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Impact of Changes to the Internal Revenue Code (IRC) on the 2019 New York State Corporation Tax Returns

Changes in the Tax Law as part of the 2020-2021 New York State budget (Part WWW of Chapter 58 of the Laws of 2020) enacted in response to changes made to the IRC in the federal CARES Act (Public Law 116-136) impacted 2019 tax forms for New York State C and S corporations as follows.

2019 Filing information for New York State C corporations

The amendment made by the addition of new IRC §163(j)(10)(A)(i) under §2306 of the federal CARES Act allowing the use of 50% of adjusted taxable income (ATI) in the computation of the interest deduction limitation will not apply when computing the business income base tax for New York C corporations subject to tax under Article 9-A. See Corporation tax up-to-date information for 2019 (Articles 9, 9-A, 13, and 33) for more information regarding the applicable form corrections for Forms CT-225-I and CT-225-A-I.

If you have not already filed a 2019 New York State Article 9-A franchise tax return (Form CT-3, General Business Corporation Franchise Tax Return, or Form CT-3-A, General Business Corporation Combined Franchise Tax Return, as applicable), and you filed a 2019 federal return that reflects changes made to the IRC as a result of the federal CARES Act, your New York State return should include such changes except for the provision that allows the use of 50% of ATI in the computation of the federal limitation on your interest deduction. You must reflect 30%, rather than 50%, in the computation of your entire net income (ENI), or combined ENI if filing a combined return.

Amended returns for New York C corporations

You must file an amended 2019 New York State Form CT-3, or Form CT-3-A, as applicable, if:

  • you are filing an amended 2019 federal return to account for changes made by the federal CARES Act that impact your business income base tax starting point of FTI (or combined FTI), or
  • in addition to the other provisions of the federal CARES Act that are applicable to you, your original New York State return reflects in its business income base tax starting point of FTI, or combined FTI, the increase in the federal interest deduction allowed as a result of using 50% of ATI.

When your amended New York State return is due to either:

  • Bullet 1 above and your amended federal return will reflect use of 50% of ATI regarding the federal interest deduction allowed, or
  • Bullet 2 above, then use these additional instructions when amending your New York State return:
    • Attach to your amended New York State return Form CT-225 or Form CT-225-A, as applicable, reporting new addition modification code A-511 to addback to FTI the difference between your federal interest deduction computed using the 50% limitation and your federal interest deduction computed using the 30% limitation, and
    • If you originally filed Form CT-3.1, Investment and Other Exempt Income and Investment Capital, and did not utilize the 40% safe harbor for all of your exempt income, you must file with your amended Form CT-3 or CT-3-A, as applicable, an amended Form CT-3.1 wherein any amount reported under modification code A-511 is excluded from total interest deductions subject to attribution after the IRC §163(j) limitation.

2019 Filing information for New York State S corporations that are partners in partnerships

New York State and New York City personal income tax was decoupled from any changes to the IRC enacted after March 1, 2020. Per N-20-7, Impact of Changes to the Internal Revenue Code (IRC) on the 2019 New York State Personal Income Tax Returns, the ordinary business income (loss) reported by a partnership to a corporate partner on Form IT-204-CP, New York Corporate Partner’s Schedule K-1, should not reflect any federal CARES Act changes. However, New York S corporations that are partners in partnerships need to provide the correct distributive shares of partnership ordinary income (loss) to their shareholders. See Corporation tax up-to-date information for 2019 (Articles 9, 9-A, 13, and 33) for more information regarding the applicable form correction for Form CT-34-SH-I.

Note: If you have already filed your 2019 Form CT-3-S, New York State S Corporation Franchise Tax Return (including your Form CT-34-SH), you do not need to amend your Form CT-3-S or Form CT-34-SH. Additionally, for those partnership(s) in which the distributive share of partnership ordinary business income (loss) that is included in your federal S corporation ordinary business income (loss) does not reflect changes made to the IRC after March 1, 2020, no action is required on your part.

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