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(a) Specific exemption. (Administrative Code § 11-510(1)).
(1) In addition to the deductions otherwise allowable under 19 RCNY §§ 28-06 and 28-08, there is allowed a specific annual exemption of $5,000 which is deductible in computing the unincorporated business taxable income. If the business was carried on or was being liquidated for a period of less than an entire taxable year of 12 months, the exemption must be prorated. The proration shall be made on a dally basis at the rate of $13.70 per calendar day unless the return is filed for a period of one or more whole months beginning on the first day and ending on the last day of a calendar month, in which event the proration is to be made on a monthly basis at the rate of $416.67 per month.
(2) This exemption is not subject to allocation even though the unincorporated business is carried on both within and without New York City. Only one specific exemption is allowed to an individual, partnership or other unincorporated entity, even though the individual or other entity carries on two or more unincorporated businesses. (See: 19 RCNY § 28-02(a)(4).)
Example 1: If a partnership in existence and carrying on business on January 1, 1975 ceases business operations and completely liquidates on August 15, 1975, an exemption of $3,109.90, representing 227 days at $13.70 per day, is allowed for the period beginning January 1, 1975 and ending August 15, 1975.
Example 2: If, in Example 1, the complete liquidation occurred on July 31, 1975, the exemption would be $2,916.69, representing seven months at $416.67 per month.
Example 3: Partnership A & B, in existence and doing business on January 1, 1975, is terminated and liquidated on May 31, 1975 by the admission of a new partner, C, and the formation of a new partnership A B C which continues the business from June 1, 1975 through December 15, 1975, at which time it is terminated and completely liquidated. On the unincorporated business income tax return of partnership A & B for the period beginning January 1, 1975 and ended May 31, 1975, a prorated exemption of $2,083.35 representing five months at $416.67 per month, will be allowed. The prorated exemption allowable to partnership A B C for the period June 1, 1975 through December 15, 1975 is $2,712.60, or 198 days at $13.70 per day.
Example 4: Individual A sold his unincorporated business under a deferred payment agreement on December 31, 1973 and received payments under the agreement in 1974 and in 1975, with the final payment being received on April 15, 1975. A's unincorporated business exemption will be $5,000 for 1974 and $1,438.50 (105 days at $13.70 per day) for 1975.
(b) Additional exemption. (Administrative Code § 11-510(2)).
(1) General. For taxable years beginning before July 1, 1994, a partnership (or other unincorporated entity which is considered to be a partnership for unincorporated business tax purposes, see 19 RCNY § 28-02(c)) is allowed an exemption in addition to the specific exemption described in 19 RCNY § 28-09(a)(1) if a partner or member of such partnership or other entity is, in its separate capacity, taxable under the general corporation tax imposed pursuant to Chapter 6 of Title 11 of the Administrative Code or the unincorporated business tax imposed pursuant to Chapter 5 of Title 11 of the Administrative Code. The additional exemption allowable in such a case is the amount of such partner's or member's proportionate interest in the excess of the partnership's unincorporated business gross income (as computed under 19 RCNY § 28-05) over the partnership's unincorporated business deductions allowed under 19 RCNY §§ 28-06 and 28-08. If the unincorporated business of a partnership which qualified for the additional exemption under this subdivision (b) is carried on both within and without New York City, the proportionate interest of a partner or member with respect to which the additional exemption is allowable is computed without regard to any allocation the partnership may be permitted to make under 19 RCNY § 28-07, other than an allocation applicable to a net operating loss deduction allowable under 19 RCNY § 28-06. No additional exemption is allowed for amounts distributed to an individual member of a partnership who also carries on his own separate and independent unincorporated business and who, pursuant to 19 RCNY § 28-05(a), is not required or permitted to include his distributive share of partnership income in computing his own separate unincorporated business gross income. Notwithstanding anything in these rules to the contrary, no additional exemption shall be allowed to an unincorporated business for any taxable year of the unincorporated business beginning after June 30, 1994.
