1. (a) Where a taxpayer's method of accounting is changed, other than from an accrual to an installment method, there must be taken into account in computing New York taxable income for the taxable year of the change (or in the taxable years such change is recognized for Federal income tax purposes) those adjustments pertaining to inventories, accounts receivable, accounts payable, etc., which are determined to be necessary to prevent amounts from being duplicated or omitted. Where the change has occurred by reason of a change in such taxpayer's method of accounting for Federal income tax purposes, the adjustments will generally be reflected in such taxpayer's Federal adjusted gross income and itemized deductions and therefore in such taxpayer's New York adjusted gross income and itemized deduction. The year of the change is the taxable year for which the taxable income of the taxpayer is computed under a method of accounting different from that used for the preceding year.

   1. (1) The adjustments necessitated by reason of such change in accounting method may result in an amount of New York State personal income tax for the year of the change in excess of the New York State personal income tax which would have been determined had there not been such a change in the method of accounting. In such event, the additional New York State personal income tax shall not be greater than if such adjustments were ratably allocated and included for the taxable year of the change and the preceding taxable years, not in excess of two, during which the taxpayer used the method of accounting from which the change was made.

   2. (2) The taxpayer must submit a statement with such taxpayer's New York State personal income tax return for the year of the change, setting forth the following information and calculations:

      1. (i) each adjustment necessitated by the change;
      2. (ii) the net amount of the adjustments. This means the consolidation of the adjustments (whether the amounts thereof represent increases or decreases in items of income or deductions) arising with respect to balances in various accounts at the beginning of the taxable year of the change. Where the change in the method of accounting occurs by reason of a change for Federal income tax purposes, the net amount of the adjustment must be the same for New York State personal income tax purposes as it is for Federal income tax purposes, except to the extent of any modifications required by this Subchapter pertaining to such adjustments;
      3. (iii) The New York State personal income tax for the taxable year of the change with the net amount of the adjustments included in the computation of New York taxable income;
      4. (iv) the New York State personal income tax for the taxable year of the change computed as if the net amount of the adjustments were not included in the computation of New York taxable income;
      5. (v) the additional New York State personal income tax, if any, incurred solely by reason of the net amount of the adjustments included in New York taxable income, computed by subtracting subparagraph (iv) of this paragraph from subparagraph (iii) of this paragraph;
      6. (vi) the allocation of the net amount of the adjustments (subparagraph (ii) of this paragraph) to the taxable year of the change and the preceding taxable year or years, not in excess of two, during which the taxpayer used the method of accounting from which the change is made. The amount to be allocated to each such year is determined by dividing the net amount of the adjustments into as many equal parts as there are taxable years involved (either two taxable years or three taxable years, including the taxable year of the change);
      7. (vii) the New York taxable income for the year of the change and for the preceding year or two years, as the case may be, computed both (a) without any amount of the net adjustments, and (b) with the addition of the appropriate share of the net adjustments as determined under subparagraph (vi) of this paragraph;
      8. (viii) the additional New York State personal income tax which would result for each of the above taxable years by the addition to the New York taxable income in each such year of the appropriate share of the net adjustments; and
      9. (ix) the total amount of such additional New York State personal income tax for the years involved.

   3. (3) If the amount described in subparagraph (ix) of paragraph (2) of this subdivision exceeds the amount described in subparagraph (v) of paragraph (2) of this subdivision, the taxpayer must compute such taxpayer's New York State personal income tax for the year of the change without a ratable allocation of the net adjustments to any preceding year or years. If the amount described in such subparagraph (v) exceeds the amount described in such subparagraph (ix), the amount of the excess must be subtracted from the New York State personal income tax for the year of the change as determined under subparagraph (iii) of paragraph (2) of this subdivision. The result is the amount of New York State personal income tax due for the taxable year of the change. Example:

      Example:

      Assume that a resident individual entitled to claim head of household filing status and one dependent exemption used the cash method in 1990 and 1991. In 1992 such taxpayer changes to the accrual basis, has New York adjusted gross income of $119,150 and has New York taxable income of $110,000 figured on the accrual basis. Such taxpayer's books at the beginning of 1992 included the following accounts: accounts receivable of $9,000; accounts payable of $8,000; inventory of $5,000. The amount of New York State personal income tax due for the taxable year of the change is computed in the following manner:

      Subject to the amount of any modifications required under this Subchapter, the New York taxable income for the year of the change, including the net amount of adjustments (see subparagraphs (i) and (ii) of paragraph (2) of this subdivision), would be determined as follows:

      New York taxable income on accrual basis (new method but before adjustments)		$110,000
      (i) Adjustments:
      Add: Items not previously reported as income:
      Accounts receivable, January 1, 1992	$ 9,000
      Items previously deducted but constituting marketable business assets: Inventory, January 1, 1992	5,000
      Total to be added	$14,000
      Subtract: Items not previously deducted: Accounts payable, January 1, 1992	8,000
      (ii) Net amount of adjustments (increase)	6,000
      New York taxable income after adjustments		$116,000

      The net additional New York State personal income tax due (including the supplemental tax relating to the tax table benefit recapture) for the year of the change described in subparagraph (v) of paragraph (2) of this subdivision is determined as follows:

      (iii)	New York State personal income tax due (including supplemental tax) for the year of change, including the net amount of adjustments ($116,000)	$8,894.58
      (iv)	New York State personal income tax due (including supplemental tax) for taxable year of change, excluding above adjustments ($10,000)	8,364.03
      (v)	New additional New York State personal income tax due	$ 530.55

      Since the taxpayer used the cash method of the two years preceding the changeover year and the adjustments for 1992 increased New York adjusted gross income and New York taxable income by $6,000, the taxpayer may reduce the New York State personal income tax on the increase by allocating $2,000 to 1990, $2,000 to 1991, and $2,000 to 1992 (see subparagraphs (vi) through (viii) of paragraph (2) of this subdivision). The net New York State personal income tax (including the supplemental tax relating to the tax table benefit recapture) due for the year of change is then determined in the following manner:

      Taxable year	New York taxable income before adjustments	New York taxable income after adjustments	New York State personal income tax (including supplemental tax) before adjustments	New York State personal income tax (including supplemental tax) after adjustments	New York State personal income tax due to adjustments
      1990	$ 11,000	$ 13,000	$ 475.00	$ 595.00	$120.00
      1991	18,000	20,000	933.75	1,091.25	157.50
      1992	110,000	112,000	8,364.03	8,540.88	176.85

      Total increase in New York State personal income tax attributable to adjustments (see subparagraph [ix] of paragraph [2] of this subdivision)	$ 454.35
      Net additional New York State personal income tax determined at subparagraph (v) of this paragraph	$ 530.55
      Excess ($530.55 − $454.35)	$ 76.20
      Total New York State personal income tax determined at subparagraph (iii) of this paragraph	$8,894.58
      Excess shown above	76.20
      New York State personal income tax (including the supplemental tax due for the year of change)	$8,818.38

   (b)

Tax Law, § 605(a)(4)(B)