Special accruals: change from resident to nonresident

(a) Where the resident status of an individual changes from resident to nonresident, such individual shall, regardless of the method of accounting normally employed, accrue and include for the portion of the year prior to the change of resident status any items of income, gain, loss or deduction accruing prior to the change of residence, if not otherwise properly includible or allowable for Connecticut income tax purposes for such portion of the taxable year or for a prior taxable year. That is, in computing Connecticut adjusted gross income for the period of residence, such individual shall include in Connecticut adjusted gross income derived from or connected with Connecticut sources all items required to be included if a federal income tax return were being filed for the same period on the accrual basis, together with any other accruals, such as deferred gain on installment obligations, which are not otherwise includible or deductible for federal or Connecticut income tax purposes either for such resident period or for a prior taxable period. See § 12-717(c)(4)-1 of this Part for relief from the special accrual requirements of this section.

(b) The provisions of this section also apply to part-year resident trusts, and wherever reference is made in this section to a part-year resident individual, such reference shall be construed to include a part-year resident trust, and any reference to a part-year resident individual’s Connecticut adjusted gross income derived from or connected with Connecticut sources shall be construed to include a part-year resident trust’s Connecticut taxable income derived from or connected with Connecticut sources.

(c) Examples.

Example 1: If an individual sells her business at a gain under a contract whereby the purchase price is to be paid in installments, and later changes her status from resident to nonresident, she shall accrue to the period of residence the entire amount of gain remaining unpaid from such installment obligations, regardless of the method of accounting she normally uses in reporting her transactions.

Example 2: If a trust sells its business or assets at a gain under a contract whereby the purchase price is to be paid in installments, and the trust later changes its status from resident to nonresident, the fiduciary of the trust shall accrue to the period of residence the entire amount of the gain remaining unpaid from such installment obligations, regardless of the method of accounting the trust normally uses in reporting such transactions.

Example 3: Where a beneficiary of a trust or estate changes status during the taxable year from resident to nonresident, such beneficiary shall accrue to the period of residence any trust or estate income credited, distributed, payable or required to be distributed to such beneficiary as of the date of such beneficiary’s change of residence.

(d) A gain, the recognition of which is deferred for federal income tax purposes, need not be accrued for Connecticut income tax purposes solely because of the change of residence. For instance, a gain realized on sale of an individual’s principal residence, the recognition of which gain for federal income tax purposes is properly deferred under section 1034 of the Internal Revenue Code, need not be accrued to the period prior to such individual’s change of residence.

(e) The amounts of the accrued items of an individual to be reported for the period of Connecticut residence are determined with the applicable modifications described in §§ 12-701(a)(20)-2 and 12-701(a)(20)-3 of Part I as if such accrued items were includible or allowable for federal income tax purposes. Similarly, the amounts of the accrued items of a trust to be reported for its period of Connecticut residence are determined with the applicable modifications of §§ 12-701(a)(10)-2 and 12-701(a)(10)-3 of Part IV as if such accrued items were includible or allowable for federal income tax purposes.

Example: On September 10, 1992, B, a resident individual who, for federal income tax purposes, uses the cash receipts and disbursements method of accounting and uses the calendar year as his accounting period, retires from employment in Connecticut and moves to Florida. B’s salary up to the date of termination amounts to $18,000. On September 1, B’s employer notifies him that, under his employment contract, B shall receive on October 1, 1992 a bonus of $1,000, subject to no contingencies.

Dividend income received before the change of residence amounted to $550, and on August 15, 1992, the XYZ Corporation declares a dividend of $600, payable to B on September 20, 1992 if he is a stockholder of record on September 6, 1992. B also holds State of California bonds on which interest in the amount of $300 is received on the first day of each calendar quarter (January 1, April 1, July 1 and October 1, 1992).

On January 2, 1992, B closed title with C on a tract of vacant land in Pennsylvania, taking back from C a purchase money mortgage that calls for annual payments on July 1 of each year. By reason of B’s use for federal tax purposes of the installment method of accounting with respect to this transaction, B shall realize a capital gain of $1,000 each year for five years, or $5,000.

On September 1, 1992, B enters into a contract with D to sell B’s beach property in Connecticut to D, subject to D’s investigation of title and obtaining a stipulated mortgage. The property to be sold is not B’s principal place of residence and is not used for rental purposes. The closing of title on this property is held on October 20, 1992. B realizes a capital gain of $20,000 which is included in determining the gain from the sale or exchange of property reported on B’s 1992 federal income tax return.

On B’s 1992 Connecticut part-year resident income tax return, B includes in his Connecticut adjusted gross income for the period of residence the following items:

Regular salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,000 Bonus—not forfeitable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 Dividends received before change of residence . . . . . . . . . . . . . . . . . . . . . . . . . 550 Dividends accrued as of record date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600 Gain on sale of Pennsylvania property ($1,000 from 1992 payment; $4,000 accrued). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 Modification under § 12-701(a)(20)-2 for California bond interest ($900 received on January 1, April 1 and July 1, plus $233 accrued on account of interest payable October 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,133

For the period of nonresidence, B includes in Connecticut adjusted gross income derived from or connected with Connecticut sources the capital gain on the sale of the Connecticut beach property ($20,000). Such gain is not accruable to the period of residence during the taxable year because of the conditions stated in the contract of sale.

Because B accrues the bonus payment to his period of residence during 1992, he is not required to take it into account in his period of nonresidence during 1992 as an item of income derived from Connecticut sources, even though B actually receives it when he is a nonresident. See § 12-717(c)(3)-1 of this Part.

(f) While this section pertains to Section 12-717(c)(1) of the general statutes, for purposes of supplementary interpretation, as the phrase is used in Section 12-2 of the general statutes, the adoption of this section is authorized by Section 12-701(c) of the general statutes.

(Effective November 18, 1994)

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