the Commissioner of Finance, such adjustments do not or cannot effectively provide for the accurate determination of the tax, the Commissioner of Finance shall be authorized to require the filing of a combined return by the taxpayer and any such other corporations. Thus, the Commissioner of Finance is not required to exercise his authority under this paragraph and in lieu thereof or in addition thereto a combined return may be required or permitted pursuant to the provisions of 19 RCNY § 3-05(b).

         (ii)   The Commissioner of Finance may include in the entire net income or alternative entire net income of the taxpayer the fair profits which, but for an agreement, arrangement or understanding as described in subparagraph (i) of this paragraph, the taxpayer might have derived from any transaction:

            (A)   where any taxpayer conducts its activity or business under any agreement, arrangement or understanding in such manner as either directly or indirectly to benefit its members or stockholders, or any of them, or any person or persons directly or indirectly interested in such activity or business, by entering into any transaction at more or less than a fair price which, but for such agreement, arrangement or understanding, might have been paid or received therefor; or

            (B)   where any taxpayer enters into any transaction with another corporation on such terms as to create an improper loss or net income.

         (iii)   In determining whether an agreement, understanding or arrangement between the taxpayer and any other corporation or any person or firm results in an improper or inaccurate reflection of the activity, business, income or assets of the taxpayer within New York City, consideration is given to such factors as:

            (A)   whether the taxpayer controls or is controlled by such other corporation, person or firm, or whether the taxpayer and such other corporation, person or firm are controlled by the same interest;

            (B)   whether the agreement, understanding or arrangement in question would have been entered into, or whether the terms and conditions would have been the same, had the element of control been absent and had the parties been dealing at arm's length; and

            (C)   whether the agreement, understanding or arrangement in question has a reasonable business purpose, or whether it appears to be arbitrary or to have been motivated principally by a tax avoidance purpose.

         (iv)   In applying the provisions of subparagraph (i) of this paragraph, the Commissioner of Finance will consider, and may utilize in making adjustments or determining a fair price or fair profit, the principles and rules contained in §§ 1.482-1 and 1.482-2 of the Federal income tax regulations (26 C.F.R. § 1.482-1; 26 C.F.R. § 1.482-2) to the extent that they are relevant and can be made applicable to the provisions of this paragraph.

      (4)   Use of dollar amounts in computing tax.

         (i)   Any amount required to be included in a return may be entered at the nearest whole dollar amount. This does not apply to the items which must be taken into account in making the computations necessary to determine such amount. For example, each taxable dividend received must be taken into account at its exact amount, including cents, in computing the amount of dividend income to be included in the banking corporation tax return. However, the total amount of dividend income to be included in the return may be entered at the nearest whole dollar amount. A taxpayer may elect not to use whole dollar amounts by reporting all amounts in full, including cents, if a similar election is made for Federal income tax purposes. Such election must be made at the time of filing the return and is irrevocable with respect to the taxable year covered by the return. A new election may be made on any return for any subsequent taxable year.

         (ii)   For the purpose of reporting amounts at the nearest whole dollar, a fractional part of the dollar shall be disregarded unless it amounts to one-half dollar or more, in which case the amount (determined without regard to the fractional part of a dollar) shall be increased by one dollar.

            Example: 

 

Exact amount	To be reported as
$500,000.49	$500,000.00
$500,000.50	$500,001.00
$500,000.51	$500,001.00

 

   (b)   Basic tax – measured by entire net income.

      (1)   General. (Administrative Code, § 11-643.5(a))

         (i)   The basic tax is measured by entire net income, or the portion thereof allocated to New York City, and is the measure of the tax unless the computation of the alternative minimum tax produces a greater amount of tax. The basic tax is computed by multiplying entire net income, or the portion thereof allocated to New York City, by the tax rate of nine percent.

         (ii)   The portion of entire net income allocated to New York City is determined pursuant to 19 RCNY § 3-04(b) – Allocation of entire net income.

      (2)   Definition of entire net income. (Administrative Code, § 11-641(a))

         (i)   The term "entire net income" means total net income from all sources, which is the same as the taxable income which the taxpayer is required to report to the United States Treasury Department for purposes of the Federal income tax imposed by chapter one of the Internal Revenue Code with the adjustments required by paragraphs (3), (4) and (5) of this subdivision.

         (ii)   "Federal taxable income" means taxable income as defined in § 63 of the Internal Revenue Code, and is the starting point in computing entire net income.

         (iii)   Each corporation included in a Federal consolidated group must compute its Federal taxable income for purposes of the banking corporation tax law as if such corporation had computed its Federal taxable income on a separate basis for Federal income tax purposes. Provided, however, in the case of a target corporation, as defined in § 338(d)(2) of the Internal Revenue Code, that is a member of a selling consolidated group, as defined in § 338(h)(10)(B) of the Internal Revenue Code, with respect to which an election under § 338(h)(10) has been made, such election shall be recognized for purposes of Subchapter 3 of Chapter 6 of Title 11 of the Administrative Code. For purposes of determining entire net income, the Federal taxable income of such target corporation shall include any gain or loss on the deemed asset sale by such target corporation recognized by virtue of such election. For purposes of determining entire net income, the Federal taxable income of a member of the selling consolidated group, as so defined, that is subject to tax under such subchapter shall not include any gain or loss on the sale or exchange of stock of such target corporation not recognized by virtue of such election.

         (iv)   For purposes of determining entire net income of an affiliated target corporation, as defined in Treasury Regulation § 1.338(h)(10)-1(b)(3) that is a member of a selling affiliated group that does not file a Federal consolidated return, and for which an election under § 338(h)(10) of the Internal Revenue Code has been made, the Federal taxable income of such affiliated target corporation shall include any gain or loss on the deemed asset sale by such affiliated target corporation recognized by virtue of such election. For purposes of determining entire net income of the selling affiliate of such affiliated target corporation, Federal taxable income shall not include any gain or loss on the sale or exchange of stock of such affiliated target corporation not recognized by virtue of such election.

         (v)   The income actually reported or the income actually determined for Federal income tax purposes is not necessarily the same as the taxable income which should have been reported for Federal income tax purposes under the provisions of the Internal Revenue Code. Generally the determination of the Commissioner of Internal Revenue as to Federal taxable income is followed, but it is not binding on the Commissioner of Finance.

         (vi)   For purposes of Subchapter 3 of Chapter 6 of Title 11 of the Administrative Code, any election pursuant to § 338(h)(10) of the Internal Revenue Code made with respect to a target corporation that is an S corporation for Federal tax purposes will be deemed to be an invalid election and will not be recognized for purposes of such subchapter. If pursuant to this subparagraph, a § 338(h)(10) election of an S corporation is not recognized, the corresponding election pursuant to § 338(g) will be deemed invalid and will not be recognized for purposes of Subchapter 3 of Chapter 6 of Title 11 of the Administrative Code. See Treas. Reg. § 1.338(h)(10)-1(c)(4). The basis of the assets of the target corporation will be determined without regard to any adjustments made pursuant to § 338(b).

      (3)   Adjustments – items to be added to federal taxable income. (Administrative Code, § 11-641)

         (i)   In computing entire net income, Federal taxable income must be adjusted by adding to it:

            (A)   in the case of a corporation organized under the laws of a country other than the United States,

               (a)   any part of any income from dividends (including any part of any dividend for which a deduction has been allowed for Federal income tax purposes) or interest on any kind of stock, securities or indebtedness which has been excluded from Federal taxable income (such as interest income on certain obligations of the United States and its instrumentalities), but only if such income is treated as effectively connected with the conduct of a trade or business in the United States pursuant to § 864 of the Internal Revenue Code,

               (b)   any income exempt from Federal taxable income under any treaty obligation of the United States, but only if such income would be treated as effectively connected in the absence of such exemption, provided that such treaty obligation does not preclude the taxation of such income by a state, or

               (c)   any income which would be treated as effectively connected if such income were not excluded from gross income pursuant to § 103(a) of the Internal Revenue Code, or

            (B)   (a)   in the case of any other corporation, any part of any income from dividends (including any part of any dividend for which a deduction has been allowed for Federal income tax purposes) or interest on any kind of stock, securities or indebtedness which has been excluded from Federal taxable income (such as interest income on state and municipal bonds and certain obligations of the United States and its instrumentalities);

               (b)   taxes on or measured by income or profits paid or accrued within the taxable year to the United States, or any of its possessions or to any foreign country for which a deduction has been allowed for Federal income tax purposes; any net operating loss deduction for the taxable year allowable for Federal income tax purposes;

               (c)   any net operating loss deduction for the taxable year allowable for Federal income tax purposes;

               (d)   any tax imposed under article 32 of the Tax Law and any tax imposed under the banking corporation tax law which were deducted in computing Federal taxable income;

               (e)   any amount which the taxpayer claimed as a deduction in computing its Federal taxable income solely as a result of an election made pursuant to § 168(f)(8) of the Internal Revenue Code as it was in effect for safe harbor lease agreements entered into prior to January 1, 1984, except with respect to property which is a qualified mass commuting vehicle described in such section;

               (f)   any amount which the taxpayer would have been required to include in the computation of its Federal taxable income had it not made the election permitted pursuant to § 168(f)(8) of the Internal Revenue Code as it was in effect for safe harbor lease agreements entered into prior to January 1, 1984, except with respect to property which is a qualified mass commuting vehicle described in such section;

               (g)   the amount allowable as the accelerated cost recovery system deduction pursuant to § 168 of the Internal Revenue Code, except with respect to

                  (1)   recovery property subject to the provisions of § 280F of the Internal Revenue Code (regarding luxury automobiles and certain property used for personal purposes) and

                  (2)   recovery property placed in service in New York State in taxable years beginning after December 31, 1984;

               (h)   upon the disposition of recovery property to which 19 RCNY § 3-03(b)(4)(ii)(G) applies, the amount, if any, by which the aggregate of the deductions for depreciation attributable to such property deducted in computing entire net income pursuant to such subparagraph (ii)(G) exceeds the aggregate accelerated cost recovery system deduction attributable to such property, described in subparagraph (g) of this paragraph

               (i)   any capital loss carry forward allowed as a deduction in computing Federal taxable income under § 1212 of the Internal Revenue Code which was deductible as a loss under Part 1 or Part 2 of Subchapter 3 of Chapter 6 of Title 11 of the Administrative Code; and

               (j)   any other amount allowed as a deduction for Federal income tax purposes which was allowable as a deduction in computing net income under Part 1 or Part 2 of Subchapter 3 of Chapter 6 of Title 11 of the Administrative Code.

