N.Y. Comp. Codes R. & Regs. tit. 20 § 142.1

Current through Register Vol. 46, No. 45, November 2, 2024

Section 142.1 - Computation of separate tax on the ordinary income portion of lump sum distributions received by nonresident individuals, estates and trusts

Tax Law, § 642

(a)General.

Where a nonresident individual, estate or trust receives a lump sum distribution on or after January 1, 1978, and elects the special 10-year averaging method under section 402(e) of the Internal Revenue Code with respect to the ordinary income portion of the lump sum distribution, the nonresident recipient of the distribution is subject to the New York State separate tax imposed by section 601-C of the Tax Law to the extent that the ordinary income portion of such distribution is wholly or partly derived from or connected with New York State sources.

(1) The ordinary income portion of a lump sum distribution is wholly derived from or connected with New York State sources if the distribution is received by a nonresident taxpayer from a qualified plan established for either a resident individual or for a nonresident individual who performed services wholly within New York State as an employee, a sole proprietor or a partner. See paragraph (b)(1) of this section for amount of the separate tax.

(2) The ordinary income portion of a lump sum distribution is partly derived from or connected with New York State sources if the distribution is received by a nonresident taxpayer from a qualified plan established for a nonresident individual who performed services partly within and partly without New York State as an employee, a sole proprietor or a partner. See paragraph (b)(2) of this section for the amount of the separate tax.

(b)Amount of separate tax.

(1) Where the ordinary income portion of a lump sum distribution is wholly derived from New York State sources, the nonresident individual, estate or trust receiving such distribution must determine the separate tax in accordance with the provisions of section 124.1 of this Title, except that:

(i) the references in such section to January 1, 1977 are to be read as January 1, 1978; and

(ii) the references in such section to resident are to be read as nonresident.

(2) Where the ordinary income portion of a lump sum distribution is partly derived from or connected with New York State sources, the nonresident individual, estate or trust receiving such distribution must determine the separate tax in the same manner as specified in paragraph (1) of this subdivision, except that the total taxable amount in excess of the minimum distribution allowance must be allocated or apportioned to New York State sources in accordance with the provisions of subdivision (c) of this section before the amount of initial separate tax can be determined (see subdivision [c] of section 124.1 of this Subchapter).

(c)Allocation and apportionment.

(1) Where the ordinary income portion of a lump sum distribution is derived partly from New York State sources, the excess of the total taxable amount over the minimum distribution allowance must be allocated to New York State by multiplying such amount by a fraction:

(i) the numerator of which is the portion of the individual's compensation, net income from business or partnership distribution allocated to New York State on his New York State personal income tax return (in accordance with the provisions of sections 132.15 and 132.17 through 132.19 of this Article) during a period consisting of the portion of the taxable year prior to the date the distribution became payable and the three taxable years immediately preceding the year in which the distribution was made; and

(ii) the denominator of which is the individual's total compensation, net income from business or partnership distribution from such source ( i.e., before the allocation referred to in subparagraph [i] of this paragraph) received during such period for services performed both within and without New York State.

The following examples illustrate the application of the provisions of this paragraph.

Example 1:

A nonresident taxpayer who filed his Federal and New York State income tax returns on a calendar-year basis carried on a business both within and without New York State. On September 1, 1980, he terminated his business operations and, as a result, received a lump sum distribution from a qualified plan in such taxable year. The taxpayer elected to use the special 10-year averaging method with respect to the ordinary income portion of the lump sum distribution for 1980, Federal income tax purposes. Assuming that the taxpayer reported the amounts shown in the following tabulation on his New York State nonresident personal income tax returns for the taxable years 1977 through 1980, the fraction to be applied in accordance with the provisions of this subdivision is $210,000/$330,000.

Taxable year	Total net income from business	Net income from business allocated to NYS
1977	$ 80,000	$ 48,000
1978	100,000	45,000
1979	90,000	72,000
1980 (January 1st through September 1st)	60,000	45,000
Totals	$330,000	$210,000

Example 2:

A nonresident taxpayer who filed his Federal and New York State income tax returns on a calendar-year basis was employed by a New York State company and performed services both within and without New York State until his retirement on March 1, 1980. Upon retirement, the taxpayer received a lump sum distribution-from a qualified plan. He elected to use the special 10-year averaging method with respect to the ordinary income portion of the lump sum distribution for Federal income tax purposes for the taxable year 1980. Assuming that the taxpayer reported the amounts shown in the following tabulation on his New York State nonresident personal income tax returns for the taxable years 1977 through 1980, the fraction to be applied in accordance with the provisions of this subdivision is $142,000/$156,000.

Taxable year	Total compensation	Compensation allocated to NYS
1977	$ 40,000	$ 36,000
1978	52,000	47,000
1979	54,000	50,000
1980 (January 1st through March 1st)	10,000	9,000
Totals	$156,000	$142,000

(2) For purposes of this subdivision, the individual's compensation, net income from business or partnership distribution attributable to New York State must be determined separately for each taxable year or portion of a year. However, the fraction determined in accordance with paragraph (1) of this subdivision may be based on a period of time greater than the period referred to therein if the taxpayer establishes, to the satisfaction of the Tax Commission, the amount of compensation, net income from business or partnership distribution (on which the lump sum distribution is based) for each taxable year in such longer period of time and the amount of such income allocable to New York State in each such taxable year determined in accordance with the applicable provisions of section 132.15, 132.17, 132.18 or 132.19 of this Article.

(3) Where an allocation or apportionment is determined in accordance with the provisions of this subdivision, the taxpayer must prepare a schedule, identified as Lump Sum Distribution Allocation Schedule, which shows the calculation required under this subdivision. This schedule and form IT-230 or IT-230.1 must be attached to the taxpayer's New York State nonresident personal income tax return filed for the taxable year.

N.Y. Comp. Codes R. & Regs. Tit. 20 § 142.1