§ 28-17 Accounting Periods and Methods.
RCNY § 28-17
(a)Accounting periods. (Administrative Code, § 11-513(a)). The taxable year for which the unincorporated business taxable income is to be computed and for which an unincorporated business tax return is to be made shall be the same as the taxpayer's taxable year for Federal income tax purposes. The taxable year under Chapter 5 of Title 11 of the Administrative Code will accordingly be the accounting period covered by the taxpayer's Federal income tax return whether such period be a calendar year, a properly established fiscal year, a taxable period consisting of 52 or 53 weeks, or an accounting period of less than 12 months permitted or required under the Federal Internal Revenue Code. If a taxpayer does not have a taxable year for Federal income tax purposes, the unincorporated business taxable income shall be computed and the return shall be made for the calendar year, unless the Commissioner of Finance authorizes the use of some different accounting period.
(b)Accounting methods. (Administrative Code, § 11-513(b)).
(1)The accounting method or basis on which the unincorporated business taxable income is to be computed shall be the same as the taxpayer's method of accounting for Federal income tax purposes. In addition to the overall basis of accounting (such as cash basis or accrual basis), the term "method of accounting" means the accounting treatment accorded particular items of income or deduction, such as installment sales, long-term contracts, depreciation, research and development costs, etc. The accounting method used for Federal income tax purposes shall also be applied to items of gross income and deduction derived from or connected with the unincorporated business which are includible in the unincorporated business tax return, but which are not required to be reported in the taxpayer's Federal income tax return.
(2)In the absence of an accounting method for Federal income tax purposes, the unincorporated business taxable income shall be computed in accordance with the method regularly employed in keeping the books of the taxpayer, if such method clearly reflects income. If the books of such a taxpayer do not clearly reflect income, or if no books are kept, the computation of the unincorporated business taxable income shall be made in such manner as, in the opinion of the Commissioner of Finance, does clearly reflect the income.
(c)Change of accounting period. (Administrative Code, § 11-513(c)(1)).
(3)In the case of a taxpayer who has an established accounting period for Federal income tax purposes, no change of accounting period for unincorporated business tax purposes (other than one required by reason of a change of the Federal accounting period as set forth in paragraph (1) of this subdivision (c)) will be permitted.
(4)A taxpayer who has no established accounting period for Federal income tax purposes, but has such a period for New York City unincorporated business income tax purposes, shall not make any change of accounting period without first obtaining the consent of the Commissioner of Finance. An application for permission to make such change shall state the reasons therefor and must be made on or before the last day of the month following the close of the short period for which a return is required to effect the change of accounting period. If the Commissioner of Finance approves the change of accounting period, he will advise the taxpayer as to the effective date of such change and as to any short period returns required as the result thereof.
(d)Change of accounting method. (Administrative Code § 11-513(c)(2)).
(5)For purposes of this section and 19 RCNY § 28-17(e), the term "change of accounting method" includes any change or modification of the manner of, or basis for, determining the amount of, or the time for, the reporting or deducting of any item of unincorporated business gross income or deduction, or the net amount of all such items, which would constitute a change in accounting method for Federal income tax purposes. The term "year of the change," as used in these regulations, means a taxable year for which the taxable income of the taxpayer is computed under a method of accounting different from the one used in the preceding taxable year or accounting period. (For limitations on amount of additional taxes resulting from changes in accounting methods, see: 19 RCNY § 28-17(e).) (e) Limitations on additional tax resulting from changes in accounting methods. (Administrative Code § 11-513(c)(2) and (3)).
(i)If a taxpayer's method of accounting is changed, other than from an accrual to an installment method, there shall be taken into account in computing unincorporated business taxable income for the taxable year of the change those adjustments which are determined to be necessary to prevent amounts from being duplicated or omitted. The adjustments necessitated by reason of such change in accounting method may result in an amount of unincorporated business tax for the year of the change in excess of the unincorporated business tax which would have been determined had there not been such a change in the method of accounting. In such event, the additional unincorporated business tax for the year of change resulting from such adjustments shall not be greater than if such adjustments were ratably allocated and included for the taxable year of the change and the preceding taxable years, not in excess of two, during which the taxpayer used the method of accounting from which the change was made.
(ii)The taxpayer shall submit a statement with his unincorporated business tax return for the year of the change, setting forth the following information and calculations: (A) Each adjustment necessitated by the change. (B) The net amount of the adjustments. This means the consolidation of the adjustments (whether the amounts thereof represent increases or decreases in items of income or deductions) arising with respect to balances in various accounts at the beginning of the taxable year of the change. Where the change in the method of accounting occurs by reason of a Federal change, this net amount shall be the same for unincorporated business tax purposes as it is for Federal income tax purposes, except to the extent of any modifications described in the sections and subdivisions pertaining to such adjustments. (C) The unincorporated business tax for the taxable year of the change with the net amount of adjustments included in the computation of unincorporated business taxable income. (D) The unincorporated business tax for the taxable year of the change computed as if the net amount of such adjustments were not included in the computation of unincorporated business taxable income. (E) The additional unincorporated business tax, if any, incurred solely by reason of the net amount of adjustments included in unincorporated business taxable income, computed by subtracting item (D) from item (C). (F) The allocation of the net amount of adjustments (item (B)) to the taxable year of the change and the preceding taxable year or years, not in excess of two, during which the taxpayer used the method of accounting from which the change is made. The amount to be allocated to each such year is determined by dividing the net amount of adjustments into as many equal parts as there are taxable years involved (either two taxable years or three taxable years, including the taxable year of the change). (G) The unincorporated business taxable income for the year of the change and for the preceding year or two years, as the case may be, computed both (a) without any amount of the net adjustments, and (b) with the addition of the appropriate share of the net adjustments as determined under item (F). (H) The additional unincorporated business tax which would result for each of the above taxable years chosen in item (F) by the addition to the unincorporated business taxable income in each such year of the appropriate share of the net adjustments. (I) The total amount of such additional tax for the years involved.
