N.Y. Comp. Codes R. & Regs. Tit. 20 §§ 3-2.4

Current through Register Vol. 46, No. 51, December 18, 2024

Section 3-2.4 - Average value

(Tax Law, section 210(2))

(a) In determining average value, the taxpayer must use fair market value (FMV) for real property and marketable securities and must use the value shown on the balance sheet included with its Federal tax return for personal property other than marketable securities. If the taxpayer is not required to include a balance sheet in its Federal income tax return, it must use the value for personal property other than marketable securities that it would have used if it had been required to include a balance sheet with its Federal income tax return. In the case of an alien corporation that under any provision of the IRC is not treated as a "domestic corporation" as defined in IRC section 7201, only amounts that are effectively connected with the United States trade or business are included. However, corporations more than 50% directly or indirectly owned or controlled by the taxpayer (or combined group) must be valued using the equity method of accounting in accordance with generally accepted accounting principles (GAAP), provided the value cannot be less than zero. The equity method of accounting calls for each such corporation to be valued based on the average value of its owner's equity account per its balance sheet. Allowance must be made for variations in the amount of assets held by the taxpayer during the period covered by the report, as well as for variations in market prices. Average value generally is computed on a quarterly basis where the taxpayer's usual accounting practice permits such computation. However, at the option of the taxpayer, a more frequent basis (such as a monthly, weekly or daily average) may be used. Where the taxpayer's usual accounting practice does not permit a quarterly or more frequent computation of average value, a semiannual or annual computation may be used where no distortion of average value will result. If, because of variations in the amount or value of any class of assets, it appears to the commissioner that averaging on an annual, semiannual or quarterly basis does not properly reflect average value, the commissioner may require averaging on a more frequent basis. Any method of determining average value that is adopted by the taxpayer on any report and accepted by the commissioner may not be changed on any subsequent report without the prior consent of The commissioner.

(b) Generally, the value of assets must be determined without reduction for liabilities. However, if a taxpayer's assets include reverse repurchase agreements and/or securities borrowing agreements, then the sum of the FMV of these assets must be reduced, but not below zero, by the sum of the FMV of all repurchase agreements and/or securities lending agreements included in the taxpayer's liabilities.

(1) Examples.

Example 1: A taxpayer owns shares of common stock of X Corporation. The FMVs, during the period covered by its report, on a quarterly basis, were as follows:

(1) at the end of first quarter, it owned no shares;

(2) at the end of second quarter, it owned no shares;

(3) at the end of third quarter, it owned no shares; and

(4) at the end of fourth quarter, it owned 100 shares with a value of $100 a share.

The average value during the period covered by the report, on a quarterly basis, of the taxpayer's holdings of X Corporation's common stock would be $2,500, computed as follows:

Fair market values of stock
End of 1st quarter	0
End of 2nd quarter	0
End of 3rd quarter	0
End of 4th quarter	$10,000
Total	$10,000
Average Value: 10,000 ÷ 4 = $2,500

Example 2: The taxpayer's inventories and their values during the period covered by its report, on a quarterly basis, were as follows:

(1) at the end of first quarter, 1,000 tons with a value of $2 a ton;

(2) at the end of second quarter, 2,000 tons with a value of $2 a ton;

(3) at the end of third quarter, 2,000 tons with a value of $3 a ton; and

(4) at the end of fourth quarter, 1,000 tons with a value of $2 a ton.

The average value of the taxpayer's inventories during the period covered by the report, computed on a quarterly basis, would be $3,500, computed as follows:

Value of inventories
End of 1st quarter	$2,000
End of 2nd quarter	$4,000
End of 3rd quarter	$6,000
End of 4th quarter	$2,000
Total	$14,000
Average Value: 14,000 ÷ 4 = $3,500

Example 3: The taxpayer did not dispose of or acquire any part of its plant or equipment during the period covered by its report. The values of its plant and equipment were as follows:

(1) at the beginning of the year, the value was $800,000; and

(2) at the end of the year, the value was $780,000.

The average value of the taxpayer's plant and equipment during the period covered by its report, computed on the basis of the average values at the beginning end and end of such period, would be $790,000, computed as follows:

Beginning of year	$800,000
End of year	$780,000
Total	$1,580,000
Average Value: = 1,580,000 ÷ 2 = $790,000

N.Y. Comp. Codes R. & Regs. Tit. 20 §§ 3-2.4

Adopted New York State Register December 27, 2023/Volume XLV, Issue 52, eff. 12/27/2023