      (4)   Adjustments – items to be deducted from federal taxable income. (Administrative Code, § 11-641)

         (i)   In computing entire net income, Federal taxable income must be adjusted by subtracting from it:

            (A)   any refund or credit of a tax imposed under Article 32 of the Tax Law or any refund or credit of the tax imposed under the banking corporation tax law for which tax no exclusion or deduction was allowed in determining the taxpayer's entire net income under the banking corporation tax law for any prior year;

            (B)   any amount treated as a dividend pursuant to § 78 of the Internal Revenue Code;

            (C)   any amount of income or gain includible in determining Federal taxable income for the taxable year, determined pursuant to the installment method under § 453 of the Internal Revenue Code, resulting from the sale of real or personal property to the extent that the income or gain was included in the computation of net income under Part 1 or Part 2 of Subchapter 3 of Chapter 6 of Title 11 of the Administrative Code; and

            (D)   any other amount of income or gain which was properly included in the computation of net income under Part 1 or Part 2 of Subchapter 3 of Chapter 6 of Title 11 of the Administrative Code.

         (ii)   In computing entire net income, a deduction shall be allowed, to the extent not deductible in determining Federal taxable income, for the following:

            (A)   interest on indebtedness incurred or continued to purchase or carry obligations or securities the income of which is subject to tax under the banking corporation tax law but exempt for Federal income tax purposes;

            (B)   ordinary and necessary expenses paid or incurred during the taxable year attributable to income which is subject to tax under the banking corporation tax law but exempt for Federal income tax purposes;

            (C)   the amortized portion of a bond premium for the taxable year on any bond the interest on which is subject to tax under the banking corporation tax law but exempt for Federal income tax purposes;

            (D)   that portion of wages and salaries paid or incurred for the taxable year for which a deduction is not allowed pursuant to the provisions of § 280C of the Internal Revenue Code;

            (E)   any amount which is included in the taxpayer's Federal taxable income solely as a result of an election made pursuant to § 168(f)(8) of the Internal Revenue Code as it was in effect for safe harbor lease agreements entered into prior to January 1, 1984, except with respect to property which is a qualified mass commuting vehicle described in such section;

            (F)   any amount which the taxpayer could have excluded from Federal taxable income had it not made the election provided for in § 168(f)(8) of the Internal Revenue Code as it was in effect for safe harbor lease agreements entered into prior to January 1, 1984, except with respect to property which is a qualified mass commuting vehicle described in such section;

            (G)   with respect to recovery property for which the accelerated cost recovery system deduction is allowed pursuant to § 168 of the Internal Revenue Code, the amount allowable as the depreciation deduction pursuant to § 167 of the Internal Revenue Code as such section would have applied to property placed in service on December 31, 1980, except recovery property

               (a)   subject to § 280F of the Internal Revenue Code (regarding luxury automobiles and certain property used for personal purposes),

               (b)   placed in service in New York State in taxable years beginning after December 31, 1984, or

               (c)   to which the adjustment required by 19 RCNY § 3-03(b)(3)(v) applies;

            (H)   upon the disposition of recovery property to which subparagraph (ii)(G) of this paragraph applies, the amount, if any, by which the aggregate accelerated cost recovery system deduction attributable to such property, described in 19 RCNY § 3-03(b)(3)(vii) exceeds the aggregate of the deductions for depreciation attributable to such property deducted in computing entire net income pursuant to subparagraph (ii)(G) of this paragraph;

            (I)   any amount of money or other property received from the Federal Deposit Insurance Corporation pursuant to § 13(c) of the Federal Deposit Insurance Act, as amended, (12 U.S.C. § 1823(c)) regardless of whether any note or other instrument is issued in exchange therefore;

            (J)   any amount of money or other property received from the Federal Savings and Loan Insurance Corporation pursuant to § 406(f)(1), (2), (3) or (4) of the Federal National Housing Act, as amended, (12 U.S.C. § 1729(f)(1), (2), (3) or (4)) regardless of whether any note or other instrument is issued in exchange therefor;

            (K)   (a)   17 percent of interest income from subsidiary capital, and

               (b)   60 percent of dividend income, gains and losses from subsidiary capital to the extent not already deducted pursuant to subparagraph (i)(B) of this paragraph;

            (L)   22 1/2 percent of interest income on obligations of New York State, or of any political subdivision thereof, or of the United States, other than obligations held for resale in connection with regular trading activities. The term "obligation" refers to obligations incurred in the exercise of the borrowing power of New York State or any of its political subdivisions or of the United States. This term does not refer to a guarantee of the debt of a third party. The following are examples of instruments that are not obligations incurred in the exercise of the borrowing power of New York State or any of its political subdivisions or of the United States:

               (a)   guaranteed student loans,

               (b)   industrial development bonds issued pursuant to article 18-A of the New York State General Municipal Law,

               (c)   Federal National Mortgage Association mortgage-backed securities, and

               (d)   Government National Mortgage Association mortgage-backed securities,

The Commissioner of Finance will publish on a regular basis a list of obligations which meet the requirements of this paragraph.

         (iii)   In the case of the sale or exchange of depreciable property which was subject to Part 1 or Part 2 of Subchapter 3 of Chapter 6 of Title 11 of the Administrative Code and has a higher adjusted basis for New York City tax purposes than for Federal income tax purposes, a deduction is allowed in computing entire net income for the portion of the gain or loss which equals the difference in the basis, except as provided in subparagraphs (ii)(A), (ii)(B) or (ii)(C) of this paragraph:

            (A)   for property of a taxpayer, other than a savings bank or a savings and loan association, acquired prior to January 1, 1966 and disposed of thereafter, no gain will be deemed to have been derived if either the cost or fair market price or value on January 1, 1966, exceeds the value realized, nor a loss sustained if either the cost or fair market price or value on January 1, 1966 is less than the value realized;

            (B)   for the purpose of ascertaining a gain or loss from the sale, exchange or other disposition of:

               (a)   property of a taxpayer, other than a savings bank or a savings and loan association, acquired prior to January 1, 1966 and disposed of thereafter, the basis for computing a gain when both the cost and the fair market price or value on January 1, 1966 are less than the value realized, is the cost or fair market price or value on that date, whichever is higher, and the basis for computing a loss when both the cost and the fair market price or value on January 1, 1966 exceeds the value realized, is the cost or fair market price or value on that date, whichever is lower;

               (b)   property of a savings and loan association acquired prior to January 1, 1966 and disposed of thereafter, the basis of such property shall be the fair market price or value on January 1, 1966.

         (iv)   The term "cost," for purposes of subparagraph (iii) of this paragraph, means the purchase price less the depreciation properly chargeable against the property since the date of acquisition, plus the cost of any permanent improvements made to the property subsequent to acquisition, less the depreciation thereon from the date such permanent improvements were completed. In the case of bonds, the purchase price shall be reduced by the total amount of amortizable bond premium allowable under § 11-621(a)(9) or § 11-629(i) of the Administrative Code. In the case of property acquired by exchange, the fair market value of the property at the date acquired shall be considered as being the purchase price of such property, except in those cases where these regulations provide that the property received in exchange shall be considered as substituted for and have the same value as the property exchanged. In the case of property which is included in an inventory, the "cost" of such property shall be the last inventory value thereof made in accordance with the method of accounting on which the taxpayer's books are kept.

         (v)   The term "fair market price or value on January 1, 1966" means the exchange value of the property on that date. Where there has been a change in the market value of the property since acquisition, but the actual market value of the property on January 1, 1966 is not proved conclusively, the difference between its selling price and its cost, as herein defined, disregarding the cost of permanent improvements made since December 31, 1966, and the depreciation thereon, will be deemed to have arisen ratably over the period during which the property was held and the January 1, 1966 value will be determined accordingly. In the case of securities dealt in on a recognized exchange, the fair market value on January 1, 1966 will ordinarily be determined by the average of the bid and asked prices after closing on December 31, 1965. In all other cases, other evidence of value is necessary, and bona fide sales nearest January 1, 1966, of securities publicly or privately dealt in, will be considered.

