Instruction Changes and Clarifications for 2015 NYC-2 and NYC-2A and other Business Corporation Tax Forms

Form NYC-2.3

Line 3 of Part 1 of Schedule A of Form NYC-2.3 (“line 3”) requires you to enter the “Base year tax rate.”  The base year tax rate that should have been entered on line 3 must have been either 8.85% or 9%.  If you had filed a Bank Tax return (Form NYC-1 or Form NYC-1A) for the 2014 tax year, the rate entered on line 3 should have been 9%.   If you had filed a General Corporation Tax return (Form NYC-3L, Form NYC-3A, Form NYC-4S or Form NYC-4S EZ) for the 2014 tax year, the rate entered on line 3 should have been 8.85%.

This rate entered on line 3 affects the calculation of the PNOLC subtraction pool (Form NYC-2.3, Schedule A, line 5) and the amount appearing on Form NYC-2, Schedule B, line 33 (Prior net operating loss conversion subtraction).Thus, if the rate entered on line 3 is not correct, the Prior net operating loss subtraction on line 33 of Schedule B of the NYC-2 is incorrect with the result that the  Business income base entered  on line 36 of Schedule B of Form NYC-2 and the amount of tax on the business income base (Form NYC-2, Schedule B, line 38) is also incorrect. Furthermore, because of these errors, the Prior net operating loss conversion subtraction available in future years will be affected (see Form NYC-2.3, Schedule C, line 7). 

Form NYC-2.3 Instructions

On page 1, Column 2, the following in bold should be added at the end of the definition of Line 3 of “Base year tax rate”: “The base year tax rate must be either 8.85% or 9%.  If you had filed a Bank Tax return (Form NYC-1 or Form NYC-1A) for the 2014 tax year, the base year tax rate is 9%. If you had filed a General Corporation Tax return (Form NYC-3L, Form NYC-3A, Form NYC-4S or Form NYC-4S EZ) for the 2014 tax year, the base year tax rate is 8.85%.” 

Forms NYC-2, NYC-2A and NYC-2.4

The correct amount to be entered on line 35 of Schedule B (net operating loss deduction) of Forms NYC-2 or NYC-2A for 2015 is $0.  Line 35 is designed to be used for any net operating loss accumulated for tax years beginning on or after January 1, 2015, so unless there are two tax years beginning  in 2015 (short tax years), no deduction is available using Form NYC-2.4.  Any deduction with respect to net operating losses accumulated prior to 2015 must be calculated using Form NYC-2.3.   

NYC-2 and NYC-2A Instructions

In the NYC-2 Instructions, on page 12, Column 1, and also in the NYC-2A Instructions, on page 14, Column 1 the following sentence should added in the instructions for Schedule B, lines 33 and 35, after NOTE: “Line 35 is to be used for any net operating loss accumulated for tax years beginning on or after January 1, 2015.”   

NYC-2.5 Instructions

I.    Changes to be made to the Instructions for Form NYC-2.5 under the heading, “ Section 11-654.2(5)(a)(1) – Qualified financial instruments (QFIs), the 8% method” (the “Line 8 instructions”) (beginning on page 1, column 1) (Instructions Changes P.1-1, P.2-1, P.2-2 and P.2-3) 

P.1-1) On page 1, in the Line 8 instructions, first paragraph, add the following as a new 3rd sentence:
 
“Financial instruments reported on lines 29 and 30 are not necessarily all of one type.”

P.2-1) On page 2, in the Line 8 instructions, add the following sentence to the end of the first paragraph of the Line 8 instructions (which ends at the top of page 2):

“A stock that generates other exempt income as defined in section  11-652(5-a) and that is not, itself, marked to market under section 475 or section 1256 of the IRC, is not a QFI with respect to such other exempt income only, even if other stocks are marked to market in the tax year.”

P.2-2) On page 2, in the Line 8 instructions, first column, add the following at the beginning of the first sentence of the 3rd paragraph of the Line 8 instructions:

“Regardless of whether or not the 8% fixed percentage method is elected,”

so that such first sentence now reads:

“Regardless of whether or not the 8% fixed percentage method is elected, when any financial instrument has been marked to market that is reported on:...”

