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(a) Compensation for services of proprietor and acting partners. (Administrative Code, § 11-509(a)).
(1) General. In addition to amounts paid to employees as salaries, wages or other personal service compensation, which are allowable as unincorporated business deductions under 19 RCNY § 28-06, deductions are also allowed for reasonable compensation for personal services of a proprietor and for personal services of each partner actively engaged in the conduct of the unincorporated business, including a corporate partner which, through its officers, actively engages in the business of the partnership. It is not necessary that the amount deducted on account of the services by the proprietor or a partner be credited to the account of or actually withdrawn by such person. The reasonableness of any deduction under this subdivision (a) shall be subject to determination by the Commissioner of Finance. An administrator, executor, trustee, receiver or other fiduciary who, in his fiduciary capacity, carries on the unincorporated business of an estate, trust or entity for which he acts is not a proprietor or partner for purposes of this subdivision (a). Amounts paid to retired partners are not deductible. Deductions allowable for services of a proprietor or a partner described above are not subject to allocation even though the unincorporated business is carried on both within and without New York City.
(2) Limitations on deduction for compensation. Any deduction allowable under paragraph (a)(1) of this subdivision (a) shall not exceed $5,000 for a proprietor or for each active partner and the aggregate of such deductions shall not exceed 20 percent of the unincorporated business taxable income computed without the benefit of this deduction or the unincorporated business exemptions permitted under 19 RCNY § 28-09. Where the business is carried on both within and without New York City, these limitations apply to and are computed with reference to the excess of the allocable unincorporated business gross income over the allocable unincorporated business deductions apportioned to New York City.
Example 1: A, an individual, has unincorporated business taxable income (computed without deductions for compensation for his services or the unincorporated business exemptions) of $15,000. He actually with drew from the business a salary of $6,000. Assuming the amount drawn would not exceed a reasonable allowance, the allowable deduction for A's services is $3,000, (20% of the $15,000) which in this case is the maximum deduction allowable. The $5,000 limitation is not applicable because it exceeds the 20% of income limitation on the aggregate of allowable deductions for compensation of a proprietor and active partners under the foregoing subdivision.
Example 2: If, in Example 1 above, A withdrew no salary, the $3,000 would be allowable as a deduction for his services, assuming such amount would not exceed a reasonable allowance under the circumstances.
Example 3: A, an individual, has unincorporated business taxable income (computed without deductions for compensation for his services or the unincorporated business exemptions) of $30,000. He did not charge or withdraw any salary from the business. Assuming the amount would not exceed a reasonable allowance, the maximum allowable deduction for A's services is $5,000. The 20% of income limitation has no application here because the amount thereof, $6,000 (20% of $30,000), exceeds the limitation of $5,000 for each individual.
Example 4: Partnership XYZ has unincorporated business taxable income (computed without benefit of deduction for compensation for services of partners or the unincorporated business exemptions) of $40,000. No salaries are paid or credited to any of the partners. The firm has two active partners, X and Y, and one inactive partner, Z. Assuming the amount would not exceed a reasonable allowance, the maximum allowable deduction for the services of the two active partners, X and Y, is $8,000 (20% of $40,000). No deduction under this subdivision (a) is allowable with respect to the inactive partner, Z. The limitation of $5,000 for each active partner is not applicable here because the amount thereof, $10,000 ($5,000 each for X and Y), would exceed the 20% of income limitation on the aggregate of allowable deductions under this subdivision (a).
Example 5: Assuming the same facts as those in Example 4, except that the unincorporated business income (computed without deduction for compensation for partners' services or the unincorporated business exemptions) is $60,000, then the deductions under this subdivision (a) representing a reasonable allowance for services of the active partners cannot exceed $10,000 ($5,000 for each partner). Here again, no deduction is allowable with respect to the inactive partner, Z. The 20% of income limitation has no application here because the amount thereof, $12,000 (20% of $60,000), exceeds the aggregate of the maximum allowable individual deductions of $5,000 per active partner.