      (5)   Other items affecting entire net income. (Administrative Code, § 11-641)

         (i)   Entire net income may be affected by the following:

            (A)   In the case of property placed in service prior to January 1, 1973 for which the taxpayer properly adopted a method of computing depreciation under §§ 11-621 or 11-629 of the Administrative Code which was different than the method adopted for Federal income tax purposes, entire net income shall be computed by adding to Federal taxable income the deduction for depreciation on such property used in the computation of Federal taxable income and by subtracting from Federal taxable income a deduction for depreciation on such property computed as if such deduction were determined by the method of depreciation adopted under §§ 11-621 or 11-629 of the Administrative Code.

            (B)   A deduction is allowed for depreciation, at the election of the taxpayer, for certain tangible property located in New York City. (See: 19 RCNY § 3-04(h)(5) – Optional depreciation.)

            (C)   Provided an election has not been made pursuant to 19 RCNY § 3-04(b)(3), a deduction is allowed for the adjusted eligible net income, as described in 19 RCNY § 3-03(c), of the IBF of the taxpayer. In the event adjusted eligible net income is a loss, the amount of such loss is added to entire net income.

            (D)   Entire net income is to be computed without regard to the reduction in the basis of property that is required by § 362 of the Internal Revenue Code because of any amount of money or other property received from the Federal Deposit Insurance Corporation pursuant to § 13(c) of the Federal Deposit Insurance Act, as amended, (12 U.S.C. § 1823(c)) or from the Federal Savings and Loan Insurance Corporation pursuant to § 406(f)(1), (2), (3) or (4) of the Federal National Housing Act, as amended, (12 U.S.C. § 1729(f)(1), (2), (3) or (4)).

         (ii)   A taxpayer sustaining a net capital loss for Federal income tax purposes is permitted to carry back or carry forward such loss to the same extent and to the same years as is allowed under § 1212 of the Internal Revenue Code. A corporation which files as part of a consolidated group for Federal income tax purposes but files on a separate basis for purposes of the banking corporation tax law must compute its net capital loss as if it were filing on a separate basis for Federal income tax purposes.

      (6)   Computation of entire net income on a combined return. (Administrative Code, § 11-646(f))

         (i)   Each corporation included in the combined return is to compute its entire net income as if it had filed its Federal income tax return on a separate basis. Then, to compute combined entire net income, all intercorporate dividends and intercorporate transactions between the corporations included in the combined return must be eliminated. In applying the foregoing, intercorporate profits are deferred, capital losses are to be offset against capital gains and contributions are to be deducted as if the corporations in the group had filed a consolidated Federal income tax return.

         (ii)   If any corporation included in the combined return makes the IBF election pursuant to 19 RCNY § 3-04(b)(3), all corporations included in the combined return will be deemed to have made the election.

         (iii)   In no event will an item of income or expense of a corporation organized under the laws of a country other than the United States be included in a combined return unless it is includible in entire net income or alternative entire net income.

         (iv)   As to when combined returns will be permitted or required, see 19 RCNY § 3-05(b) – Combined returns.

      (7)   Taxable year in which income or deduction is included in entire net income. (Administrative Code, § 11-641(m)) In general, the method of accounting used in computing taxable income for Federal income tax purposes is the method used in computing entire net income. However, when the Commissioner of Finance deems it necessary in order to properly reflect the entire net income of the taxpayer, it may determine the taxable year or period in which any item of income or deduction shall be included without regard to the method of accounting used by the taxpayer for Federal income tax purposes.

      (8)   Adjusting entire net income to period covered by return. (Tax Law, § 11-641(i))

         (i)   If the entire net income required to be reported under the banking corporation tax law is for a period different than the period covered by the taxpayer's Federal income tax return, the taxpayer's entire net income must be prorated to correspond with the period covered by the return under the banking corporation tax law. The prorated entire net income is computed as follows:

            (A)   adjust Federal taxable income in the manner set forth in paragraphs (3), (4) and (5) of this subdivision;

            (B)   divide entire net income by the number of calendar months, or major parts thereof, covered by the return for Federal income tax purposes; and

            (C)   multiply the result by the number of calendar months, or major parts thereof, covered by the return under the banking corporation tax law.

Example: A banking corporation organized in France has been doing business since 1973 in the United States and began to do business in New York City on May 10, 1985, and reports on a calendar year basis. Its entire net income for calendar year 1985 is $12,000. For purposes of computing the tax measured by entire net income for taxable year 1985, entire net income must be divided by 12 and the result multiplied by 8 (the number of months from May to December), resulting in a prorated entire net income of $8,000.

         (ii)   The method of computing entire net income for a short period, as set forth in this paragraph, applies to taxpayers reporting on either a calendar year or fiscal year basis for Federal income tax purposes.

         (iii)   If, in the opinion of the Commissioner of Finance the method described in this paragraph does not properly reflect the taxpayer's entire net income for purposes of the banking corporation tax law during the period covered by its return, the Commissioner of Finance may determine entire net income solely on the basis of the taxpayer's income during such period.

      (9)   Correcting distortion of entire net income. (Administrative Code, § 11-646(g)) For rules relating to the power of the Commissioner of Finance to correct distortion of entire net income, see 19 RCNY § 3-03(a)(3).

   (c)   International banking facility (IBF). (1) General. (Administrative Code, § 11-641(f))

         (i)   Provided an election has not been made pursuant to 19 RCNY § 3-04(b)(3), a taxpayer which establishes an IBF, as defined in 19 RCNY § 3-01(b) "International banking facility", is allowed as a deduction in computing its entire net income the adjusted eligible net income, as determined in this subdivision, of such IBF. However, in the event the adjusted eligible net income of the IBF is a loss, the amount of such loss must be added to Federal taxable income in computing the taxpayer's entire net income.

         (ii)   The adjusted eligible net income of an IBF is computed by subtracting from eligible gross income the following:

            (A)   expenses or other deductions directly or indirectly attributable to eligible gross income;

            (B)   the ineligible funding amount; and

            (C)   the floor amount.

         (iii)   An IBF is required to:

            (A)   make loans to and receive deposits from foreign persons as defined in 19 RCNY § 3-03(c)(2); and

            (B)   maintain books and records that accurately reflect gross income, gains, losses, deductions, assets, liabilities and other activities of the IBF for the taxable year and make available to the Commissioner of Finance upon his request any information necessary to substantiate the deduction determined in this subdivision (c). Such information may include, but shall not be limited to: (a) a list of all loans made, arranged for, placed or serviced during the taxable year indicating the borrower, loan number, date proceeds disbursed, maturity date, amount borrowed and terms; (b) a list of all deposits made or placed during the taxable year indicating where such deposits were made or placed, date of deposit, amount and terms; and (c) a list of all depositors for the taxable year.

      (2)   Meaning of certain terms. (Administrative Code, § 11-641(f)) As used in this subdivision, the following terms have these meanings:

         Agency. The term "agency" means a branch.

         Deposit. The term "deposit" means an IBF time deposit as defined in § 204.8(a)(2) of the Federal Reserve System regulations (12 C.F.R. § 204.8(a)(2)).

         Domestic. The term "domestic" when applied to a corporation or partnership means a corporation or partnership created or organized in the United States or under the laws of the United States or of any state.

         Domestic branch. The term "domestic branch" means any branch located in the United States.

         Foreign. The term "foreign" when applied to a corporation or partnership means a corporation or partnership which is not domestic.

         Foreign branch. The term "foreign branch" means any branch located outside the United States.

         Foreign person. The term "foreign person" means:

            (A)   a nonresident individual;

            (B)   a foreign corporation, a foreign partnership or a foreign trust, other than a domestic branch thereof;

            (C)   a foreign branch of a domestic corporation;

            (D)   a foreign branch of the taxpayer;

            (E)   a foreign government or an international organization or an agency of either; or

            (F)   another international banking facility located within or without New York State.

         Foreign trust. The term "foreign trust" means a trust, the income of which, from sources without the United States which is not effectively connected with the conduct of a trade or business within the United States, is not includible in gross income for Federal income tax purposes.

         Ineligible gross income. The term "ineligible gross income" means gross income (including gross income from interoffice transactions) of the IBF that is other than eligible gross income.

         International organization. The term "international organization" means an organization as defined in § 7701(a)(18) of the Internal Revenue Code, an organization as described in § 204.125 of the Federal Reserve System regulations (12 C.F.R. § 204.125) and the World Bank.

         Loan. The term "loan" means any loan, whether the transaction is represented by a promissory note, security, acknowledgement of advance, due bill, repurchase agreement or any other form of credit transaction, if the related asset is recorded in the financial accounts of the IBF.

         Nonresident individual. The term "nonresident individual" means an individual who resides principally outside the United States at the time of the transaction.

         Resident individual. The term "resident individual" means an individual who resides principally within the United States at the time of the transaction.

         United States. The term "United States" means the 50 states and the District of Columbia.

