a shareholder of an S corporation which is not a New York C corporation subject to tax under article 9-A of the Tax Law and;

(a) for which the election to be treated as a New York S corporation under section 660(a) of the Tax Law is in effect; or

(b) a shareholder of an S corporation that cannot make the election provided for under section 660(a) of the Tax Law, because the S corporation is 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 because the S corporation is an S corporation that is taxed under article 9 of the Tax Law, then, the applicable modifications referred to in this Part which relate to partnership or S corporation items of income, gain, loss or deduction which are included in adjusted gross income, must be made by such individual as determined under section 617 of the Tax Law. These modifications are applicable since, under the Tax Law, each item of partnership or S corporation income, gain, loss or deduction has the same character for a partner or S corporation shareholder as for Federal income tax purposes. Where the partnership or S corporation item is not characterized for Federal income tax purposes, such item has the same character for the partner or shareholder as if such item were realized directly by such partner or shareholder from the source from which realized by the partnership or S corporation, or incurred by such partner or shareholder in the same manner as incurred by the partnership or S corporation.