115.4 Partners and shareholders of S corporations.

(a) Partners. Where a resident individual is a member of a partnership and such individual determines New York taxable income by using itemized deductions, then such individual's share of any partnership items of deduction covered by any of the provisions of section 615(c) and (d) of the Tax Law and as further specified in sections 115.2 and 115.3 of this Part is also subject to modification. The amount of the modification should be computed by the partner in accordance with the rules contained in section 117.3 of this Article. In such case, the partner should combine such partner's share of each modification of a partnership deduction with any corresponding modification applicable to such partner's individual Federal itemized deductions. This treatment of partnership modifications is different from the treatment of estate and trust modifications, which are all combined into a single net figure, called the New York fiduciary adjustment, as provided in section 119.1 of this Article.

(b) Shareholders of S corporations.

(1) Where a resident individual is a shareholder of an S corporation 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 is a 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), and such individual determines New York taxable income by using itemized deductions, then such individual shareholder's share of any S corporation items of deduction covered by any of the provisions of sections 615(c) and (d) of the Tax Law and sections 115.2 and 115.3 of this Part, is also subject to modification. The amount of the modification should be computed by the shareholder in accordance with section 617(a) of the Tax Law. In such case, the resident individual shareholder should combine the share of each modification of an S corporation deduction with any corresponding modification applicable to such shareholder's individual Federal itemized deductions. This treatment of S corporation modifications is different from the treatment of estate and trust modifications, which are all combined into a single net figure, called the New York fiduciary adjustment, as provided in section 119.1 of this Article.

(2) A resident individual shareholder of a foreign S corporation ( i.e., an S corporation that is not incorporated in New York State) that does business in New York State, or an S corporation incorporated in New York State, either of which can make the election provided for by section 660(a) of the Tax Law but does not, is not subject to the provisions of this subdivision. The shareholder would be required to make the modification required by section 615(c)(6) of the Tax Law.

(3) In the case of a New York S termination year (see section 208.1-A of the Tax Law), the amount of the modifications referred to in paragraphs (1) and (2) of this subdivision must be determined in accordance with the provisions of section 612(s) of the Tax Law and section 112.12 of this Title.