      (3)   Adjusted eligible net income. (Administrative Code, § 11-641(f) and (m))

         (i)   The adjusted eligible net income of the IBF is allowed as a deduction in computing the taxpayer's entire net income, to the extent not deductible in determining Federal taxable income. This deduction is taken before the taxpayer allocates its entire net income within and without New York City. The adjusted eligible net income of the IBF is determined by subtracting from the eligible net income of the IBF the ineligible funding amount (See: 19 RCNY § 3-03(c)(10) – Ineligible funding amount) and the floor amount (See: 19 RCNY § 3-03(c)(11) – Floor amount). The eligible net income of the IBF is the amount remaining after subtracting from the eligible gross income of the IBF (See: 19 RCNY § 3-03(c)(4) – Eligible gross income) the expenses applicable to such gross income (See: 19 RCNY § 3-03(c)(5) – Direct expenses of the IBF, 19 RCNY § 3-03(c)(6) – Interest expense of the IBF, 19 RCNY § 3-03(c)(7) – Bad debt deduction of the IBF, and 19 RCNY § 3-03(c)(8) – Indirect expenses of the IBF, including head office expenses). When the IBF has eligible gross income and ineligible gross income for the taxable year, eligible net income of the IBF is computed by reducing eligible gross income by those expenses which are apportioned to eligible gross income pursuant to 19 RCNY § 3-03(c)(9).

         (ii)   The eligible gross income of the IBF is the amount of gross income (including gross income from interoffice transactions) derived from the activities described in 19 RCNY § 3-03(c)(4) that would be includible in the computation of the IBF's entire net income for the taxable year, as if the IBF were a separate corporation.

         (iii)   Expenses applicable to the eligible gross income of the IBF are those expenses or other deductions (including expenses or other deductions from interoffice transactions) described in paragraphs (5), (6), (7) and (8) of this subdivision that are directly or indirectly attributable to the eligible gross income of the IBF.

         (iv)   The Commissioner of Finance may, whenever necessary in order to properly reflect the adjusted eligible net income or the entire net income of the taxpayer, determine the taxable year in which any item of income or deduction shall be included without regard to the method of accounting used by the taxpayer.

      (4)   Eligible gross income. (Administrative Code, § 11-641(F)(2))

         (i)   Eligible gross income includes gross income derived from making, arranging for, placing or servicing loans to foreign persons, except that such gross income derived from those foreign persons described in subparagraph (ii) of this paragraph is eligible gross income only when substantially all the proceeds of the loan are for use outside the United States. Eligible gross income includes fees, such as arrangement, commitment and letter of credit fees received from foreign persons regardless of when or whether the loans are made, and management fees from servicing loans to foreign persons. Eligible gross income includes interest income received from a loan made to or a deposit placed with a foreign person which was purchased without recourse as against any prior owner and meets the restrictions set forth in 12 C.F.R. § 204-122. Eligible gross income does not include income received from the purchasing or selling of assets from or to third parties, such as loans (including loan participations), securities, certificates of deposit and bankers' acceptances. For an asset to be treated as recorded in the financial accounts of the IBF, such asset must be recorded in the financial accounts of the IBF:

            (A)   in accordance with the usual recording practices of the taxpayer; or

            (B)   in the case of assets transferred to the IBF when the IBF is created, within the transfer time allowed for Federal Reserve purposes.

         (ii)   Gross income derived from making, arranging for, placing or servicing a loan to a foreign person which is:

            (A)   a nonresident individual;

            (B)   a foreign branch of a domestic corporation (other than a foreign branch of a domestic bank);

            (C)   a foreign corporation which is 80 percent or more owned or controlled, either directly or indirectly, by one or more domestic corporations (except corporations which are banks), domestic partnerships or resident individuals; or

            (D)   a foreign partnership which is 80 percent or more owned or controlled, either directly or indirectly, by one or more domestic corporations (except corporations which are banks), domestic partnerships or resident individuals; is eligible gross income only when substantially all the proceeds of the loan are for use outside the United States. For purposes of this subdivision (c), the phrase "substantially all the proceeds of the loan are for use outside of the United States" means that at least 95 percent of the proceeds of the loan must be used outside the United States to finance the operations of the borrower or its affiliates located outside the United States. An affiliate is a corporation or partnership which is 80 percent or more owned or controlled, either directly or indirectly, by the borrower. The use-of-proceeds requirement for New York City tax purposes is deemed to be satisfied based on the stated purpose of the loan and a written statement of the foreign person to whom a loan is made stating that such foreign person, or another foreign person that is affiliated with such foreign person, will use the proceeds of the loan outside the United States. The written statement may be in the form of a representation or covenant in any agreement relating to the loan or a separate certificate or other written statement of the foreign person, such as the model statement set forth by the Federal Reserve Board. If the taxpayer is unable to obtain such a written statement, the Commissioner of Finance will consider other evidence that the proceeds of the loan are for use outside the United States. For purposes of this subparagraph (ii), the term "owned or controlled, either directly or indirectly" means, in the case of a corporation, the power to direct or cause the direction of the management and policies of a corporation, whether through the ownership of at least 80 percent of the voting stock of such corporation or through the ownership of at least 80 percent of the voting stock of any other corporation which possesses such power, or, in the case of a partnership, the power to direct or cause the direction of the management and policies of the partnership, or ownership of at least 80 percent of the profits interest or at least 80 percent of the capital interest of such partnership.

         (iii)   Eligible gross income includes gross income derived from making or placing deposits, if the related asset is recorded in the financial accounts of the IBF, with foreign persons which are:

            (A)   banks;

            (B)   foreign branches of a bank, including foreign branches of the taxpayer;

            (C)   foreign banks which are subsidiaries of a bank, including foreign banks which are subsidiaries of the taxpayer; or

            (D)   other IBFs. The term "deposit" as used in this subparagraph (iii) means the amount of money received or held by such foreign person for which it has given or is obligated to give credit, either conditionally or unconditionally, to a deposit liability account, including interest credited to such account, or which is evidenced by such foreign person's certificate of deposit.

         (iv)   Eligible gross income includes gross income derived from foreign exchange trading or hedging transactions that are solely entered into for or directly traceable to any of the transactions described in subparagraphs (i), (ii) or (iii) of this paragraph. Gross income from foreign exchange trading or hedging transactions related to a deposit (as defined in 19 RCNY § 3-03(c)(2)) from a foreign person, is eligible gross income when such deposit can be traced directly to a transaction described in subparagraphs (i), (ii) or (iii) of this paragraph. A foreign exchange trading or hedging transaction is not solely entered into for or directly traceable to any of the transactions described in subparagraphs (i), (ii) or (iii) of this paragraph unless the foreign exchange trading or hedging transaction is recorded in the financial accounts of the IBF. The term "foreign exchange trading or hedging transaction" as used in this subparagraph means:

            (A)   the purchase, sale or exchange of foreign currency; or

            (B)   the acquisition, disposition or performance of any contract to purchase, sell or exchange foreign currency at a future date under terms fixed in the contract if the contract hedges a foreign currency denominated loan or deposit. A forward contract hedges such foreign currency denominated loan or deposit if the effect of a change in the value of the foreign currency on the United States dollar value of the forward contract, either alone or in combination with other such contracts, offsets the effect of the change on the United States dollar value of such foreign currency denominated loan or deposit. A hedging relationship may be established by reference to particular facts and circumstances (for example, the amount of the forward contract, particular currency, initial date and maturity) indicating a hedging purpose, or by designating a contract as being intended for the purpose of hedging a loan or deposit.

      (5)   Direct expenses of the IBF. (Administrative Code, § 11-641(f)(3))

         (i)   Expenses or other deductions which can be specifically identified with the gross income, gains, losses, deductions, assets, liabilities or other activities of the IBF are direct expenses, regardless of where such expenses or other deductions are recorded. Direct expenses may include such items as interest, bad debts, rents, depreciation, taxes, insurance, supplies, compensation of officers, salaries, wages, travel expenses, pension plans, charitable contributions, training, servicing, etc.

         (ii)   Employee expenses incurred at places other than the IBF are allocated to the IBF when the employee is regularly connected with the IBF regardless of where the services of such employee were actually performed.

         (iii)   If the IBF incurs an expense which can be specifically identified with one or more places of business of the taxpayer, such expense must be directly allocated to such place or places of business.

         (iv)   Head office expenses that can be specifically identified with the gross income, gains, losses, deductions, assets, liabilities or other activities of the IBF are directly allocated to the IBF.

         (v)   If a portion of an expense can be specifically identified with the IBF, that portion of the expense must be directly allocated to the IBF. The portion of such expense that cannot be directly allocated to one or more places of business of the taxpayer must be indirectly allocated to the IBF pursuant to 19 RCNY § 3-03(c)(8).

      (6)   Interest expense of the IBF. (Administrative Code, § 11-641(f)(3))

         (i)   Interest expense of the IBF includes interest paid or accrued on funds borrowed by the IBF and/or interest paid or accrued on deposits recorded on the books as IBF liabilities. A taxpayer that determines its interest expense deduction for Federal income tax purposes pursuant to § 1.882-5 of the Federal income tax regulations (26 C.F.R. § 1.882-5) must compute the interest expense of the IBF for New York City tax purposes as described in subparagraph (iii) of this paragraph. Every other taxpayer must compute the interest expense of the IBF for New York City tax purposes as described in subparagraph (ii) of this paragraph.

         (ii)   The interest expense of the IBF is the sum of the amount of interest expense determined in subparagraph (ii)(A) of this paragraph and the total deemed interest expense determined in subparagraph (ii)(B) of this paragraph.

            (A)   Interest expense on the borrowings and deposits from other than a branch, agency or other office of the bank which established the IBF is the interest expense deduction on such borrowings and deposits that was allowed for Federal income tax purposes.