(2) Limitation on amount of additional exemption. The additional exemption allowable under paragraph (1) of this subdivision (b) is limited to the amount which is included in the partner's or member's unincorporated business taxable income allocable to New York City, or included in a corporate partner's or corporate member's net income allocable to New York City, under the provisions of Chapter 5 or Chapter 6 of Title 11 of the Administrative Code. Thus, the additional exemption attributable to a partner cannot exceed that partner's unincorporated business taxable income allocable to New York City in the case of an unincorporated partner or that partner's net income allocable to New York City in the case of a corporate partner.
(3) Other rules for computation of additional exemption.
(i) Where a partnership or other unincorporated entity is entitled to exemption under paragraph (1) of this subdivision (b) with respect to more than one of its partners or members, a separate computation with respect to each partner or member must be made.
Example 1: A joint venture is entered into by four individual venturers, and X & Y, a partnership, taxable under Chapter 5 of Title 11 of the Administrative Code, and Z Inc., a corporation taxable under Chapter 6 of Title 11 of the Administrative Code. The partnership X & Y and the corporation Z Inc. each have a one-third interest in the income and profits of the joint venture. The activities of the joint venture are carried on in such a manner as to constitute the carrying on of an unincorporated business. The interests of four individual members (other than X & Y partnership or Z Inc.) in the venture are not connected with any other business carried on by them and they devote their full business time to the operation of the venture. Partnership X & Y invested business funds in the venture and, as a separate entity, was engaged in the conduct of a separate unincorporated business which it carried on both within and without New York City with an allocation of 60 percent to New York City for unincorporated business income tax purposes. Partnership X & Y had allocated taxable business income of $200,000. The corporate return of Z Inc., which included the corporate partner's share of the joint venture income, showed a business allocation of 75 percent to New York City. Corporation Z had allocated taxable net income of $200,000. Assuming the joint venture net income (before deduction for compensation for services of partners) to be $300,000 (of which $100,000 is distributable to X & Y and $100,000 to Z Inc.), and assuming $30,000 allowable as the deduction for partners' services under 19 RCNY § 28-08(a), the additional exemptions allowed under this subdivision (b) would be computed in the following manner:
Joint venture net income (before 19 RCNY § 28-08(a) deduction) | $300,000 |
Deduction for services permitted under 19 RCNY § 28-08(a) | ($30,000) |
Excess of unincorporated business gross income over unincorporated business deductions | $270,000 |
Additional exemption allowable with respect to individual venturers | None |
Additional exemption allowable with respect to Partnership X & Y (1/3 x $270,000) | $90,000 |
Additional exemption allowable with respect to Partner Z Inc. (1/3 x $270,000) | $90,000 |
Total additional exemptions allowable | $180,000 |
(The additional exemption computed above would not be affected by any allocation the joint venture would have been entitled to make if the unincorporated business of the joint venture had been carried on both within and without New York City. The additional exemption would be allowable in addition to the specific exemption of $5,000 provided for in 19 RCNY § 28-09(a).
The additional exemption of the joint venture allowable with respect to the X & Y Partnership or the corporation Z, Inc. is not limited by either the 60% allocation percentage used by X & Y Partnership on its tax return or the 75% allocation percentage used by the corporation Z, Inc. on its tax return, except to the extent that the allocation percentage may reduce allocated taxable income or entire net income to an amount less than the distributive share; see paragraph (2) and example 2 of paragraph (3) of this subdivision (b).
Example 2: Same facts as in Example 1, except that partnership X & Y had allocated taxable business income of $50,000 and corporation Z Inc. had allocated taxable net income of $25,000. The additional exemption is now limited by the amount of the allocated taxable business income and allocated taxable net income of the partners. The total additional exemption cannot exceed $50,000 (for Partnership X & Y) plus $25,000 (for corporation Z Inc.) or $75,000.
Example 3: A joint venture, whose business is conducted wholly in New York City is entered into by 4 equal partners, Corporation A, Corporation B, Partnership C and Partnership D. All 4 partners allocate their net or taxable income 100% to New York City. None of the four partners are actively engaged in the conduct of the unincorporated business.