Example 6: Assuming the same facts presented in Example 5, except that the business was carried on both within and without New York City, with 80% of the income allocable to New York City, the maximum deduction for reasonable compensation for the services of the active partners is $9,600, computed as follows:
Total taxable income (without deduction for services of partners or unincorporated business exemptions) | $60,000 |
Portion allocated to New York City (80%) | $48,000 |
Aggregate deduction for active partners, X and Y, limited to 20 percent of amount allocated to New York City | $9,600 |
Example 7: XYZ Partnership is engaged in the business of making commercial loans. The partnership consists of 2 individuals, X and Y and one corporation, Z Corporation. The officers of Z Corporation have a background in investments and real estate. They advise the partnership regarding loans under consideration, attend meetings of the partnership and consult with the other partners relating to accepting or rejecting loan applications. XYZ Partnership is entitled to a deduction for reasonable compensation paid to its three active partners, not to exceed the lesser of $15,000 or 20% of the unincorporated business taxable income.
(3) For purposes of this subdivision, a person will be considered a partner of an entity if that person would be considered to be a partner under 19 RCNY § 28-06(d)(1)(iv).
(b) Modifications for special depreciation and research and development expenditures. (Administrative Code § 11-509(b)).
(1) General.
(i) At the election of the taxpayer, special optional modifications for depreciation of certain property and for certain expenditures for property used for research or development purposes are permitted, without allocation under 19 RCNY § 28-07, upon the terms and conditions prescribed by this subdivision (b). Either or both of the deductions set forth in subparagraphs (1)(ii) and (1)(iii) of this paragraph (1) shall be allowed, except that only one of these deductions shall be allowed with respect to any one item of property.
(ii) Where an individual, partnership, estate or trust constructs, reconstructs, erects or acquires qualifying property as defined in paragraph (2) of this subdivision (b), there shall, subject to the terms and conditions prescribed by this subdivision (b), at the election of the taxpayer, be allowed in respect of such qualifying property a deduction for depreciation not exceeding twice the depreciation allowed with respect to the same property for Federal income tax purposes. A deduction pursuant to this subparagraph (ii) is allowed only upon the condition that no other deduction for depreciation of such property shall be permitted for the taxable year.
(iii) Subject to limitations prescribed in this subdivision (b), a taxpayer likewise may, in lieu of any deduction (as an expenditure or as depreciation) otherwise allowable for Federal income tax purposes, elect to deduct any amount expended during the taxable year for the construction, reconstruction, erection or acquisition of qualifying property, as defined in paragraph (2) of this subdivision (b) which is used for purposes of research or development in the experimental or laboratory sense. Such purposes do not include the ordinary testing or inspection of materials or products for quality control, efficiency surveys, management studies, consumer surveys, advertising, promotions or research in connection with literary, historical or similar projects.
(iv) Any amount allowed for Federal income tax purposes as depreciation or as an expenditure with respect to the property which is the subject of an election under subparagraphs (ii) or (iii) of this paragraph (b) shall be added to the taxpayers Federal adjusted gross income for the taxable year.
(v) An election made with respect to a specific item of property or expenditure is binding for all subsequent taxable years unless the Commissioner of Finance consents to a change with respect thereto upon such terms and conditions as he may fix.
(vi) An election with respect to qualifying property of a partnership must be made by the partnership and shall apply to all partnership members. An election with respect to qualifying property of an estate or trust shall be made by the fiduciary and shall be binding on all beneficiaries of the estate or trust.
(2) Qualifying property. The term "qualifying property" means tangible personal property which
(i) is depreciable pursuant to § 167 of the Internal Revenue Code, and
(ii) has a situs in New York City, and
(iii) is used in the taxpayer's trade or business, and
(iv) (A) the construction, reconstruction or erection of which is completed after December 31, 1967, and then only with respect to that portion of the basis thereof or the expenditures relating thereto which is properly attributable to such construction, reconstruction or erection after December 31, 1963, or
(B) acquired after December 31, 1967, by purchase as defined in § 179(d) of the Internal Revenue Code, if the original use of such property commenced with the taxpayer, commenced in New York City and commenced after December 31, 1965.
(3) Limitations.
(i) The total of all deductions allowed pursuant to this subdivision (b) in any taxable year or years with respect to an item of property shall not exceed the cost or other basis of the property for Federal income tax purposes. Only one election, either to claim additional depreciation, or to claim a deduction as an expenditure for property used for research or development, may be made in connection with any one item of property which qualifies for election under subparagraphs (i) and (ii) of paragraph (1) of this subdivision (b). When property subject to an election under this subdivision (b) is used or to be used for research or development only in part, or during only part of its useful life, the allowable special deduction shall be limited to a proportionate part of the expenditures relating thereto.