            (B)   Each deposit placed with the IBF by a branch, agency or other office of the bank which established the IBF (for purposes of this subparagraph called the "lending office") and each borrowing from such lending office shall be deemed to bear interest computed by using the following applicable rates: (a) a rate of interest representing the interest cost of the lending office on arm's length borrowings made to obtain funds which were loaned to, deposited in or placed with the IBF; or (b) the average rate of interest incurred by the lending office which is equal to the ratio of the total amount of interest expense from arm's length transactions recorded in the financial accounts of the lending office for the taxable year to the average amount of liabilities from borrowings and deposits owed from such arm's length transactions recorded in the financial accounts of the lending office for the taxable year averaged on a quarterly or more frequent basis; or (c) any other rate which the taxpayer establishes to the Commissioner of Finance as a more appropriate rate.

         (iii)   (A)   A taxpayer that determines its interest expense deduction for Federal income tax purposes pursuant to § 1.882-5 of the Federal income tax regulations (26 C.F.R. § 1.882-5) must compute its interest expense of the IBF for New York City tax purposes in the same manner, using the same liabilities-to-assets ratio, the same method (branch book/dollar pool or separate currency pools), the same interest rate or rates and the same method of valuation it actually used in the computation of its Federal interest expense deduction for the taxable year. In determining the IBF's interest expense for New York City tax purposes, the three-step process described in § 1.882-5 of the Federal income tax regulations (26 C.F.R. § 1.882-5) is applied using the following rules:

               (a)   The term "interoffice" means the activities between the IBF and the separate branches, agencies, or offices of the taxpayer.

               (b)   The classification of items as assets or liabilities must be on a consistent basis from year to year and determined according to U.S. tax principles.

               (c)   The average total value of IBF assets must be stated in U.S. dollars and valued by the same method (book or fair market) used for Federal income tax purposes. The actual value used in the Federal computation must be used in the asset determination for New York City tax purposes.

               (d)   The average total value of assets and the average total amount of liabilities is determined by using the same interval (daily, weekly, etc.) actually used for Federal income tax purposes.

               (e)   A particular asset value or liability amount that is denominated in one currency is translated into another currency at the exchange rate for the date the value or amount is determined for purposes of this subparagraph. An interest expense amount shown on the books is translated at the exchange rate from a qualified source for the date the amount is paid or accrued. Qualified sources of exchange rates must be determined under the rules of § 1.964-1(d)(5) of the Federal income tax regulations (26 C.F.R. § 1.964-1(d)(5)).

            (B)   The asset determination in Step 1 of the Federal three-step process is the average total value of all of the IBF assets (including interoffice) shown on the books that generate, have generated, or could reasonably have been or be expected to generate income, gain or loss which is or would be included in the computation of entire net income for the taxable year, or portion thereof.

            (C)   The liability determination in Step 2 of the Federal three-step process is the amount of IBF-connected liabilities for the taxable year, or portion thereof, determined by multiplying the average total value of assets determined in subparagraph (iii)(B) of this paragraph, by the same percentage actually used for Federal income tax purposes for the taxable year.

            (D)   If the taxpayer used, for Federal income tax purposes, the separate currency pools method in Step 3 of the Federal three-step process, the IBF interest expense for New York City tax purposes is the sum of the separate interest expenses for each currency in which the IBF has borrowed. If the IBF borrowed in a currency for which it did not compute an interest expense for Federal income tax purposes, it must compute its IBF interest expense for that currency as if it actually had an interest expense for such currency for Federal income tax purposes. The interest expense for each currency is determined as follows: (a) the amount of IBF-connected liabilities determined in subparagraph (iii)(C) of this paragraph multiplied by; (b) the ratio, stated in the same currency used for Federal income tax purposes, of (1) the average total amount of IBF liabilities denominated in the particular currency shown on the books (including interoffice) for the taxable year, or portion thereof, to (2) the average total amount of all IBF liabilities shown on the books (including interoffice) for the taxable year, or portion thereof, multiplied by; (c) the average worldwide interest rate actually used for Federal income tax purposes in computing that particular currency.

            (E)   If the taxpayer used, for Federal income tax purposes, the branch book/dollar pool method in Step 3 of the Federal three-step process and Section 1.882-5(b)(3)(i)(A) of the Federal income tax regulations (26 C.F.R. § 1.882-5(b)(3)(i)(A)) applied, the IBF interest expense for New York City tax purposes is determined by multiplying the IBF-connected liabilities, determined in subparagraph (iii)(C) of this paragraph, by the same average U.S.-connected interest rate actually used for Federal income tax purposes.

            (F)   If the taxpayer used, for Federal income tax purposes, the branch book/dollar pool method in Step 3 of the Federal three-step process and § 1.882-5(b)(3)(i)(B) of the Federal income tax regulations (26 C.F.R. § 1.882-5(b)(3)(i)(B)) applied and the IBF-connected liabilities exceed the average total amount of IBF liabilities shown on the books (excluding interoffice), the IBF interest expense for New York City tax purposes is determined by adding: (a) the amount of IBF interest expense (stated in U.S. dollars) shown on the books (excluding interoffice) for the taxable year, or portion thereof; and (b) the amount determined by multiplying the excess of IBF-connected liabilities, determined in subparagraph (iii)(C) of this paragraph, over the average total amount of IBF liabilities (stated in U.S. dollars) shown on the books (excluding interoffice) for the taxable year, or portion thereof, by the average interest rate on U.S. dollar liabilities actually used for Federal income tax purposes.

            (G)   If the taxpayer used, for Federal income tax purposes, the branch book/dollar pool method in Step 3 of the Federal three-step process and § 1.882-5(b)(3)(i)(B) of the Federal income tax regulations (26 C.F.R. § 1.882-5(b)(3)(i)(B)) applied and the IBF-connected liabilities do not exceed the average total amount of IBF liabilities shown on the books (excluding interoffice), the IBF interest expense for New York City tax purposes is determined by subtracting: (a) the amount determined by multiplying the difference between the average total amount of IBF liabilities (stated in U.S. dollars) shown on the books (excluding interoffice) for the taxable year, or portion thereof, and the IBF-connected liabilities, determined in subparagraph (iii)(C) of this paragraph, by the average interest rate on U.S. dollar liabilities actually used for Federal income tax purposes, from; (b) the amount of IBF interest expense (stated in U.S. dollars) shown on the books (excluding interoffice) for the taxable year, or portion thereof. If the amount determined in this paragraph results in a negative amount, the taxpayer must determine the interest expense of the IBF for New York City tax purposes by multiplying the IBF-connected liabilities, determined in subparagraph (iii)(C) of this paragraph, by the average IBF-connected interest rate. The average IBF-connected interest rate is the ratio, stated in U.S. dollars, of the total amount of IBF interest expense shown on the books (excluding interoffice) for the taxable year, or portion thereof, to the average total amount of IBF liabilities shown on the books (excluding interoffice) for the taxable year, or portion thereof.

      (7)   Bad debt deduction of the IBF. (Administrative Code, § 11-641(f)(3))

         (i)   In computing applicable direct expenses pursuant to paragraph(c)(5) of this section, the IBF of a taxpayer must compute its bad debt deduction by using the same method (direct charge-off or reserve) the bank used for Federal income tax purposes. A taxpayer which uses the direct charge-off method to compute its bad debt deduction for Federal income tax purposes, in accordance with subsection (a) of § 166 of the Internal Revenue Code, has as its IBF bad debt deduction the aggregate of those specific bad debts of the IBF from loans which produce or would have produced eligible gross income (hereinafter "IBF loans") which were included in the bad debt deduction for Federal income tax purposes. A taxpayer which maintains a reserve balance for losses on loans, in accordance with §§ 585 or 593 of the Internal Revenue Code, for Federal income tax purposes must maintain in IBF reserve balance for losses on loans and has as its IBF bad debt deduction the addition to its IBF reserve balance for losses on loans.

         (ii)   The addition to the IBF reserve balance for losses on loans is computed as follows:

            (A)   (a)   A taxpayer which computes its addition to its reserve balance for losses on loans for Federal income tax purposes pursuant to § 585(b)(2) (the percentage method) determines a fraction the numerator of which is the amount of IBF eligible loans and the denominator of which is the amount of eligible loans both within and without the IBF.

               (b)   A taxpayer which computes its addition to its reserve balance for losses on loans for Federal income tax purposes pursuant to § 585(b)(3) (the experience method) determines a fraction the numerator of which is the amount of IBF outstanding loans and the denominator of which is the amount of outstanding loans both within and without the IBF.

               (c)   A taxpayer which does not compute its addition to its reserve balance for losses on loans for Federal income tax purposes pursuant to § 585(b)(2) or (3) determines a fraction the numerator of which is the IBF amount which was included in the computation for Federal income tax purposes and the denominator of which is the amount used for Federal income tax purposes. The components of the fraction must reflect the method the taxpayer used for computing its addition to its reserve balance for losses on loans for Federal income tax purposes.

            (B)   Multiply the fraction determined in subparagraph (ii)(A) of this paragraph by the Federal reserve balance for losses on loans after the taxable year's reserve addition. The result is the IBF reserve balance for losses on loans.

            (C)   Subtract the IBF reserve balance for losses on loans before the taxable year's reserve addition from the IBF reserve balance for losses on loans computed in subparagraph (ii)(B) of this paragraph. The result is the addition to the IBF reserve balance for losses on loans. If the addition to the IBF reserve balance for losses on loans is a negative amount, the IBF bad debt deduction is a negative amount.

