(§ 11-602(8), Administrative Code.)
(a) Entire Net Income means total net income from all sources, and 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 1 of the Internal Revenue Code or which the taxpayer would have been required to report if it had not made an election under subchapter S of chapter 1 of the Internal Revenue Code, with the exceptions hereinafter set forth, and subject to any modification required by paragraphs (d) and (e) of subdivision 3 of § 11-604 of the Administrative Code. However, neither the taxable income actually reported nor the taxable income actually determined for Federal income tax purposes is necessarily the same as the taxable income required to be reported for Federal income tax purposes under the provisions of the Internal Revenue Code. Ordinarily, the determination of the Commissioner of Internal Revenue is followed, but it is not binding on the Commissioner of Finance.
(b) Federal Taxable Income is the starting point in the computation of entire net income. This means taxable income as defined in section 63 of the Internal Revenue Code, not any special type of taxable income such as "investment company taxable income" however, the taxable income of a real estate investment trust is its "real estate investment trust taxable income" as defined in paragraph 2 of subdivision (b) of § 857 (as modified by § 858) of the Internal Revenue Code, plus the amount taxable under paragraph 3 of subdivision (b) of § 857 of such code. After determining Federal taxable income, it must be adjusted as follows:
(1) Add to Federal taxable income:
(i) all interest income which has not been included in computing Federal taxable income, such as interest on state and municipal bonds and certain obligations of the United States and its instrumentalities, less interest incurred to carry such investment, to the extent such interest has not been deducted in computing Federal taxable income;
(ii) all Federal taxes on or measured by income or profits which were deducted in computing Federal taxable income;
(iii) net operating losses of other years which were deducted in computing Federal taxable income;
(iv) all New York State franchise taxes imposed under Article 9 or 9-A of the Tax Law which were deducted in computing Federal taxable income;
(v) all New York City general corporation taxes imposed under Subchapter 2 of Chapter 6 of Title 11 of the Administrative Code;
(vi) the amount deducted in computing Federal taxable income for interest on indebtedness (whether or not evidenced by written instrument) directly or indirectly owed to an individual stockholder or members of his immediate family (brothers and sisters of the whole or half blood, spouse, ancestors and descendants) who, in the aggregate, own beneficially more than five percent of the taxpayer's issued capital stock, or to a corporate stockholder including its subsidiaries which owns beneficially more than five percent of the taxpayer's issued capital stock, minus 10 percent of the amount so deducted or $1,000, whichever is larger. However, this provision does not apply to
(A) interest paid or accrued on bonds or other evidences of indebtedness issued, with stock, pursuant to a bona fide plan of reorganization to persons who, prior to such reorganization, were bona fide creditors of the taxpayer or any predecessor corporation, but were not stockholders thereof, or
(B) interest paid by a taxpayer all of the entire net income of which is allocated by the investment allocation percentage (see: 19 RCNY § 11-68(a) and (b), infra).
(vii) all losses from subsidiary capital which were deducted in computing Federal taxable income; and
(viii) in the case of a taxpayer organized outside the United States, all income from sources outside the United States less all allowable deductions attributable thereto, which were not taken into account in computing Federal taxable income.
(ix) the amount deducted in computing Federal taxable income for interest directly or indirectly attributable, and any other amount directly attributable as a carrying charge or otherwise, to subsidiary capital or to income, gains or losses from subsidiary capital, except to the extent not required in the exercise of discretion by the Commissioner of Finance.
(2) Deduct from taxable income:
(i) all dividends, interest and gains from subsidiary capital (which does not include any recovery in respect of any war loss) which were taken into account in computing Federal taxable income, but not any other income from subsidiaries;
(ii) fifty percent of all dividends from corporations other than subsidiaries, which were included in computing Federal taxable income;
(iii) income, war-profits, and excess profits taxes imposed by foreign countries or possessions of the United States, allocable to income included in entire net income, any part of which was allowed as a credit against the Federal income tax under the applicable provisions of the Internal Revenue Code;
(iv) all amounts received for the operation of school buses from school districts and from non-profit corporations and associations, organized and operated exclusively for religious, charitable or educational purposes, less any deductions allowed in computing Federal taxable income which are directly or indirectly attributable to such receipts;
(v) a net operating loss deduction (See: 19 RCNY § 11-28, infra, for method of computation).