(ii) With respect to the depreciation deduction allowed under subparagraph (1)(ii) of paragraph (1), such deduction shall be allowed with respect to property described in this paragraph (2) only on condition that such property shall be principally used by the taxpayer in the production of goods by manufacturing, processing, assembling, refining, mining, extracting, farming, agriculture, horticulture, floriculture, viticulture or commercial fishing. For purposes of the preceding sentence, manufacturing shall mean the process of working raw materials into wares suitable for use or which gives new shapes, new qualities or new combinations to matter which already has gone through some artificial process by the use of machinery, tools, appliances and other similar equipment. Property used in the production of goods shall include machinery, equipment or other tangible property which is principally used in the repair and service of other machinery, equipment or other tangible property used principally in the production of goods, and shall include all facilities used in the manufacturing operation, including storage of material to be used in the manufacturing, and of the products that are manufactured.
(iii) At the option of the taxpayer, air and water pollution control facilities which qualify for elective deductions under 19 RCNY § 28-06(i), may be treated, for purposes of this paragraph (2), as tangible property principally used in the production of goods by manufacturing, processing, assembling, refining, mining, extracting, farming, agriculture, horticulture, floriculture, viticulture or commercial fishing, in which event, a deduction shall not be allowed under such 19 RCNY § 28-06(i).
(iv) No deduction shall be permitted under this subdivision (b) for research and experimental expenditures treated as deductible expenses under § 174(a) of the Internal Revenue Code or as amortizable deferred expenses under § 174(b) of the Internal Revenue Code (such expenditures will be reflected in the computation of New York City taxable income through the use of Federal amounts in accordance with the general provisions of these regulations).
(v) With respect to the depreciation deduction under subparagraph (1)(ii) of this subdivision (b), for any taxable year beginning on or after January 1, 1968, no deduction is allowed for tangible personal property leased to any other person or corporation. Any contract or agreement to lease or rent or for a license to use such property is considered a lease; provided, however, that with respect to property which a taxpayer uses for purposes other than leasing for part of a taxable year and leases for another part of a taxable year, a deduction may be taken in proportion to the part of the year such property is used by the taxpayer.
(vi) The special depreciation and expenditure deduction is only allowed with respect to property which has not been the subject of a depreciation deduction pursuant to 19 RCNY § 28-06. With respect to the expenditure deductions allowed by subparagraph (1)(iii) of this subdivision (b), such expenditure deduction shall be allowed only if for the taxable year and all succeeding taxable years, no deduction shall be allowed pursuant to 19 RCNY § 28-06 on account of such expenditures or on account of depreciation of the same property, except to the extent that its basis may be attributable to factors other than such expenditures, or in case a deduction is allowable pursuant to this paragraph for only a part of such expenditures, on condition that any deduction allowable for federal income tax purposes on account of such expenditures or on account of depreciation of the same property shall be proportionately reduced in determining the deductions allowable pursuant to 19 RCNY § 28-06 for the taxable year and all succeeding taxable years.
(vii) In the case of an unincorporated business carried on both within and without New York City, the total of the deduction for depreciation or the deduction for expenditures shall not exceed
(A) such expenditures, and in the case of depreciation, its costs or other basis,
(B) multiplied by the allocation percentage determined under 19 RCNY § 28-07, which is used in allocating the excess of the taxpayer's unincorporated business gross income over its unincorporated business deductions to New York City for the first year such depreciation is deducted or the first year such expenditure is paid or incurred, whichever is applicable.
(4) A similar special depreciation or expenditure deduction applies with respect to tangible personal property, having a situs in the City, used in the taxpayer's trade or business, and acquired, constructed, erected or reconstructed between January 1, 1966 and December 31, 1969. For definitions, limitations and requirements, see § 11-509(b) of the Administrative Code.
(5) Adjustment of basis upon sale or other disposition.
(i) In any tax able year when property, with respect to which a deduction under this subdivision (b) has been allowed, is sold or otherwise disposed of, the basis of such property shall be adjusted to reflect such deduction and if the basis as so adjusted is lower than the adjusted basis of the same property for Federal income tax purposes, the difference between the basis as so adjusted and the adjusted basis of the same property for Federal income tax purposes shall be added to the taxpayer's Federal adjusted gross income (or Federal taxable income of a fiduciary, where applicable) in determining New York City unincorporated business taxable income.
