2021 New York Laws
TAX - Tax
Article 22 - Personal Income Tax
Part 3 - Nonresidents and Part-Year Residents
632-A - Personal Service Corporations and S Corporations Formed or Availed of to Avoid or Evade New York State Income Tax.

§  632-a.  Personal  service corporations and S corporations formed or
availed of to avoid or evade New York State income tax. (a) General.  If
(1)  substantially all of the services of a personal service corporation
or S corporation are performed for or on behalf of another  corporation,
partnership,  or  other entity and (2) the effect of forming or availing
of such personal service corporation or S corporation is  the  avoidance
or  evasion  of New York income tax by reducing the income of, or in the
case of a nonresident, reducing  the  New  York  source  income  of,  or
securing  the  benefit  of any expense, deduction, credit, exclusion, or
other allowance for, any employee-owner which  would  not  otherwise  be
available,  then  the  commissioner may allocate all income, deductions,
credits, exclusions, and other allowances between such personal  service
corporation  or S corporation (even if such personal service corporation
or S corporation is taxed under article nine-A of this chapter or is not
subject to tax in this state) and  its  employee-owners,  provided  such
allocation  is  necessary  to  prevent  avoidance or evasion of New York
state income tax or to clearly reflect the source and the amount of  the
income  of  the  personal service corporation or S corporation or any of
its employee-owners.
  (b) Definitions for purposes of this section. (1) The  term  "personal
service corporation" means a corporation whose principal activity is the
performance  of  personal  services  and such services are substantially
performed by the employee-owners of such corporation.
  (2) The term "S corporation" means a corporation for which an election
under section 1362 of the internal revenue code is in  effect  for  such
taxable year and whose principal activity is the performance of personal
services   and   such   services  are  substantially  performed  by  the
employee-owners of such corporation.
  (3) The term "employee-owner" means any  employee  who  owns,  on  any
given  day  during  the  taxable  year,  more  than  ten  percent of the
outstanding stock of the personal service corporation or S  corporation.
For  purposes  of  the preceding sentence, the constructive ownership of
stock rules set forth in section 318 of the internal revenue code  shall
apply,  except that "5 percent" shall be substituted for "50 percent" in
section 318(a)(2)(C) of the internal revenue code.
  (4) All related persons (within the meaning of  section  144(a)(3)  of
the internal revenue code) shall be treated as one entity.