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New York Budget Enacts Investment Capital Identification Requirements

Sep 18, 2015

Amongst other numerous changes as a result of the 2015-2016 New York State budget, there is a  change to investment capital identification requirements for taking a deduction for investment capital on your New York State corporate tax return as evident by New York’s Technical Memorandum, TSB-M-15(4)C, that was issued on July 7, 2015. 

With the budget comes a new definition of investment capital.  In Administrative Code Section 11 652.4(a), “investment capital” means investments in stocks of non-unitary corporations that satisfy a five-part test.  These five parts are:

  1. Satisfy the definition of capital asset under section 1221 of the Internal Revenue Code at all times the taxpayer owned such stock during the tax year;
  2. The stock is held by the taxpayer for investment for more than one year;
  3. If disposed of, the stock generates (or would generate) long-term capital gains or losses under the IRC;
  4. If the stock acquired on or after January 1, 2015, have never been held for sale to customers in regular course of business after the close of the day on which the stock was acquired; and
  5. Before the close of the day on which the stock was acquired, it must be clearly identified in the corporations records as stock held for investment in the same manner as required under IRC section 1236(a)(1) for the stock of a dealer in securities to be eligible for capital gain treatment (whether or not the corporation is a dealer in securities subject to section 1236).

Of the top five requirements above, the fifth one is the most important of the changes.  In general, corporations have until October 1, 2015 to identify stock that was acquired prior to this date as stock held for investment in order to satisfy the fifth requirement.  NYC, on July 17, 2015, also issued their version of a memorandum confirming to the state law changes.  For more information and a copy of the TSB-M-14(C), click here.

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