(ii) A sale or disposition of qualifying property includes any transfer or exchange without regard to whether gain or loss from the transaction is recognized for Federal income tax purposes. (Even if the gain or loss from the sale or disposition is a long-term capital gain or loss for Federal income tax purposes, the amount to be taken into account under this paragraph (5) shall be the entire difference between the adjusted bases.)
(6) Reporting change in use of research or development property. If a taxpayer has been allowed a deduction under subparagraph (1)(iii) of this subdivision (b) for an expenditure for a qualifying research or development property and such property is used for purposes other than research or development to a greater extent than originally reported, the taxpayer shall report such use in the return for the first taxable year during which it occurs, and the Commissioner of Finance may recompute the tax for year or years for which the deduction was made and may assess any additional tax resulting from such recomputation within the time fixed by § 11-523(c)(7) of the Administrative Code.
(7) Carryover of unused deductions. If the deductions allowable under this subdivision (b) for any taxable year exceed the taxpayer's unincorporated business taxable income determined without the allowance of such deductions, the excess may be carried over to the following taxable year or years of the same taxpayer (without allocation under 19 RCNY § 28-07) in computing unincorporated business taxable income for such year or years. If a carryover under this subdivision (b) is claimed, complete details of the computation of the carryover must be submitted with the taxpayer's return.
(8) Rule for making elections. An election to deduct additional depreciation or expenditures for research or development purposes under this subdivision (b) shall be made by filing with the unincorporated business income tax return or returns in which such deductions are claimed a statement evidencing such election and containing complete details of the qualifying property involved and the computation of the related deduction and modification. (Such statement and information shall be submitted on form NYC-324, "Special Depreciation and Expenditure Schedule.")
(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.
(a) Requirement of declaration. (Administrative Code § 11-511(a)).
(1) Every unincorporated business shall make a declaration of estimated unincorporated business tax for each taxable year if: (i) for taxable years beginning after 1986 but before 1996, its unincorporated business taxable income can reasonably be expected to exceed $15,000; (ii) for taxable years beginning in 1996, its unincorporated business taxable income can reasonably be expected to exceed $20,000; and (iii) for taxable years beginning after 1996, its estimated unincorporated business tax can reasonably be expected to exceed $1,000 for the taxable year. The declaration must cover a calendar year accounting period, or a full fiscal year if the taxpayer files its unincorporated business tax return on a fiscal year basis, unless a declaration for a short period is required by 19 RCNY § 28-15(k).
(2) If the unincorporated business is carried on by an individual, an estate or a trust, any declaration required by paragraph (1) of this subdivision (a) shall be made on form NYC-5UBTI.
(3) If the unincorporated business is carried on by a partnership, joint venture or other similar unincorporated entity, any declaration required by paragraph (1) of this subdivision (a) shall be made on form NYC-5UB.
(b) Contents of declaration. For the purpose of making the declaration, the amount of the unincorporated business taxable income which the business can reasonably be expected to receive or accrue, depending upon the method of accounting upon which the unincorporated business taxable income is computed, or, for taxable years beginning after 1996, the amount of the estimated tax, shall be determined upon the basis of the facts and circumstances existing at the time prescribed for the filing of the declaration as well as those facts and circumstances reasonably to be anticipated for the taxable year.
(c) Definition of estimated tax. (Administrative Code, § 11-511(b)). For purposes of this section the terms "estimated tax" and "estimated unincorporated business tax" mean the amount which the unincorporated business estimates to be its tax for the taxable year under Chapter 5 of Title 11 of the Administrative Code, less the amount which it estimates to be credits, if any, allowable under 19 RCNY § 28-03(c), other than the credit relating to stock transfer tax allowable under 19 RCNY § 28-03(c)(2). These terms, as used in this section do not include the personal income tax imposed by Chapter 17 of Title 11 of the Administrative Code or the earnings tax imposed by Chapter 19 of Title 11 of the Administrative Code.
