Modifications for other items previously taxed.

(i) The Federal adjusted gross income of a resident individual taxpayer must be modified to exclude any item of income or gain which was properly included in income or gain and was taxable under former article 16 of the Tax Law, either to the taxpayer or to a decedent by reason of whose death the taxpayer acquired the right to receive the income or gain, or to a trust or estate from which the taxpayer received the income or gain. Therefore, where a resident individual reporting on a calendar-year basis includes in such individual's 1960 Federal adjusted gross income a share of the income of an estate or trust which reports on the basis of a fiscal year ending in 1960, such individual is entitled to a modification to exclude such individual's share of any income or gain which was properly included in the income or gain of the estate or trust under former article 16 of the Tax Law for such fiscal year. Such resident individual's share of the former article 16 item should be computed in the same manner as provided in section 119.2 of this Article for apportioning the New York fiduciary adjustment for years covered by article 22 of the Tax Law.

(ii) Illustrations of the types of modifications under this paragraph are as follows: Taxpayer A, a resident individual, inherited, prior to the final termination date of former article 16 of the Tax Law, the right to certain income (such as unpaid wages, interest, dividends, installment obligations, etc.) owing to a decedent, which had accrued at the date of death of the decedent. The decedent's New York State and Federal income tax returns were filed on a cash basis, and the income was not received by taxpayer A until 1961, after the estate had been settled. Under former article 16 of the Tax Law, this income was taxable to the decedent in 1959 as income accrued at date of death. Under the Internal Revenue Code, this accrued income with respect to the decedent was not taxable until it was finally paid by the debtor to A as the beneficiary in 1961. This income had already been taxed to the decedent under former article 16 of the Tax Law; therefore, since this income is included in the taxpayer's Federal adjusted gross income for 1961, A is entitled to subtract from such taxpayer's 1961 Federal adjusted gross income the amount received by A in that year from the liquidation of A's inherited claim for New York State personal income tax purposes. Taxpayer B, a resident individual, filed New York State and Federal income tax returns on a calendar-year basis. B was a beneficiary of an estate which filed fiduciary returns on a fiscal year basis ending June 30th each year. For the fiscal year ended June 30, 1960, the estate realized capital gains of $10,000, which were duly distributed to the taxpayer as trust beneficiary and reported on B's 1960 calendar year Federal income tax return. The New York State personal income tax return of the estate for its fiscal year ended June 30, 1960 was governed by the provisions of former article 16 of the Tax Law, which required the capital gains of $10,000 to be taxed to the estate rather than to the beneficiary, to whom the gains were taxable under the Internal Revenue Code. Since the gains of $10,000 were already taxed to the estate under former article 16 of the Tax Law, a modification may be claimed against B's 1960 Federal adjusted gross income to prevent a second New York State personal income tax on the gains under article 22 of the Tax Law. If these were short-term capital gains, the full amount was included in the taxpayer's Federal adjusted gross income and may be subtracted; if they were long-term capital gains, only 50 percent was included in Federal adjusted gross income, and only $5,000 may be subtracted. Taxpayer C, a resident individual, filing New York State and Federal income tax returns on a calendar-year basis, was a beneficiary of a trust which filed its New York State and Federal income tax returns on the basis of a fiscal period ending October 31st each year. C received payments of $10,000 each year from the trust, and the trust agreement provided that, if the income of the trust for any year was insufficient to pay this amount, it should be paid out of trust principal so far as necessary. For the fiscal year ended October 31, 1960, the income of the trust was $5,000. The $5,000 of trust income was properly included in taxpayer C's Federal adjusted gross income for calendar year 1960 in accordance with the Internal Revenue Code. The New York State personal income tax return of the trust for its fiscal year ended October 31, 1960 was covered by the provisions of former article 16 of the Tax Law which, unlike the Internal Revenue Code, did not consider any part of the fixed annual payment of $10,000 as a distribution of income; accordingly, the total trust income of $5,000 for the fiscal year ended October 31, 1960 was taxed to the trust under former article 16 of the Tax Law. Accordingly, C's Federal adjusted gross income should be modified for the calendar year 1960 by subtracting the $5,000 of income previously subjected to the New York State personal income tax under former article 16 of the Tax Law as trust income.