United States

New York issues investment capital identification guidance

Action may be required before Oct. 1, 2015

TAX ALERT  | 

On July 7, 2015, the New York State Department of Taxation and Finance issued TSB-M-15(4)C, (5)I, which explains the procedures necessary for dealers and non-dealers to identify stock as "held for investment" for the purposes of qualifying it as investment capital in order to take advantage of the state's exemption for investment income.

Pursuant to changes in Article 9-A of the New York Tax Law effective on Jan. 1, 2015, investment capital is defined as investments in the stock of non-unitary corporations that:

  • Is treated as a capital asset under section 1221 at all times the taxpayer owned the stock during the tax year
  • Is held by the taxpayer for investment for more than one year
  • If disposed of, generates (or would generate) long-term capital gains or losses under the Internal Revenue Code
  • For stock acquired on or after Jan. 1, 2015, has never been held for sale to customers in the regular course of business after the close of the day on which the stock was acquired
  • Before the close of the day on which the stock was acquired, is clearly identified in the owner's records as stock held for investment in the same manner as required under section 1236(a)(1), regardless of whether or not the owner is a dealer in securities subject to section 1236

TSB-M-15(4)C, (5)I addresses the investment capital identification requirement provided in the new definition.

Dealers

Corporations that are dealers subject to section 1236, TSB-M-15(4)C, (5)I provides that stock, regardless of when it was acquired, must be clearly identified in the corporation's records as stock held for investment under section 1236(a)(1) in order to meet the investment capital identification requirement. 

Non-dealers

Corporations that are not dealers subject to section 1236, TSB-M-15(4)C, (5)I provides that, in order to meet the investment capital identification requirement:

  • Stock acquired on or after Oct. 1, 2015, must be clearly identified in the corporation's records as stock held for investment
  • Stock acquired before Oct. 1, 2015, that otherwise meets the requirements to be investment capital, must be clearly identified in the corporation's records as stock held for investment before Oct. 1, 2015

Identification procedure

To be "clearly identified" for the purposes of this requirement, stock must be recorded in an account maintained for investment capital purposes only, which must include the following information:

  • The name of the stock
  • The CUSIP or CINS number of the stock
  • The date of purchase
  • The number of shares purchased
  • The purchase price of the shares
  • The date stock is sold
  • The number of shares sold
  • The sale price of the shares
  • The length of time the stock was owned by the corporation

TSB-M-15(4)C, (5)I provides additional requirements applicable to stock options and corporate partnerships.

New York City

TSB-M-15(4)C, (5)I specifically provides that these investment capital identification requirements apply to New York City.

Takeaways

Failure to comply with these investment capital identification requirements, or to meet any of the other four requirements for treatment as investment capital, will result in disqualification of the stock as investment capital and a loss of the exemption for income derived there from. Taxpayers should review the provisions of TSB-M-15(4)C, (5)I, properly document prior purchases and sales prior to Oct. 1, 2015, and implement compliance procedures going forward.

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