(d) Time for filing declaration of estimated unincorporated business tax for calendar year. (Administrative Code § 11-511(c)). A declaration of estimated unincorporated business tax for a calendar year shall be made on or before April 15 of such calendar year (except in cases referred to in 19 RCNY § 28-15(e)). If, however, the requirements necessitating the filing of a declaration are first met, in the case of a business on a calendar year basis, after April 1 but before June 2 of the calendar year, the declaration must be filed on or before June 15 of the taxable year; if such requirements are first met after June 1 and before September 2, the declaration must be filed on or before September 15 of the taxable year; and if such requirements are first met after September 1, the declaration must be filed on or before January 15 of the succeeding calendar year.
(e) Time for filing declaration by an unincorporated business having estimated unincorporated business income from farming. (Administrative Code, § 11-511(d)(1)).
(1) An unincorporated business which has an estimated unincorporated business taxable income from farming (including oyster farming) which is at least two-thirds of its total estimated unincorporated business taxable income for the taxable year may file its declaration for the taxable year by the date specified below, in lieu of the time prescribed in 19 RCNY § 28-15(d) and (j):
(i) if on a calendar year basis, on or before the 15th day of January of the succeeding calendar year, or
(ii) if on a fiscal year basis, on or before the 15th day of the month immediately following the close of the taxable year, or
(iii) in the case of a short taxable year, on or before the 15th day of the month immediately following the close of such taxable year.
(2) Income is attributable to farming if obtained from the cultivation of the soil, the raising or harvesting of any agricultural or horticultural commodities, or the raising of livestock, bees or poultry. The requisite percentage of unincorporated business income must be derived from the operation of stock, dairy, poultry, fruit or truck farming or from a plantation, ranch, nursery or orchard. If an unincorporated business receives, for the use of its land, income in the form of a share of the crops produced thereon, such income is from farming.
(f) Time for filing declaration by an unincorporated business having estimated unincorporated business tax of $40 or less for taxable year. (Administrative Code, § 11-511(d)(2)).
(1) For taxable years beginning before 1997, an unincorporated business which has an estimated unincorporated business tax of $40 or less may file its declaration for the taxable year as follows:
(i) if on a calendar year basis, on or before the 15th day of January of the succeeding calendar year, or
(ii) if on a fiscal year basis, on or before the 15th day of the month immediately following the close of such taxable year.
(iii) in the case of a short taxable year, on or before the 15th day of the month immediately following the close of such taxable year.
(2) Alternatively, if on or before
(i) February 15 of the succeeding calendar year, or
(ii) the 15th day of the second month immediately following the close of the taxable year, if a fiscal other than a calendar year, or
(iii) the 15th day of the second month immediately following the close of a short taxable year, an unincorporated business files its return for the taxable year and pays therewith the full amount of the tax shown to be due thereon, such return shall be considered as its declaration if the tax shown on the return is $40 or less.
(g) Amendments to declaration. (Administrative Code, § 11-511(e)). In making a declaration of estimated unincorporated business tax, the taxpayer is required to take into account the then existing facts and circumstances as well as those reasonably to be anticipated relating to prospective unincorporated business gross income, deductions, exemptions and credits for the taxable year. Amended or revised declarations may be made in any case in which the taxpayer estimates that the unincorporated business gross income, deductions, exemptions or credits will differ from the corresponding amounts reflected in the previous declaration. The amended declaration should be made on Part II of Notice of Estimated Tax Payment Due, Form NYC-B100, mailed to the taxpayer or, if such form is not received or if no installment payments are due on the prior declaration, on form NYC-5UBTI (or form NYC-5UB in the case of a partnership) marked "Amended." No refund will be issued due to the filing of an amended declaration, as consideration will be given to a refund only in connection with a completed unincorporated business tax return filed by the taxpayer for the taxable year covered by the declaration (and amended declaration).
(h) Time for filing amended declarations. (Administrative Code, § 11-511(e)). An amended declaration of estimated unincorporated business tax may be filed during any interval between installment dates prescribed for the taxable year. However, no amended declaration may be filed until after the due date of the original declaration and only one amended declaration may be filed during each interval between installment dates.
(i) Return as declaration or amendment. (Administrative Code, § 11-511(f)).
(1) If an unincorporated business files its unincorporated business tax return for the calendar year on or before February 15 of the succeeding calendar year, or if the taxpayer is on a fiscal year basis, the date corresponding thereto, and pays therewith the full amount of tax shown to be due on the return, then
(i) if the declaration is not required to be filed during the taxable year, but is required to be filed on or before January 15 of the succeeding year (or the date corresponding thereto in the case of a fiscal year), such return shall be considered as such declaration; or
(ii) if a declaration was filed during the taxable year, such return shall be considered as the amendment of the declaration permitted to be filed on or before January 15 of the succeeding year (or the date corresponding thereto in the case of a fiscal year), if the tax shown on the return is greater than the estimated tax shown in the declaration.
