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(e) Annuity and other income or gain taxed in prior years under former article 16 of the Tax Law (see section 612[c][5] of the Tax Law). This modification prevents income already taxed under former article 16 of the Tax Law from being taxed again under article 22 of the Tax Law.
(1) The modification with reference to an annuity applies where in prior years a larger part of the annuity payments were taxable under former article 16 of the Tax Law than were taxable for Federal income tax purposes. In such a case, the taxpayer, each year, may subtract from Federal adjusted gross income whatever amount is includible therein as income from such annuity until the aggregate of the amounts so subtracted equals the excess amount previously taxed under former article 16 of the Tax Law. Other modifications referred to in this section exclude from Federal adjusted gross income various types of income and gain which meet the following conditions:
(i) The item was previously taxed under former article 16 of the Tax Law to the taxpayer or to the trust, estate or decedent, from whom the taxpayer acquired the right to such item of income or gain.
(ii) The item was properly included in Federal adjusted gross income for the current year.
(i) The item was previously taxed under former article 16 of the Tax Law to the taxpayer or to the trust, estate or decedent, from whom the taxpayer acquired the right to such item of income or gain.
(ii) The item was properly included in Federal adjusted gross income for the current year.
(2) Computation of modification of annuity income. To compute the modification for annuity income which was properly included in a New York State personal income tax return filed by the taxpayer under former article 16 of the Tax Law, the annuity payments reported for New York State personal income tax purposes during the years 1954 to 1959 must be compared with the amount included in Federal adjusted gross income during the same period. For this purpose, the taxpayer is considered to have reported annuity income under former article 16 of the Tax Law for the year 1958, even though, due to cancellation of the normal tax, no New York State personal income tax return was required. (It is usually not necessary to consider years prior to 1954 since the Federal and New York State methods of computing taxable annuity income were similar.) If this comparison shows that a higher amount was taxed under former article 16 of the Tax Law than under the Internal Revenue Code, such difference qualifies for the modification. In case the taxpayer has income from two or more annuity contracts, the reduction of Federal adjusted gross income representing the amount previously taxed under former article 16 of the Tax Law is limited in each taxable year to the income from the specific annuity contract to which the adjustment applies. Assume that under the Internal Revenue Code, $300 is the taxable portion of the annuity payments reportable on the annuitant's 1960 Federal income tax return. Between 1954 and 1959, the amount under former article 16 of the Tax Law was $2,600, while, during the same period, $1,800 was included in the individual's Federal adjusted gross income. The amount to be considered as a modification for this previously taxed annuity income under former article 16 of the Tax Law is $800 ($2,600 minus $1,800), but the modification is limited to the taxable portion of the annuity payments reported on the 1960 Federal income tax return, or $300. This $300 can be claimed as a reduction of Federal adjusted gross income in 1960. Additional amounts may be similarly used in later years until the total modification claimed for all years equals the excess amount previously taxed under former article 16 of the Tax Law. Since the excess amount in this example is $800, the taxpayer may claim modifications of $300 in 1960, $300 in 1961, and $200 in 1962 (assuming that such taxpayer continues to report $300 annually from this source on the required Federal income tax returns for these years). The modification described in this paragraph must be computed separately for each annuity contract and may be applied only against the income from such annuity contract.
(3) 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.
(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.
(4) Installment sales.
(i) A prior election by a taxpayer to report a gain from an earlier year sale on the installment basis for Federal income tax purposes, but not for New York State personal income tax purposes under former article 16 of the Tax Law, will give rise to a modification under this subdivision. The modification will be the amount of such installment gain included in the taxpayer's Federal adjusted gross income for the taxable year which was previously properly included (because of such taxpayer's election) in a New York State personal income tax return filed by such taxpayer under former article 16 of the Tax Law.
(ii) Where a sale was made during 1958 (when the normal New York State personal income tax was cancelled) and the taxpayer elected to report it on the installment basis for Federal income tax purposes, such taxpayer will be deemed to have made the same election for New York State personal income tax purposes, in the absence of proof to the contrary, so that the modification referred to in this subdivision is not allowable. However, if the taxpayer elected to report the full amount of a 1958 gain for the purposes of an applicable New York State personal income tax which was not cancelled (capital gains tax or unincorporated business tax), but reported it on the installment basis for Federal income tax purposes, a modification will be allowed. That is, such a taxpayer may subtract from Federal adjusted gross income for any subsequent year whatever may have been included therein as an installment of the gain from the 1958 sale.
(i) A prior election by a taxpayer to report a gain from an earlier year sale on the installment basis for Federal income tax purposes, but not for New York State personal income tax purposes under former article 16 of the Tax Law, will give rise to a modification under this subdivision. The modification will be the amount of such installment gain included in the taxpayer's Federal adjusted gross income for the taxable year which was previously properly included (because of such taxpayer's election) in a New York State personal income tax return filed by such taxpayer under former article 16 of the Tax Law.
(ii) Where a sale was made during 1958 (when the normal New York State personal income tax was cancelled) and the taxpayer elected to report it on the installment basis for Federal income tax purposes, such taxpayer will be deemed to have made the same election for New York State personal income tax purposes, in the absence of proof to the contrary, so that the modification referred to in this subdivision is not allowable. However, if the taxpayer elected to report the full amount of a 1958 gain for the purposes of an applicable New York State personal income tax which was not cancelled (capital gains tax or unincorporated business tax), but reported it on the installment basis for Federal income tax purposes, a modification will be allowed. That is, such a taxpayer may subtract from Federal adjusted gross income for any subsequent year whatever may have been included therein as an installment of the gain from the 1958 sale.