Distribution of Joint Venture Income:
Corporation A | $100,000 |
Corporation B | $100,000 |
Partnership C | $100,000 |
Partnership D | $100,000 |
Total Income | $400,000 |
(Allocated 100% to NYC) |
Corp. A | Corp. B | Part. C | Part. D | |
Distribution from joint venture | $100,000 | $100,000 | $100,000 | $100,000 |
Net Income From other business operations | $50,000 | ($150,000) | ($100,000) | ($50,000) |
Total Taxable Net or Business Income | $150,000 | ($50,000) | $ -0- | $50,000 |
Additional Exemption Allowed | $100,000 | $ -0- | $ -0- | $50,000 |
(ii) The excess of unincorporated business gross income over unincorporated business deductions includes amounts actually paid or incurred to a partner or member which are not allowed as a deduction under 19 RCNY § 28-06(d)(1). The computation of the proportionate interest of a partner or member in such excess must reflect these non-deductible direct payments made or incurred by the unincorporated business as well as the balance of the excess distributable by the unincorporated business. Payments or distributable amounts may be included in the computation of a partner's or member's proportionate interest in the excess of unincorporated business gross income over allowable unincorporated business deductions only if these payments or distributable amounts are included by the partner or member in computing its taxable income allocable to the City (for non-corporate partners) or net income allocable to the City (for corporate partners).
Example 4: Corporation A, Partnership B and Mr. C enter into a joint venture subject to the unincorporated business tax. Each partner is an equal member of the venture and is actively engaged in the conduct of the venture's business. Corporation A provides services to the venture for which it is paid $300,000 by the venture. This payment is for services of a type which are not allowed as a deduction under 19 RCNY § 28-06(d)(1) of these regulations. The venture incurs no other expenses during the year. The venture's gross income for the year is $450,000. $15,000 is allowable as the deduction for partners' services under 19 RCNY § 28-08(a). Since the $300,000 paid to Corporation A is not allowed as a deduction, the excess of gross income over allowable deductions is $435,000. Each partner's proportionate interest in this excess is computed in the following manner:
Joint venture net income before 19 RCNY § 28-08(a) deduction for services | $450,000 |
($300,000 payment to Corporation A is not an allowable deduction under 19 RCNY § 28-06(d)(1).) | |
Deduction for services permitted under 19 RCNY § 28-08(a) | ($15,000) |
Excess of U.B. gross income over U.B. deductions | $435,000 |
Direct payment to Corporation A which is not allowed as a deduction under 19 RCNY § 28-06(d)(1) | ($300,000) |
Balance distributable | $135,000 |
Corporation A's proportionate interest in the excess of U.B. gross income over U.B. deduction is the sum of:
Direct payments not deductible by the partnership | $300,000 | |
Pro rata share of the distributable balance (1/3 of $135,000) | $45,000 | |
$345,000 | $345,000 |
Partnership B's proportionate interest in the excess of U.B. gross income over U.B. deductions is the sum of:
Direct payments not deductible by the partnership | $0 | |
Pro rata share of the distributable balance (1/3 of $135,000) | $45,000 | |
$45,000 | $45,000 |
Mr C's proportionate interest in the excess of U.B. gross income over U.B. deductions is the sum of:
Direct payments not deductible by the partnership | $0 | |
Pro rata share of the distributable balance (1/3 of $135,000) | $45,000 | |
$45,000 | $45,000 | |
Total of all proportionate interests in the excess of U.B. gross income over U.B. deductions | $435,000 |
If Corporation A's net income allocable to New York City is $345,000 or more, the venture will be allowed an additional exemption of $345,000 for its distributions and payments to Corporation A. If Partnership B's taxable income allocable to New York City is $45,000 or more, the venture will be allowed an additional exemption of $45,000 for its distribution to Partnership B. No additional exemption is allowed for distributions made to Mr. C. Example 5: Same facts as in example 4, except that the venture's gross income is $150,000. $15,000 is allowable as the deduction for partners' services under § 28-08(a) of these regulations. Since the $300,000 paid to Corporation A is not allowed as a deduction, the excess of gross income over allowable deductions is $135,000. Each partner's proportionate interest in this excess is computed in the following manner:
Corporation A's proportionate interest in the excess of U.B. gross income over U.B. deductions is the sum of:
Direct payments not deductible by the partnership (not to exceed 100% of the excess) | $135,000 | |
Pro rata share of the distributable balance | 0 | |
$135,000 | $135,000 |
Partnership B's proportionate interest in the excess of U.B. gross income over U.B. deductions is the sum of:
Direct payments not deductible by the partnership | $0 | |
Pro rata share of the distributable balance | $0 | |
$0 | $0 |
Mr. C's proportionate interest in the excess of U.B. gross income over U.B. deductions is the sum of:
Direct payments not deductible by the partnership | $0 | |
Pro rata share of the distributable balance | $0 | |
$0 | $0 | |
Total of all proportionate interests in the excess of U.B. gross income over U.B. deductions | $135,000 |
If Corporation A's net income allocable to New York City is $135,000 or more, the venture will be allowed an additional exemption of $135,000 for its payments to Corporation A. Partnership B has no part in the $135,000 excess of gross income over allowable deductions. No additional exemption is allowed the venture with respect to Partnership B. No additional exemption is allowed for distributions made to Mr. C.
