N.Y. Tax Law § 660: Election by shareholders of S corporations

§ 660. Election by shareholders of S corporations. (a) Election. If a

corporation is an eligible S corporation, the shareholders of the

corporation may elect in the manner set forth in subsection (b) of this

section to take into account, to the extent provided for in this article

(or in article thirteen of this chapter, in the case of a shareholder

which is a taxpayer under such article), the S corporation items of

income, loss, deduction and reductions for taxes described in paragraphs

two and three of subsection (f) of section thirteen hundred sixty-six of

the internal revenue code which are taken into account for federal

income tax purposes for the taxable year. No election under this

subsection shall be effective unless all shareholders of the corporation

have so elected. An eligible S corporation is (i) an S corporation which

is subject to tax under article nine-A of this chapter, or (ii) an S

corporation which is the parent of a qualified subchapter S subsidiary

subject to tax under article nine-A, where the shareholders of such

parent corporation are entitled to make the election under this

subsection by reason of subparagraph three of paragraph (k) of

subdivision nine of section two hundred eight of this chapter.

(b) Requirements of election. An election under subsection (a) of this

section shall be made on such form and in such manner as the tax

commission may prescribe by regulation or instruction.

(1) When made. An election under subsection (a) of this section may be

made at any time during the preceding taxable year of the corporation or

at any time during the taxable year of the corporation and on or before

the fifteenth day of the third month of such taxable year.

(2) Certain elections made during first two and one-half months. If an

election made under subsection (a) of this section is made for any

taxable year of the corporation during such year and on or before the

fifteenth day of the third month of such year, such election shall be

treated as made for the following taxable year if

(A) on one or more days in such taxable year before the day on which

the election was made the corporation did not meet the requirements of

subsection (b) of section thirteen hundred sixty-one of the internal

revenue code or

(B) one or more of the shareholders who held stock in the corporation

during such taxable year and before the election was made did not

consent to the election.

(3) Elections made after first two and one-half months. If an election

under subsection (a) of this section is made for any taxable year of the

corporation and such election is made after the fifteenth day of the

third month of such taxable year and on or before the fifteenth day of

the third month of the following taxable year, such election shall be

treated as made for the following taxable year.

(4) Taxable years of two and one-half months or less. For purposes of

this subsection, an election for a taxable year made not later than two

months and fifteen days after the first day of the taxable year shall be

treated as timely made during such year.

(5) Authority to treat late elections, etc., as timely. If (A) an

election under subsection (a) of this section is made for any taxable

year (determined without regard to paragraph three of this subsection)

after the date prescribed by this subsection for making such election

for such taxable year, or if no such election is made for any taxable

year, and

(B) the commissioner determines that there was reasonable cause for

failure to timely make such election, then

(C) the commissioner may treat such an election as timely made for

such taxable year (and paragraph three of this subsection shall not

apply).

(6) Years for which effective. An election under subsection (a) of

this section shall be effective for the taxable year of the corporation

for which it is made and for all succeeding taxable years of the

corporation until such election is terminated under subsection (c) of

this section.

(c) Termination. An election under subsection (a) of this section

shall cease to be effective

(1) on the day an election to be an S corporation ceases to be

effective for federal income tax purposes pursuant to subsection (d) of

section thirteen hundred sixty-two of the internal revenue code, or

(2) if shareholders holding more than one-half of the shares of stock

of the corporation on the day on which the revocation is made revoke

such election in the manner the tax commission may prescribe by

regulation,

(A) on the first day of the taxable year of the corporation, if the

revocation is made during such taxable year and on or before the

fifteenth day of the third month thereof, or

(B) on the first day of the following taxable year of the corporation,

if the revocation is made during the taxable year but after the

fifteenth day of the third month thereof, or

(C) on and after the date so specified, if the revocation specifies a

date for revocation which is on or after the day on which the revocation

is made, or

(3) if any person who was not a shareholder of the corporation on the

day on which the election is made becomes a shareholder in the

corporation and affirmatively refuses to consent to such election in the

manner the tax commission may prescribe by regulation, on the day such

person becomes a shareholder.