(iii)If the amount described in item (I) exceeds the amount described in item (E), the taxpayer shall compute his unincorporated business tax for the year of the change without a ratable allocation of the net adjustments to any preceding year or years. If the amount described in item (E) exceeds the amount described in item (I), the amount of such excess shall be subtracted from the City unincorporated business tax for the year of the change as determined under item (C). The resulting sum is the amount of New York City unincorporated business tax due for the taxable year of the change. Example: Assume that the taxpayer is an individual proprietor who used the cash method in 1981 and 1982, but changed to an accrual basis for 1983. In 1981 and 1982, he had unincorporated business taxable income of $16,000 and $7,000, respectively, figured on a cash basis. In 1983 he had unincorporated business taxable income of $11,000 figured on an accrual basis. The unincorporated business taxable income for each of the years 1981, 1982 and 1983 was arrived at as follows: 1981 1982 1983 Unincorporated business gross income pursuant to 19 RCNY § 28-05$36,000$28,000$30,000Less unincorporated business deductions pursuant to 19 RCNY § 28-06$10,000$13,000$10,000Unincorporated business taxable income before deduction for personal services pursuant to 19 RCNY § 28-08 and exemption pursuant to 19 RCNY § 28-09$26,000$15,000$20,000Less deduction for personal services pursuant to 19 RCNY § 28-08$5,000$3,000$4,000Less $5,000 exemption pursuant to 19 RCNY § 28-09$5,000$5,000$5,000Total deduction and exemption pursuant to 19 RCNY §§ 28-08 and 28-09$10,000$8,000$9,000Unincorporated business taxable income$16,000$7,000 $11,000Unincorporated business tax$640$280$440 Assume further that the taxpayer's books at the beginning of 1983 included the following accounts: accounts receivable $15,000; accounts payable $8,000; inventory $5,000. The amount of unincorporated business taxable income due for the taxable year of the change is computed in the following manner: Subject to the amount of any modifications required under these regulations, the unincorporated business taxable income for the year of the change, including the net amount of adjustments (see: items (ii)(A) and (ii)(B) of this subdivision (e)), would be $22,000, computed as follows: Unincorporated business taxable income on accrual basis before deduction for personal services under 19 RCNY § 28-08 and the exemption under 19 RCNY § 28-09 (new method but before adjustments)$20,000(a) Adjustments:Add: Items not previously reported as income:Accounts receivable 1/1/83$15,000Items previously deducted but constituting marketable business assets:Inventory 1/1/835,000Total to be added$20,000Subtract: Items not previously deducted:Accounts payable 1/1/83$8,000(b) Net amount of adjustments (increase)$12,000Unincorporated business taxable income after adjustments but before deduction for personal services under 19 RCNY § 28-08 and exemption under 19 RCNY § 28-09$32,000Subtract: Allowance for personal services under 19 RCNY § 28-08$5,000Exemption under 19 RCNY § 28-09$5,000$10,000(c) Unincorporated business taxable income after adjustments$22,000The net additional tax for the year of the change described in item (ii)(E) of this paragraph (1) is computed as follows: (d) Tax due on unincorporated business taxable income for the year of change, including the net amount of adjustments ($22,000)$880(e) Tax due on unincorporated business taxable income for taxable year of change, excluding above adjustments ($11,000)$440(f) Net additional tax due$440 Since the taxpayer used the cash method for the two years preceding the change-over year, the adjustments for 1983 determined to be necessary solely by reason of the change, amount to $12,000. The taxpayer may reduce the tax on the increase by allocating the $12,000 as follows: $4,000 to 1981, $4,000 to 1982, and $4,000 to 1983 (see: items (ii)(F) to (H) of this paragraph (1)). The net tax due for the year of change is then computed in the following manner: 1981 1982 1983 Unincorporated business taxable income before adjustments and before deduction for personal services under 19 RCNY § 28-08 and the exemption under 19 RCNY § 28-09$26,000$15,000$20,000Add: Net adjustments$4,000$4,000$4,000 $30,000$19,000$24,000Subtract: Allowance for personal services pursuant to 19 RCNY § 28-09$5,000$3,800$4,800Subtract: $5,000 exemption pursuant to§ 28-09$5,000$5,000$5,000Total Subtractions$10,000$8,800$9,800Unincorporated business taxable incomeafter adjustments$20,000$10,200$14,200Unincorporated business tax after adjustments$800$408$568Unincorporated business tax before adjustments$640$280$440Increase in tax due to adjustments$160$128$128Total increase in tax attributable to adjustments ($160 and $128 and $128)$416Net additional tax determined at item (f) above$440Excess$24Total tax determined at item (d) above$880Less excess shown above$24Net tax due for year of change$856 (2) Change from accrual to installment method of accounting.