(2) The filing of a declaration or amended declaration or the payment of the last installment of estimated tax on January 15, or the filing of an unincorporated business tax return by February 15 (or the dates corresponding thereto in the case of a fiscal year) will not relieve the taxpayer of the additional charge for underpayment of installments if he failed to pay estimated unincorporated business tax which was due earlier in the taxable year.
(j) Fiscal years. (Administrative Code, § 11-511(g)).
(1) The provisions of this section and 19 RCNY § 28-16 shall apply to a taxable year other than a calendar year by the substitution of the corresponding fiscal year month for calendar year months referred to in this section.
(2) In the case of a business on a fiscal year basis (except in cases referred to in 19 RCNY § 28-15(e)), the declaration must be filed on or before the 15th day of the fourth month of the taxable year. If, however, the requirements prescribed for filing a declaration are first met after the first day of the fourth month, but before the second day of the sixth month, the declaration must be filed on or before the 15th day of the sixth month of the taxable year; such requirements are first met after the first day of the sixth month, but before the second day of the ninth month, the declaration must be filed on or before the 15th day of the ninth month of the taxable year; and if such requirements are first met after the first day of ninth month, the declaration must be filed on or before the 15th day of the first month of the succeeding fiscal year. Thus, if the business has a fiscal year ending on June 30, 1984, its declaration for such fiscal year must be filed on or before October 15, 1983. If, however, as a further example, the requirements for filing are met after October 1, 1983 and prior to December 2, 1983, the declaration need not be filed until December 15, 1983.
(k) Short taxable year. (Administrative Code, § 11-511(h)).
(1) No declaration may be made for a period of more than 12 months. If an unincorporated business is required to make a declaration of estimated unincorporated business tax pursuant to 19 RCNY § 28-15(a), and a short taxable year is involved, a separate declaration for such fractional part of the year is required, except as noted in paragraph (2) of this subdivision (k) below. For the purpose of determining whether the anticipated unincorporated business taxable income for a short taxable year, resulting from a change of accounting period, necessitates the filing of a declaration, the anticipated unincorporated business taxable income is computed on the basis of the short taxable year for which a return is to be made in accordance with the applicable rules for determination of unincorporated business taxable income as set forth in 19 RCNY § 28-18(a).
(2) No declaration is required if the short taxable year is:
(i) A period of less than four months, or
(ii) A period of at least four months, but less than six months, and the requirements of 19 RCNY § 28-15(a) are first met after the day of the fourth month, or
(iii) A period of at least six months, but less than nine months, and the requirements of 19 RCNY § 28-15(a) are first met after the first day of the sixth month, or
(iv) A period of nine months or more, and the requirements of 19 RCNY § 28-15(a) are first met after the first day of the ninth month.
(l) Time for filing declaration of estimated unincorporated business tax for a short taxable year. (Administrative Code, § 11-511(h)). In the case of a short taxable year, the declaration shall be filed (except in cases referred to in 19 RCNY § 28-15(k)(2)) on or before the 15th day of the fourth month of such taxable year. If the requirements for filing are first met after the first day of the fourth month, but before the second day of the sixth month, the declaration must be filed on or before the 15th day of the sixth month. If such requirements are first met after the first day of the sixth month, but before the second day of the ninth month, the declaration must be filed on or before the 15th day of the ninth month. If, however, the period for which the declaration is filed is
(1) at least four months, but less than six months, or
(2) at least six months, but less than nine months, and the requirements are not met until after the first day of the fourth month, or
(3) is for nine months or more, and such requirements are not met until after the first day of the sixth month, the declaration may be filed on or before the 15th day of the succeeding taxable year.
(m) Declaration of unincorporated business under a disability. (Administrative Code, § 11-511(i)). The declaration of estimated tax for an unincorporated business which is unable to make a declaration by reason of a disability shall be made and filed by the committee, fiduciary or other person charged with the care of the property of such unincorporated business (other than a receiver in possession of only a part of such property), or by his duly authorized agent.
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