P.2-3) On page 2, in the line 8 instructions, add under item “b)” the following as a new paragraph:

“For lines 28, 29, and 30, when the QFI box next to the section heading above line 28 or line 29 is marked: 1) in the case of line 28 it does not indicate that all financial instruments being reported on line 28 are QFIs (marked to market net gains from loans secured by real property are reported on line 28 but such loans are never QFIS; all other financial instruments for which marked to market net gains are reported on line 28 are QFIS); and 2) in the case of lines 29 and 30 it does not indicate that all financial instruments being reported on either line 29 or line 30 are QFIs (due to the fact that lines 29 and 30 may report more than one type of financial instrument). For lines 29 and 30 it is an instrument by instrument determination as to when “other” financial instruments are of the same type. When the 8% fixed percentage method is elected, use such method for all financial instruments, including financial instruments reported under §11-654.2(5)(a)(2)(vii), that are QFIs (see text added to the end of the line 30 instructions in P.3-2, below).”


II.    Changes to be made to the Instructions for Form NYC-2.5 under the heading, “Section 11-654.2(5)(a)(2)(viii) – Income from other financial instruments” in the line 30 instructions (Instructions Changes P.3-1 and  P.3-2)
  
P.3-1) On page 3, in the line 30 instructions, the second paragraph is changed to read:
“If the fixed percentage method election has been made, include on this line:

• dividends and net gains from stock that is business capital if you have, in the tax year, marked to market any stock under IRC section 475 or 1256, provided that dividends that qualify as other exempt income should not be included; and

• net gains from the sale of partnership interests in widely held or publicly traded partnerships if you have, in the tax year, marked to market any partnership interest in a widely held or publicly traded partnership under IRC section 475 or 1256.”

P.3-2) On page 3, second column, in the line 30 instructions, add as a 2nd paragraph immediately after the above addition in P.3-1:

“When you have net gains/(losses) from sales of more than one type of “other” financial instruments, or net income/loss from more than one type of “other” financial instruments, you must compute the net gain (not less than zero), or net income (not less than zero) for each type separately.”

NYC-2.5A Instructions

I.    Changes to be made to the Instructions for Form NYC-2.5A under the heading, “Section 11-654.2(5)(a)(1) – Qualified financial instruments (QFIs), the 8% method” (the “Line 8 instructions”)  (Instructions Changes P.2-1, P.2-2 and P.2-3)

P.2-1) On page 2, in the Line 8 instructions, first paragraph, add the following as a new 3rd sentence:

“Financial instruments reported on lines 29 and 30 are not necessarily all of one type.”

P.2-2) On page 2, line 8 instructions, first paragraph, add the following sentence to the end of such first paragraph:

“A stock that generates other exempt income as defined in section 11-652(5-a) and that is not, itself, marked to market under section 475 or section 1256 of the IRC, is not a QFI with respect to such other exempt income only, even if other stocks are marked to market in the tax year.”

P.2-3) On page 2, line 8 instructions, add under item “b)” the following as a new paragraph:

“For lines 28, 29, and 30, when the QFI box next to the section heading above line 28 or line 29 is marked: 1) in the case of line 28 it does not indicate that all financial instruments being reported on line 28 are QFIs (marked to market net gains from loans secured by real property are reported on line 28, but such loans are never QFIS; all other financial instruments for which marked to market net gains are reported on line 28 are QFIS); and 2) in the case of lines 29 and 30 it does not indicate that all financial instruments being reported on either line 29 or line 30 are QFIs (due to the fact that lines 29 and 30 may report more than one type of financial instrument). For lines 29 and 30 it is an instrument by instrument determination as to when “other” financial instruments are of the same type. When the 8% fixed percentage method is elected, use such method for all financial instruments, including financial instruments reported under §11-654.2(5)(a)(2)(vii), that are QFIs (see second paragraph of line 30 instructions).”

II.    Changes to be made to the Instructions for Form NYC-2.5A under the heading, “Section 11-654.2(5)(a)(2)(x) – Marked to Market Net Gains” (the “Line 28 instructions”)  (Instructions Change P.4-1)

P.4-1) On page 4, line 28 instructions, add the following immediately after the current last sentence:

“However, when sourcing the marked to market net gain from loans secured by real property, always use customer-based sourcing (even when the 8% fixed percentage method election was made). If using customer-based sourcing to source such marked to market net gains, when §11-654.2(a)(2)(x)(C) applies never include any amounts sourced under the 8% fixed percentage method election in computing the NYC aggregate marked to market factor in Part 2 of Worksheet C.”