(c) For purposes of this subdivision, receipts for the operation of school buses means receipts for the transportation of pupils, teachers and other persons acting in a supervisory capacity, to and from school or school activities in omnibuses subject to the requirements of subdivision 20 of § 375 of the Vehicle and Traffic Law. Deductions attributable to school bus receipts may be determined from the corporate books, if in the opinion of the Commissioner of Finance, the books properly disclose the deductions attributable to school bus receipts. Otherwise, the deductions attributable to school bus receipts may be determined by applying to total allowable deductions the percentage which school bus receipts bear to total receipts from transportation by omnibus, or by any other method approved by the Commissioner of Finance.
(d) Recoveries with respect to war losses are required to be included in entire net income, to the extent included in Federal taxable income, irrespective of whether the war losses were theretofore deducted in computing entire net income under Subchapter 2 of Chapter 6 of Title 11, unless the corporation elected under the provisions of the Internal Revenue Code to exclude such recoveries from Federal taxable income in the year of recovery resulting in a computation or recomputation of any tax imposed by the United States. (See: 19 RCNY § 11-84, infra.)
(e) At the election of the taxpayer, a deduction from entire net income will be allowed for expenditures for the construction, reconstruction, erection or improvement of industrial waste treatment facilities and air pollution control facilities, computed as provided in paragraph (g) of subdivision 8 of § 11-602 of the Administrative Code.
(f) With respect to gain derived from the sale or other disposition of any property acquired prior to January 1, 1966 which had a Federal adjusted basis on such date (or on the date of its sale or other disposition prior to January 1, 1966) lower than its fair market value on January 1, 1966 or the date of its sale or other disposition prior thereto, except property described in subsections 1 and 4 of § 1221 of the Internal Revenue Code, there shall be deducted from entire net income, the difference between
(1) the amount of the taxpayer's Federal taxable income, and
(2) the amount of the taxpayer's Federal taxable income (if smaller than the amount described in (1) above) computed as if the Federal adjusted basis of each such property (on the sale or other disposition of which gain was derived) on the date of the sale or other disposition had been equal to either
(i) its fair market value on January 1, 1966 or the date of its sale or other disposition prior to January 1, 1966, plus or minus all adjustments to basis made with respect to such property for Federal income tax purposes for periods on and after January 1, 1966 or
(ii) the amount realized from its sale or disposition, whichever is lower; provided, however, that the total modification provided by this paragraph may not exceed the amount of the taxpayer's net gain from the sale or other disposition of all property.
(g) The entire net income of a real estate investment trust shall be computed without regard to the modification required by clause (2) of paragraph (a) and by paragraph (f) of subdivision 8 of § 11-602 of the Administrative Code.
(h) Each corporation included in a Federal consolidated group must compute its Federal taxable income for purposes of § 11-602 of the Administrative Code 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 section 338(d)(2) of the Internal Revenue Code, that is a member of a selling consolidated group, as defined in section 338(h)(10)(B) of the Internal Revenue Code, with respect to which an election under section 338(h)(10) has been made, such election shall be recognized for purposes of Subchapter 2 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.
(i) For purposes of determining entire net income of an affiliated target corporation, as defined in Treasury Regulation section 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 section 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.
(j) Because the starting point for determining the entire net income of an S corporation is the taxable income that the corporation would have been required to report for Federal tax purposes had no S election been made, any election pursuant to section 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 Subchapter 2 of Chapter 6 of Title 11 of the Administrative Code. If pursuant to this subdivision, a section 338(h)(10) election of an S corporation is not recognized, the corresponding election pursuant to section 338(g) of the Internal Revenue Code will be deemed invalid and will not be recognized for purposes of such subchapter. See Treas. Reg. § 1.338(h)(10)-1(c)(4). As a consequence of the nonrecognition of the section 338(g) election pursuant to this subdivision, the basis of the assets of the target corporation will be determined without regard to any adjustments made pursuant to section 338(b).