Recent Legislation Ensures New York State Can Tax Gain From I.R.C. §338(h)(10) Transactions Involving S Corporations

New York recently amended N.Y. Tax Law §632(a)(2) to require that nonresident shareholders of S corporations pay tax on gains from deemed asset sales under I.R.C. §338(h)(10) transactions. The amendment was enacted as part of the New York 2010-2011 budget legislation and is retroactive to Jan. 1, 2007, thus precluding nonresident shareholders from benefiting from a recent taxpayer victory in this area. In this article, authors Russell W. Banigan and Mary Jo Brady discuss the interaction of New York's franchise tax and personal income tax with the federal provisions both before and after the statutory change.