III.   Changes to be made to the Instructions for Form NYC-2.5A under the heading, “Section 11-654.2(5)(a)(2)(viii) – Income from other financial instruments” (the “Line 30 instructions”)  (Instructions Change P.4-2)

P.4-2) On page 4, in the line 30 instructions, the second paragraph is changed to read:

“If the fixed percentage method election has been made, include on this line:

• dividends and net gains from stock that is business capital if you have, in the tax year, marked to market any stock under IRC section 475 or 1256, provided that dividends that qualify as other exempt income should not be included; and
• net gains from the sale of partnership interests in widely held or publicly traded partnerships if you have, in the tax year, marked to market any partnership interest in a widely held or publicly traded partnership under IRC section 475 or 1256.”

IV.    Changes to the Instructions for Form NYC-2.5A on the Worksheet “Business Allocation for Aviation Corporations” (the “Line 47 Worksheet”) (Instructions Change P.6-1)

P.6-1) On page 6, on the Line 47 Worksheet, the lines 9 and 10 text is changed to read:

“9 Enter 100% of receipts from other aviation services; also enter on line 47b (EW row) of Form  NYC-2.5A or Column A (Everywhere column) of Form NYC-2.5A/BC , as applicable
10 Multiply line 8 by line 9; also enter on line 47a (NYC row) of Form NYC-2.5A or column B (New York City column) of  line 47 of Form NYC-2.5A/BC, as applicable”

V.    Changes to the Instructions for Form NYC-2.5A to the Line Instructions for “Worksheet B” (Instructions Changes P.11-1, P.11-2 and P.12-1)

P.11-1) On page 11, “Line instructions for Worksheet B”, “Part 1”, at end of the “Step 1” instructions, add as a new paragraph:

“When you have net gains from sales of more than one type of “other” financial instruments, report such sales using an additional line 30.1 to report each such type, and when you have “other” income from more than one type of “other” financial instruments, report such “other” income using an additional line 30.2 to report each such type. Include the amounts from these additional lines in the same manner as you would for the lines 30.1 and 30.2 provided on the worksheet, as you complete the steps below, as applicable.”

P.11-2) On, page 11, “Line instructions for Worksheet B”, “Part 1”, “Step 2”, “Condition 2”, add new text to “2.2” so that first sentence reads as:

“the applicable QFI box is marked on Form NYC-2.5A, for the applicable section heading above line 30, and the receipts to be reported on a line 30.1 or 30.2 represent receipts from QFIs, . . .”

P.12-1) On page 12 (near the top), in the “Line instructions for Worksheet B”, “Part 2”, “Step 2”, instructions that begin on page 11, the reference to “Step 3” should be changed to:

 “Totals of Parts 1 and 2.”

VI.    Changes to the Instructions for Form NYC-2.5A to the Instructions for “Worksheet C” (Instructions Changes P.14.-1, P.15-1,P.15-2 and P.15-3)

P.14-1) On page 14, in the “General information” add the word “generally” to the sentence in the 2nd column that begins with “Part 2” so that such sentence now reads:

“Part 2 of the worksheet is generally . . .”

P.15-1) On page 15, in the “Line instructions for Worksheet C”, add text to the end of the last sentence of the first paragraph so that such last sentence now reads:

“Do not complete the steps under the Customer-based sourcing instructions, unless instructed otherwise elsewhere.”

P.15-2) On page 15, in the “Line instructions for Worksheet C” first column, second paragraph, in the parenthetical, the word “not” should appear before the word “marked,” so that the parenthetical now reads:

 “... (Form  NYC-2.5A line 8 box is not marked), ...”

P.15-3) On page 15, in the “Line instructions for Worksheet C” first column, add as a new paragraph immediately above the heading “8% fixed percentage method sourcing”:

“Regardless of whether or not the fixed percentage method for QFIs is in effect, when you have MTM gains/(losses) from more than one type of “other” financial instruments, use an additional line 30 for each separate type of “other” financial instruments for which you have MTM gains/(losses); include the amounts from these additional lines in the same manner as you would for the line 30 provided on the worksheet as you complete the steps below, as applicable.”