         (iii)   For purposes of this paragraph the following rules apply:

            (A)   The terms "loan," "eligible loan," "qualifying real property loan" and "nonqualifying loan" have the same meanings as defined in §§ 585 and 593, as the case may be, of the Internal Revenue Code and regulations promulgated thereunder. Therefore, interoffice loans do not qualify as eligible loans in computing the IBF bad debt deduction. Accordingly, the amount of the IBF bad debt deduction plus the amount of such deduction allocated without the IBF must equal the actual bad debt deduction taken for Federal income tax purposes.

            (B)   When outstanding loans or eligible loans that are outstanding are transferred to the IBF the taxpayer must on the same date transfer to the IBF the portion of its reserve balance for losses on loans maintained for Federal income tax purposes which is attributable to such transferred loans. Such portion is computed by multiplying the Federal reserve balance for losses on loans on the date of transfer by a fraction: (a) the numerator of which is such loans that were transferred as of the date of transfer which were included in the computation of the Federal reserve balance for losses on loans for the previous taxable year; and (b) the denominator of which is the total of such loans as of the date of transfer which were included in the computation of the Federal reserve balance for losses on loans for the previous taxable year. When the outstanding loans or eligible loans that are outstanding are transferred from existing places of business, the reserve balance for such existing places of business must be reduced accordingly.

      (8)   Indirect expenses of the IBF, including head office expenses. (Administrative Code, § 11-641(f)(3))

         (i)   Expenses of the taxpayer, including head office expenses, which cannot be specifically identified with the gross income, gains, losses, deductions, assets, liabilities or other activities of the IBF or a place of business of the taxpayer, are indirect expenses and must be allocated on an indirect basis. Indirect expenses, including head office expenses, may include such items as interest, bad debts, compensation of officers, salaries, wages, travel expenses, pension plans, rents, taxes, depreciation, insurance, advertising, accounting, legal, charitable contributions, financing, operation supervision, technical, research, training, physical facilities, servicing, etc. For computation of the interest expense of the IBF and bad debt deduction of the IBF, see paragraphs (6) and (7) of this subdivision, respectively.

         (ii)   Expenses that cannot be specifically identified with the IBF or any particular place of business of the taxpayer but are indirectly related to the gross income, gains, losses, deductions, assets, liabilities or other activities of the IBF, must be allocated by the method that properly reflects the allocation of such expenses to the IBF. Generally, the amount of indirect expenses allocable to the IBF is determined by multiplying such expenses by a fraction computed by either the gross asset method as described in subparagraph (ii)(A) of this paragraph, or the gross income method as described in subparagraph (ii)(B) of this paragraph.

            (A)   Gross asset method. In the gross asset method, the numerator of the fraction is the average of all gross assets (except interoffice gross assets and goodwill) of the IBF of the taxpayer and the denominator is the average of all gross assets (except interoffice gross assets and goodwill) of the taxpayer. Where the numerator determined in the preceding sentence is zero, the numerator and denominator must be computed by including gross assets from interoffice transactions. In the case of a taxpayer which is a foreign corporation, "all gross assets" means such taxpayer's assets located in the United States and its other assets used in connection with its trade or business in the United States. The average of all gross assets must be computed on a quarterly basis or, at the option of the taxpayer, on a more frequent basis such as monthly, weekly or daily. Loans and deposits are to be included on an average daily balance basis. When the taxpayer's usual accounting practice does not permit a quarterly or more frequent computation of the average of all gross assets, a semi-annual or annual computation will be allowed when it appears to the Commissioner of Finance that no distortion of the average of all gross assets will result. Different periods of averaging may be used for different classes of assets. If, because of variations in the amount or value of any class of assets, it appears to the Commissioner of Finance that averaging on an annual, semi-annual or quarterly basis does not properly reflect the average of all gross assets, the Commissioner of Finance may require averaging on a more frequent basis. The method used to determine the average of all gross assets must be consistent and may not be changed on any subsequent return without the prior written consent of the Commissioner of Finance. Gross assets are valued as described in 19 RCNY § 3-03(e)(2)(iii).

            (B)   Gross income method. In the gross income method, the numerator of the fraction is the gross income (excluding gross income from interoffice transactions) of the IBF of the taxpayer includible in the computation of entire net income for the taxable year and the denominator is the gross income (excluding gross income from interoffice transactions) of the taxpayer includible in the computation of entire net income for the taxable year. Where the numerator determined in the preceding sentence is zero, the numerator and denominator must be computed by including gross income from interoffice trans- actions.

            (C)   Other method. Any other method that the taxpayer establishes to the Commissioner of Finance as a more appropriate method.

         (iii)   Expenses that can be identified with the IBF and one or more places of business of the taxpayer, but not all places of business of the taxpayer, must be allocated by the method that properly reflects the allocation of such expenses to the IBF. The amount of such expenses allocable to the IBF is determined by multiplying such expenses by a fraction computed as described in subparagraph (ii) of this paragraph. However, in computing such fraction, the denominator is limited to the IBF and those places of business identified with such expenses.

         (iv)   A taxpayer must use the same method in allocating all indirect expenses. The method a taxpayer uses in computing the allocation of indirect expenses as described in subparagraph (ii) of this paragraph may not be changed in subsequent years without the written consent of the Commissioner of Finance. If the Commissioner of Finance determines that the method used in allocating expenses, including head office expenses, does not properly reflect the expenses of the IBF, the Commissioner of Finance may require the taxpayer to allocate expenses by a different method.

      (9)   Apportionment of expenses of the IBF. (Administrative Code, § 11-641(f)) When the IBF has eligible gross income and ineligible gross income, the expenses that are applicable to eligible gross income shall be the sum of the following amounts:

         (i)   the amount of direct expenses of the IBF (as determined in 19 RCNY § 3-03(c)(5), (c)(6)(ii)(A), and (c)(7)) for the taxable year that are specifically identified with eligible gross income, and

         (ii)   an amount computed by multiplying the sum of direct expenses of the IBF (as determined in 19 RCNY § 3-03(c)(5) and c)(6)(ii)(A)) for the taxable year that are not specifically identified with either the eligible gross income or the ineligible gross income of the IBF and all indirect expenses of the IBF (as determined in 19 RCNY § 3-03(c)(6) and (c)(8)) for the taxable year by a fraction, the numerator of which is the eligible gross income of the IBF for the taxable year and the denominator of which is the gross income of the IBF for the taxable year.

      (10)   Ineligible funding amount. (Administrative Code, § 11-641(f)(5))

         (i)   The ineligible funding amount of the IBF is determined by multiplying eligible net income (See: 19 RCNY § 3-03(c)(3)(i)), by the following fraction:

            (A)   The numerator of the fraction is the average aggregate amount of all liabilities and other sources of funds of the IBF for the taxable year which were not owed to or received from foreign persons (the term "foreign person" is defined in 19 RCNY § 3-03(c)(2)(viii)).

            (B)   The denominator of the fraction is the average aggregate amount of all liabilities and other sources of funds of the IBF for the taxable year.

         (ii)   "All liabilities and other sources of funds of the IBF" include deposits, advances from the head office or other places of business of the taxpayer, accounts payable, notes and bonds payable, accrued expenses, deferred income, contingent liabilities, taxes payable, appropriated retained earnings (such as reserve for deferred taxes, dividends payable, etc.), unappropriated retained earnings, etc. Certain liabilities that are determined not be sources of funds may be excluded with the permission of the Commissioner of Finance. The average aggregate amount of all liabilities and other sources of funds of the IBF for the taxable year must be computed on a quarterly basis or, at the option of the taxpayer, on a more frequent basis such as monthly, weekly or daily. When the taxpayer's usual accounting practice does not permit a quarterly or more frequent computation of the average aggregate amount of all liabilities and other sources of funds, a semi-annual or annual computation may be allowed when it appears that no distortion of the average aggregate amount of all liabilities and other sources of funds will result. Different periods of averaging may be used for different classes of liabilities. If, because of variations in the amount or value of any class of liabilities or other sources of funds, it appears to the Commissioner of Finance that averaging on an annual, semi-annual or quarterly basis does not properly reflect the average aggregate amount of all liabilities and other sources of funds, the Commissioner of Finance may require averaging on a more frequent basis. The method of determining the average aggregate amount of all liabilities and other sources of funds must be consistent and may not be changed on any subsequent return without the written consent of the Commissioner of Finance.

         (iii)   The principles of separate accounting must be applied in determining the amount of liabilities and other sources of funds, including retained earnings, which were not owed to or received from foreign persons. Unless the taxpayer can substantiate that liabilities and other sources of funds, including retained earnings, were owed to or received from foreign persons, they are deemed to be owed to or received from other than foreign persons and included in the numerator described in subparagraph (i)(A) of this paragraph.

      (11)   Floor amount. (Administrative Code, § 11-641(f)(b))

         (i)   The floor amount is computed by multiplying the amount remaining, after reducing eligible net income (See: 19 RCNY § 3-03(c)(3)(i)) by the ineligible funding amount (See: 19 RCNY § 3-03(c)(10)(i)) by a fraction not greater than one. The fraction is determined as follows:

            (A)   The numerator is the amount determined in subparagraph (i)(A)(a) of this paragraph multiplied by the applicable percentage stated in subparagraph (i)(A)(b) of this paragraph minus the amount determined in subparagraph (i)(A)(c) of this paragraph.

