(a) Where the election to be treated as a New York S corporation under section 660(a) of the Tax Law has not been made with respect to such corporation, any item of loss or deduction of the S corporation included in Federal gross income pursuant to section 1366 of the Internal Revenue Code.

(b) Exception. A resident shareholder of an S corporation that cannot make the election provided for under section 660(a) of the Tax Law ( e.g., a foreign S corporation [ i.e., an S corporation that is not incorporated in New York State] that does not do business in New York State or an S corporation that is taxed under article 9 of the Tax Law), is not required to make the modification referred to in this paragraph.