1. (1) Where an individual or a trust electing lump sum treatment (i.e.,) the special 10-year averaging method) under subsection (e) of section 402 of the Internal Revenue Code changes resident status during the taxable year (from resident to nonresident, or from nonresident to resident), such individual or trust must, regardless of the method of accounting normally employed, accrue for the portion of the taxable year prior to the change of resident status the total taxable amount of the lump sum distribution accruing for the period prior to the change of resident status as if a Federal income tax return were being filed for the same period on the accrual basis. The total taxable amount accruing for the period prior to the change of resident status must be reported on form IT-230 or IT-230.1 (whichever is applicable) and such form must be attached to the New York State personal or fiduciary income tax return filed for the period prior to the change of resident status.

2. (2) The accrual provision under paragraph (1) of this subdivision is not applicable in cases where an individual or trust changing resident status during the taxable year:

   1. (i) has not elected the special 10-year averaging method pursuant to section 402(e) of the Internal Revenue Code for the taxable year in which the change of residence occurred (in such case, the ordinary income portion and the capital gain portion of the lump sum distribution are includible in the taxpayer's New York taxable income and New York State minimum taxable income in accordance with the applicable provisions of sections 154.5 and 154.10 of this Part); or
   2. (ii) received the lump sum distribution prior to the change of resident status, elected the special 10-year averaging method pursuant to subsection (e) of section 402 of the Internal Revenue Code and is subject to tax under section 601-C of the Tax Law on the ordinary income portion of such lump sum distribution for the portion of the taxable year prior to the change of resident status.
3. (b) Total taxable amount and computation of separate tax. The total taxable amount accruing for the period prior to the change of resident status and the separate tax on the ordinary income portion of the lump sum distribution for such period must be determined in accordance with Part 124 of this Title where the change of resident status is from resident to nonresident and in accordance with Part 142 of this Title where such change of resident status is from nonresident to resident.
4. (c) No ordinary income portion of a lump sum distribution, the taxable amount of which is accrued under this section for the period prior to the change of resident status, will be subject to the separate tax under section 601-C of the Tax Law for any subsequent taxable period.

Tax Law, § 654(i)

(a) General.