               (a)   Determine the average aggregate amount of loans and deposits as described in subparagraph (ii) of this paragraph which were properly recorded in the financial accounts of the taxpayer's branches, agencies and offices within New York State for taxable years beginning in 1975, 1976 and 1977. Loans and deposits related to net income reassigned to New York State by the New York State Tax Commission are not includible for purposes of this subparagraph (i)(A)(a). The average aggregate amount of such loans and deposits may be determined by reference to the monthly or quarterly reports of the taxpayer to the Federal Reserve Bank of New York, as appropriately modified.

               (b)   The average aggregate amount determined in subparagraph (i)(A)(a) of this paragraph is multiplied by the following percentages:

                  (1)   100 percent for the first taxable year the taxpayer established the IBF and for the next succeeding four taxable years;

                  (2)   80 percent for the sixth taxable year;

                  (3)   60 percent for the seventh taxable year;

                  (4)   40 percent for the eighth taxable year;

                  (5)   20 percent for the ninth taxable year; and

                  (6)   zero percent for the tenth taxable year and thereafter.

               (c)   The product obtained in subparagraph (i)(A)(b) of this paragraph is reduced by the average aggregate amount of loans and deposits as described in subparagraph (ii) of this paragraph which were properly recorded in the financial accounts of the taxpayer's branches, agencies and offices within New York State (other than the IBF) for the current taxable year. If the amount determined in this subparagraph (i)(A)(c) is greater than the amount determined in subparagraph (i)(A)(b) of this paragraph, the numerator is zero.

            (B)   The denominator is the average aggregate amount of loans and deposits as described in subparagraph (ii) of this paragraph which were properly recorded in the financial accounts of the IBF for the taxable year.

         (ii)   For purposes of this paragraph, the average aggregate amount of the loans described in subparagraph (i)(A) of this paragraph and the average aggregate amount of deposits described in subparagraph (i)(B) of this paragraph must be computed on a quarterly basis, or at the option of the taxpayer, on a more frequent basis such as monthly, weekly or daily. When the taxpayer's usual accounting practice does not permit a quarterly or more frequent computation of the average aggregate of such loans and such deposits, a semi-annual or annual computation may be allowed when it appears that no distortion of the average aggregate of such loans and such deposits will result. If, because of variations in the amount or value of such loans and such deposits, it appears to the Commissioner of Finance that averaging on an annual, semi-annual or quarterly basis does not properly reflect the average aggregate of such loans and such deposits, the Commissioner of Finance may require averaging on a more frequent basis. Any method of determining the average aggregate of such loans and such deposits may not be changed on any subsequent return without the written consent of the Commissioner of Finance.

            (A)   Loans mean loans to foreign persons. The term "foreign person" is defined in 19 RCNY § 3-03(c)(2)(vii).

            (B)   Deposits mean deposits with foreign persons which are: (a) banks; (b) foreign branches of a bank, including foreign branches of the taxpayer; or (c) foreign banks which are subsidiaries of a bank, including foreign banks which are subsidiaries of the taxpayer.

         (iii)   For purposes of this paragraph, loans and deposits that were recorded in the financial accounts for a taxable year include those loans which were issued during such taxable year and those deposits which were made or placed during such taxable year and any other loan or deposit in the financial accounts for such taxable year. If the IBF purchases or acquires loans or deposits which were recorded in the financial accounts within New York State of a related corporation for taxable years 1975, 1976 and 1977, such loans and deposits are deemed to be recorded in the financial accounts of the taxpayer's branches, agencies and offices within New York State for taxable years beginning in 1975, 1976 and 1977 and must be included in the numerator when computing the floor amount. A corporation is related to another corporation when such corporation owns or controls, either directly or indirectly, more than 50 percent of the capital stock of the other corporation, or more than 50 percent of the capital stock of such corporation is owned or controlled, either directly or indirectly, by the other corporation, or more than 50 percent of the capital stock of both corporations is owned or controlled, either directly or indirectly, by the same interests. A taxpayer, which, pursuant to § 11-646(f) of the Administrative Code, made a consolidated return with corporations affiliated with it for any of the taxable years 1975, 1976 and 1977, or makes a combined return for the taxable year, shall compute the floor amount as if it had filed separate returns for the taxable years 1975, 1976 and 1977 and as if it were filing a separate return for the taxable year.

   (d)   Alternative minimum tax measured by alternative entire net income.

      (1)   Computation of the alternative minimum tax measured by alternative entire net income. (Administrative Code, §§ 11-641.1, 11-643.5(b)(3))

         (i)   The alternative minimum tax measured by alternative entire net income is the measure of the tax if it is the largest of the alternative minimum bases and the alternative minimum tax is greater than the basic tax. The alternative minimum tax measured by alternative entire net income is computed by multiplying alternative entire net income, or portion thereof allocated to New York City, by the tax rate of three percent.

         (ii)   The term "alternative entire net income" means entire net income as determined pursuant to 19 RCNY § 3-03(b)(2), except that the deductions described in subparagraphs (K) and (L) of 19 RCNY § 3-03(b)(4) are not allowed.

         (iii)   Any election made pursuant to 19 RCNY § 3-04(b)(3) with respect to the IBF modification provided for in 19 RCNY § 3-03(c) is deemed to have been made for purposes of computing alternative entire net income.

      (2)   Computation of the alternative minimum tax measured by alternative entire net income on a combined return. (Administrative Code, § 11-646(f))

         (i)   Each corporation included in the combined return is to compute its alternative entire net income as if it had filed its Federal income tax return on a separate basis. Then, to compute combined alternative entire net income, all intercorporate dividends and intercorporate transactions between the corporations included in the combined return must be eliminated. Intercorporate profits are deferred, capital losses are to be offset against capital gains and contributions are to be deducted as if the corporations in the group had filed a consolidated Federal income tax return.

         (ii)   If any corporation included in the combined return is deemed to have made the IBF election pursuant to 19 RCNY § 3-03(d)(1)(iii), all corporations included in the combined return will be deemed to have made the election.

         (iii)   In no event will an item of income or expense of a corporation organized under the laws of a country other than the United States be included in a combined return unless it is includible in alternative entire net income.

         (iv)   As to when combined returns will be permitted or required, see 19 RCNY § 3-05(b) – Combined Returns.

      (3)   Taxable year in which income or deduction is included in alternative entire net income. (Administrative Code, § 11-641(m)) In general, the method of accounting used in computing taxable income for Federal income tax purposes is the method used in computing alternative entire net income. However, when the Commissioner of Finance deems it necessary in order to properly reflect the alternative entire net income of the taxpayer, it may determine the taxable year or period in which any item of income or deduction shall be included without regard to the method of accounting used by the taxpayer for Federal income tax purposes.

      (4)   Adjusting alternative entire net income to period covered by return. (Administrative Code, §§ 11-641(1), 11-641.1)

         (i)   If the alternative entire net income required to be reported under the banking corporation tax law is for a period different than the period covered by the taxpayer's Federal income tax return, the taxpayer's alternative entire net income must be prorated to correspond with the period covered by the return under the banking corporation tax law. The prorated alternative entire net income is computed as follows:

            (A)   divide alternative entire net income, as determined in 19 RCNY § 3-03(d)(1)(ii), by the number of calendar months, or major parts thereof, covered by the return for Federal income tax purposes; and

            (B)   multiply the result by the number of calendar months, or major parts thereof, covered by the return under the banking corporation tax law.

         (ii)   The method of computing alternative entire net income for a short period, as set forth in this paragraph, applies to taxpayer's reporting on either a calendar year or fiscal year basis for Federal income tax purposes.

         (iii)   If, in the opinion of the Commissioner of Finance, the method described in this paragraph does not properly reflect the taxpayer's alternative entire net income for purposes of the banking corporation tax during the period covered by its return, the Commissioner of Finance may determine entire net income solely on the basis of the taxpayer's income during such period.

      (5)   Correcting distortion of alternative entire net income. (Administrative Code, § 11-646(g)) For rules relating to the power of the Commissioner of Finance to correct distortion of alternative entire net income, see 19 RCNY § 3-03(a)(3).

   (e)   Alternative minimum tax measured by taxable assets.

      (1)   Computation of the alternative minimum tax measured by taxable assets. (Administrative Code, § 11-643.5(b)(1))

         (i)   Except for a corporation organized under the laws of a country other than the United States, the alternative minimum tax measured by taxable assets is the measure of the tax if it is larger than the alternative minimum tax measured by alternative entire net income or the alternative minimum tax measured by the fixed minimum amount and the alternative minimum tax is greater than the basic tax. The alternative minimum tax measured by taxable assets is computed at the rate of 0.1 of a mill upon each dollar of taxable assets, or portion thereof allocated to New York City, except in the case of a taxpayer described in subparagraph (ii) of this paragraph.

