Tax Law, § 605(a)(4)(B)
Example:
Assume that a resident individual entitled to claim head of household filing status and one dependent exemption used the cash method in 1990 and 1991. In 1992 such taxpayer changes to the accrual basis, has New York adjusted gross income of $119,150 and has New York taxable income of $110,000 figured on the accrual basis. Such taxpayer's books at the beginning of 1992 included the following accounts: accounts receivable of $9,000; accounts payable of $8,000; inventory of $5,000. The amount of New York State personal income tax due for the taxable year of the change is computed in the following manner:
Subject to the amount of any modifications required under this Subchapter, the New York taxable income for the year of the change, including the net amount of adjustments (see subparagraphs (i) and (ii) of paragraph (2) of this subdivision), would be determined as follows:
New York taxable income on accrual basis (new method but before adjustments) | $110,000 | |
(i) Adjustments: | ||
Add: Items not previously reported as income: | ||
Accounts receivable, January 1, 1992 | $ 9,000 | |
Items previously deducted but constituting marketable business assets: Inventory, January 1, 1992 | 5,000 | |
Total to be added | $14,000 | |
Subtract: Items not previously deducted: Accounts payable, January 1, 1992 | 8,000 | |
(ii) Net amount of adjustments (increase) | 6,000 | |
New York taxable income after adjustments | $116,000 |
The net additional New York State personal income tax due (including the supplemental tax relating to the tax table benefit recapture) for the year of the change described in subparagraph (v) of paragraph (2) of this subdivision is determined as follows:
(iii) | New York State personal income tax due (including supplemental tax) for the year of change, including the net amount of adjustments ($116,000) | $8,894.58 |
(iv) | New York State personal income tax due (including supplemental tax) for taxable year of change, excluding above adjustments ($10,000) | 8,364.03 |
(v) | New additional New York State personal income tax due | $ 530.55 |
Since the taxpayer used the cash method of the two years preceding the changeover year and the adjustments for 1992 increased New York adjusted gross income and New York taxable income by $6,000, the taxpayer may reduce the New York State personal income tax on the increase by allocating $2,000 to 1990, $2,000 to 1991, and $2,000 to 1992 (see subparagraphs (vi) through (viii) of paragraph (2) of this subdivision). The net New York State personal income tax (including the supplemental tax relating to the tax table benefit recapture) due for the year of change is then determined in the following manner:
Taxable year | New York taxable income before adjustments | New York taxable income after adjustments | New York State personal income tax (including supplemental tax) before adjustments | New York State personal income tax (including supplemental tax) after adjustments | New York State personal income tax due to adjustments |
1990 | $ 11,000 | $ 13,000 | $ 475.00 | $ 595.00 | $120.00 |
1991 | 18,000 | 20,000 | 933.75 | 1,091.25 | 157.50 |
1992 | 110,000 | 112,000 | 8,364.03 | 8,540.88 | 176.85 |
Total increase in New York State personal income tax attributable to adjustments (see subparagraph [ix] of paragraph [2] of this subdivision) | $ 454.35 |
Net additional New York State personal income tax determined at subparagraph (v) of this paragraph | $ 530.55 |
Excess ($530.55 - $454.35) | $ 76.20 |
Total New York State personal income tax determined at subparagraph (iii) of this paragraph | $8,894.58 |
Excess shown above | 76.20 |
New York State personal income tax (including the supplemental tax due for the year of change) | $8,818.38 |
N.Y. Comp. Codes R. & Regs. Tit. 20 § 105.12