(d) New York S termination year. In the case of a New York S

termination year, the amount of any item of S corporation income, loss

and deduction and reductions for taxes (as described in paragraphs two

and three of subsection (f) of section thirteen hundred sixty-six of the

internal revenue code) required to be taken account of under this

article shall be adjusted in the same manner that the S corporation's

items which are included in the shareholder's federal adjusted gross

income are adjusted under subsection (s) of section six hundred twelve.

(e) Inadvertent invalid elections. If (1) an election under subsection

(a) of this section was not effective for the taxable year for which

made (determined without regard to paragraph two of subsection (b) of

this section) by reason of a failure to obtain shareholder consents,

(2) the commissioner determines that the circumstances resulting in

such ineffectiveness were inadvertent,

(3) no later than a reasonable period of time after discovery of the

circumstances resulting in such ineffectiveness, steps were taken to

acquire the required shareholder consents, and

(4) the corporation, and each person who was a shareholder in the

corporation at any time during the period specified pursuant to this

subsection, agrees to make such adjustments (consistent with the

treatment of the corporation as a New York S corporation) as may be

required by the commissioner with respect to such period,

(5) then, notwithstanding the circumstances resulting in such

ineffectiveness, such corporation shall be treated as a New York S

corporation during the period specified by the commissioner.

(f) Validated federal elections. If (1) an election under subsection

(a) of this section was made for a taxable year or years of a

corporation, which years occur with or within the period for which the

federal S election of such corporation has been validated pursuant to

the provisions of subsection (f) of section thirteen hundred sixty-two

of the internal revenue code, and

(2) the corporation, and each person who was a shareholder in the

corporation at any time during such taxable year or years agrees to make

such adjustments (consistent with the treatment of the corporation as a

New York S corporation) as may be required by the commissioner with

respect to such year or years,

(3) then such corporation shall be treated as a New York S corporation

during such year or years.

(g) Transitional rule. Any election made under this section (as in

effect for taxable years beginning before January first, nineteen

hundred eighty-three) shall be treated as an election made under

subsection (a) of this section.

(h) Cross reference. For definitions relating to S corporations, see

subdivision one-A of section two hundred eight of this chapter.

(i) Mandated New York S corporation election. (1) Notwithstanding the

provisions in subsection (a) of this section, in the case of an eligible

S corporation for which the election under subsection (a) of this

section is not in effect for the current taxable year, the shareholders

of an eligible S corporation are deemed to have made that election

effective for the eligible S corporation's entire current taxable year,

if the eligible S corporation's investment income for the current

taxable year is more than fifty percent of its federal gross income for

such year. In determining whether an eligible S corporation is deemed to

have made that election, the income of a qualified subchapter S

subsidiary owned directly or indirectly by the eligible S corporation

shall be included with the income of the eligible S corporation.

(2) For the purposes of this subsection, the term "eligible S

corporation" has the same definition as in subsection (a) of this

section.

(3) For the purposes of this subsection, the term "investment income"

means the sum of an eligible S corporation's gross income from interest,

dividends, royalties, annuities, rents and gains derived from dealings

in property, including the corporation's share of such items from a

partnership, estate or trust, to the extent such items would be

includable in federal gross income for the taxable year.

(4) Estimated tax payments. When making estimated tax payments

required to be made under this chapter in the current tax year, the

eligible S corporation and its shareholders may rely on the eligible S

corporation's filing status for the prior year. If the eligible S

corporation's filing status changes from the prior tax year the

corporation or the shareholders, as the case may be, which made the

payments shall be entitled to a refund of such estimated tax payments.

No additions to tax with respect to any required declarations or

payments of estimated tax imposed under this chapter shall be imposed on

the corporation or shareholders, whichever is the taxpayer for the

current taxable year, if the corporation or the shareholders file such

declarations and make such estimated tax payments by January fifteenth

of the following calendar year, regardless of whether the taxpayer's tax

year is a calendar or a fiscal year.