         (ii)   A taxpayer is not subject to the alternative minimum tax measured by taxable assets for that portion of the taxable year

            (A)   in which it was a qualified institution as defined in § 406(f)(5)(B) of the Federal National Housing Act, as amended, (12 U.S.C. § 1729(f)(5)(B)), or as defined in § 13(i)(2) of the Federal Deposit Insurance Act, as amended, (12 U.S.C. § 1823(i)(2)), and

            (B)   in which it had an outstanding net worth certificate issued to the Federal Savings and Loan Insurance Corporation in accordance with § 406(f)(5) of the Federal National Housing Act, as amended (12 U.S.C. § 1729(f)(5)), or issued to the Federal Deposit Insurance Corporation in accordance with § 13(i) of the Federal Deposit Insurance Act, as amended, (12 U.S.C. § 1823(i)), provided it would have been exempt from any tax determined on the basis of the deposits held by it or the interest paid on such deposits pursuant to § 406(f)(5)(I) of the Federal National Housing Act, as amended, (12 U.S.C. § 1729(f)(5)(I)) or § 13(i)(9) of the Federal Deposit Insurance Act, as amended, (12 U.S.C. § 1823(i)(9)).

      (2)   Definition of taxable assets. (Administrative Code, § 11-643.5(b)(1))

         (i)   The term "taxable assets" means the average total value of those assets which are properly reflected on a balance sheet the income or expenses of which are properly reflected (or would have been properly reflected if not fully depreciated or expensed or depreciated or expensed to a nominal amount) in the computation of the taxpayer's alternative entire net income for the taxable year and in the computation of the eligible net income of the taxpayer's IBF for the taxable year.

         (ii)   Taxable assets do not include any amount of money or other property received from or attributable to amounts received from the Federal Deposit Insurance Corporation pursuant to § 13(c) of the Federal Deposit Insurance Act, as amended, (12 U.S.C. § 1823(c)) or the Federal Savings and Loan Insurance Corporation pursuant to §§ 406(f)(1), (2), (3) or (4) of the Federal National Housing Act, as amended, (12 U.S.C. § 1729(f)(1), (2), (3) or (4)).

         (iii)   Tangible real and personal property, such as buildings, land, machinery and equipment, is to be valued at cost. Intangible property, such as loans, investments, coin and currency, is to be valued at book value. In determining the average total value of assets, the taxpayer must use the values described in this subparagraph. The average value of assets is computed on a quarterly basis, or at the option of the taxpayer on a more frequent basis, such as monthly, weekly or daily. Different periods of averaging may be used for different classes of assets. If, because of variations in the amount or value of any class of assets, it appears to the Commissioner of Finance that averaging on a quarterly basis does not properly reflect average total value of assets, the Commissioner of Finance may require averaging on a more frequent basis. Any method of determining average total value of assets which is adopted by the taxpayer on any return and accepted by the Commissioner of Finance may not be changed on any subsequent return without the prior written consent of the Commissioner of Finance.

         (iv)   The term "balance sheet" for purposes of subparagraph (i) shall mean the balance sheet of the taxpayer prepared from the books and records of the taxpayer in accordance with generally accepted accounting principles and used for purposes of preparing the taxpayer's financial statement. The "book value" of intangible property for purposes of subparagraph (iii) shall mean the amount of the intangible property shown on the books and records of the taxpayer in accordance with generally accepted accounting principles and included in the balance sheet described in the preceding sentence. In the case of loans, the book value shall be loans net of the reserve for losses on loans.

      (3)   [Reserved.]

      (4)   [Reserved.]

      (5)   [Reserved.]

      (6)   Computation of the alternative minimum tax measured by taxable assets on a combined return. (Administrative Code, § 11-646(f))

         (i)   The alternative minimum tax measured by taxable assets is computed at the rate of 0.1 of a mill upon each dollar of taxable assets, or portion thereof allocated to New York City, of all the corporations included in the combined return. In computing combined taxable assets, intercorporate stockholdings and intercorporate bills, notes and accounts receivable and payable and other intercorporate indebtedness between the corporations included in the combined return must be eliminated.

         (ii)   Combined taxable assets do not include the taxable assets of a taxpayer described in 19 RCNY § 3-03(e)(1)(ii).

         (iii)   As to when combined returns will be permitted or required, see 19 RCNY § 3-05(b) – Combined Returns.

      (7)   Adjusting taxable assets to period covered by return.

         (i)   If the period covered by the taxpayer's return under the banking corporation tax law is other than 12 calendar months, the taxpayer's taxable assets must be prorated to correspond with the period covered by the return. The prorated taxable assets are determined as follows:

            (A)   compute taxable assets in the manner set forth in 19 RCNY § 3-03(e)(2);

            (B)   divide taxable assets by 12; and

            (C)   multiply the result by the number of calendar months, or major parts thereof, covered by the return.

         (ii)   The method of computing taxable assets for a short period, as set forth in this paragraph, applies to taxpayer's reporting on either a calendar year or fiscal year basis for Federal income tax purposes.

         (iii)   If, in the opinion of the Commissioner of Finance, the method described in this paragraph does not properly reflect the taxpayer's taxable assets for purposes of the banking corporation tax during the period covered by its return, the Commissioner of Finance may determine taxable assets solely on the basis of the taxpayer's assets during such period.

      (8)   Correcting distortion of taxable assets. (Administrative Code, § 11-646(g)) For rules relating to the power of the Commissioner of Finance to correct distortion of taxable assets, see 19 RCNY § 3-03(a)(3).

   (f)   Alternative minimum tax measured by issued capital stock.

      (1)   Computation of the alternative minimum tax measured by issued capital stock. (Administrative Code, § 11-643.5(b)(2))

         (i)   For corporations organized under the laws of a country other than the United States, the alternative minimum tax measured by issued capital stock is the measure of the tax if it is larger than the alternative minimum tax measured by alternative entire net income or the alternative minimum tax measured by the fixed minimum amount and the alternative minimum tax is greater than the basic tax. The alternative minimum tax measured by issued capital stock is computed at the rate of 2.6 mills upon each dollar of the taxpayer's issued capital stock, or the portion thereof allocated to New York City, at its face value on the last day of its taxable year or, in the case of shares without par value, at its actual or market value on the last day of its taxable year. If its actual or market value is less than five dollars per share, a five dollar per share value must be used.

         (ii)   The term "face value" means par value, which is the value written or printed on the face of the instrument.

         (iii)   The market value of stocks regularly traded on an exchange or in an over-the-counter market is the mean between the highest and lowest selling prices on the last day of the taxpayer's taxable year, or if such prices are not available, the highest and lowest selling prices on the nearest date within its taxable year. If the actual sales prices within the taxable year are not available, the market value is the mean between the bona fide bid and asked prices on the last day of its taxable year, or if such prices are not available, the bona fide bid and asked prices on the nearest date within the taxable year. If the actual sales prices or bona fide bid and asked prices within the taxable year are not available or for any other reason such prices are not truly indicative of value, the market value is ascertained on the basis of the taxpayer's net worth, earning power, book value, dividends paid and all other relevant factors. If a taxpayer consistently computes the actual or market value of its stocks on some other basis, such as the last selling price on the last day of its taxable year, such method of valuation may be accepted by the Commissioner of Finance. In all cases, a complete explanation of the method of valuation used must be included with the taxpayer's return.

         (iv)   A taxpayer which derives income from business carried on both within and without New York City must allocate its issued capital stock in the proportion that gross income derived from business carried on within New York City, during the period covered by the return, bears to its total gross income derived from all business both within and without the city during the period covered by the return. The term "gross income" means gross income from whatever source derived, including, but not limited to, the items enumerated in paragraphs (1) through (15) of subdivision (a) of § 61 of the Internal Revenue Code. In determining the gross income derived from business carried on within New York City (which shall include the eligible gross income of an IBF), the rules described in 19 RCNY § 3-04(f) for determining when receipts are within the City must be used.

      (2)   Computation of the alternative minimum tax measured by issued capital stock on a combined return. The alternative minimum tax measured by issued capital stock is computed at the rate of 2.6 mills upon each dollar of issued capital stock, or portion thereof allocated to New York City, of all the corporations included in the combined return. In computing combined issued capital stock, intercorporate eliminations are not allowed.

   (g)   Alternative minimum tax measured by the fixed minimum amount.

      (1)   The alternative minimum tax measured by the fixed minimum amount. (Administrative Code, § 11-643.5(b)(4)) The alternative minimum tax measured by the fixed dollar amount of $125 is the measure of the tax if it is the largest of the alternative minimum bases and the alternative minimum tax is greater than the basic tax. In no event may the fixed minimum tax be less than $125 for any taxable year.

      (2)   The alternative minimum tax measured by the fixed minimum amount on a combined return. (Administrative Code, § 11-646(f))

         (i)   Where the tax as computed on a combined return is measured by combined entire net income (See: 19 RCNY § 3-03(b)(6)), or is measured by combined alternative entire net income (See: 19 RCNY § 3-03(d)(2)), or is measured by combined taxable assets (See: 19 RCNY § 3-03(e)(6)), or is measured by combined issued capital stock (See: 19 RCNY § 3-03(f)(2)), each corporation included in the combined return except:

            (A)   the taxpayer paying the combined tax; and

            (B)   any corporation described in subparagraph (ii) of this paragraph; is required to pay the fixed minimum tax of $125. The taxpayer paying the combined tax will pay the alternative minimum tax measured by $125 when $125 is the largest of the alternative minimum bases and the alternative minimum tax is greater than the basic tax.

         (ii)   A corporation which is not a taxpayer (See: 19 RCNY § 3-01(c)) is not required to pay the fixed minimum tax of $125 when included in a combined return.

         (iii)   As to when combined returns will be permitted or required, see 19 RCNY § 3-05(b) – Combined Returns.