(iii) Where an unincorporated business is entitled to an additional exemption with respect to a partner which is also a member in one or more other unincorporated businesses, the total additional exemption allowable to all the unincorporated business with respect to this common partner cannot exceed that partner's taxable or net income allocable to New York City. In the event the total of the common partner's proportionate interest in the excess of unincorporated business gross income over allowable deductions of all the unincorporated businesses is greater than the common partner's taxable or net income allocable to New York City, then each unincorporated business will be allowed an additional exemption with respect to this common partner which is limited to that unincorporated business' pro rata share of the common partner's taxable or net income allocable to New York City. The pro rata share is computed by multiplying the common partner's taxable or net income allocable to New York City by a fraction. The numerator of this fraction shall be the common partner's share of the excess of unincorporated business gross income over allowable deductions. The denominator shall be the total of all the shares of the excess of unincorporated business gross income over allowable deductions received by the common partner. No significance shall be given to whether all the unincorporated businesses are related or unrelated.
Example 6: Corporation A is a member of three joint ventures: AB, AC and AD. Corporation A's proportionate interest in the excess of venture AB's gross income over venture AB's allowable deductions is $100,000. Corporation A's proportionate interest in the excess of venture AC's gross income over venture AC's allowable deductions is $300,000. Corporation A's proportionate interest in the excess of venture AD's gross income over venture AD's allowable deductions is $400,000. Corporation A's other activities during the year have resulted in losses. Corporation A's net income allocable to New York City is $400,000.
The maximum additional exemption allowable to venture AB for Corporation A is its pro rata share of Corporation A's net income allocable to New York City or $50,000
[$400,000 × $100,000 = $50,000].
$800,000
$800,000
The maximum additional exemption allowable to venture AC for its distribution to Corporation A is $150,000
[$400,000 × $300,000 = $150,000].
$800,000
$800,000
The maximum additional exemption allowable to venture AD for its distribution to Corporation A is $200,000
[$400,000 × $400,000 = $200,000].
$800,000
$800,000
(iv) The additional exemption allowed an unincorporated business with respect to a corporate partner is limited to the corporate partner's net income allocable to the City even though the corporate partner does not pay a New York City general corporation tax measured by allocated net income because one of the alternative measures of the general corporation tax produces a higher tax.
Example 7: Partnership ABC is composed of three corporate partners, Corporation A, Corporation B and Corporation C. The partnership distributes $100,000 to each corporate partner. Corporation A's other activities have resulted in losses. Corporation A's net income allocable to New York City is zero. Corporation A will pay its New York City general corporation tax computed on capital. Corporation B's net income allocable to New York City is $50,000, but because of large salary payments to officers its New York City general corporation tax liability will be determined under the alternative measure based on entire net income plus officer's compensation. This alternative base totals $75,000. Corporation C's net income allocable to New York City is $200,000. No additional exemption will be allowed Partnership ABC for its distribution to Corporation A because Corporation A's net income allocable to New York City is zero. The additional exemption allowed Partnership ABC for its distribution to Corporation B is $50,000. The additional exemption allowed Partnership ABC for its distribution to Corporation C is $100,000, the full amount of the distribution to Corporation C.
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