Opinion
August 1, 1961
Proceeding under article 78 of the Civil Practice Act to review a determination of the State Tax Commission sustaining an assessment of additional personal income taxes for the year 1948. Petitioner, reporting on a calendar year basis, was a member of a partnership which reported on the basis of a fiscal year ending September 30. The partnership was dissolved on December 31, 1948. For the 12-month period ended September 30, 1948, the partnership reported a profit but for the subsequent 3-month period, ended December 31, 1948, it incurred a loss. Upon his return for 1948, petitioner included his share of the partnership earnings for both periods, aggregating 15 months, but the commission excluded the 3-month period, holding that petitioner's "distributive share of loss from the partnership * * * for the fiscal taxable year thereof which began on October 1, 1948 was properly reportable and deductible * * * for the calendar year of 1949". The case turns upon the construction of section 364 Tax of the Tax Law as constituted during the years in question, which in pertinent part provided that in the case of a partner whose taxable year was different from the reporting period of the partnership, there should be included in computing his net income and net capital gain for such taxable year, "his distributive share of the net income or net loss and net capital gain or net capital loss of the partnership for any accounting period of the partnership ending within the fiscal or calendar year upon the basis of which the partner's net income and net capital gain are computed." The then effective article 229 of regulations under article 16 of the Tax Law was more specific, referring to the "taxable year [rather than the "accounting period"] of the partnership ending within the [partner's] taxable year". (Emphasis supplied.) Petitioner contends that in this case the partnership's "accounting period" ended at the time of its dissolution on December 31, 1948 and thus that his share of the capital loss incurred in the allegedly final period was properly reported as for 1948. Under a subsequent amendment to section 364 (L. 1957, ch. 372) dealing specifically with "the period ending with the sale, exchange or liquidation" of a partner's entire interest, this would now be true; and petitioner contends, of course, that the amendment was for purposes of clarification and was merely "declaratory" of the existing law. The language of the prior statute seems not to permit of the construction urged. Tax and tax reporting periods are normally of 12 months and the term "accounting period" would ordinarily be considered to be the partnership's reporting year. Here, under petitioner's theory, his tax liability for the 12-month period constituting his tax year would, as respects partnership earnings, be measured by partnership operations for a period, or aggregate periods, of 15 months, although, as respects taxation, partnership earnings are important only as they accrue to the individual partner. (Tax Law, § 358, subd. 1; § 364.) We are unable to agree that in this case the normal "accounting period" of one year was, of necessity and regardless of the tax statute, shortened to three months by reason of the dissolution (Partnership Law, § 60). Indeed, the statute is explicit that "On dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed" (Partnership Law, § 61), and tax matters would seem inevitably to be among such "affairs". That, in a particular case and perhaps here, no financial transactions as between the partners remained to be completed would furnish no warrant for engrafting upon the tax statute a different rule in a special case; and this in contravention of the general statutory scheme inhibiting changes of accounting periods except upon consent of the State Tax Commission. (Tax Law, § 358, subd. 2; § 370.) Contending that in the absence of any judicial construction of section 364, recourse should be had to decisions which have construed the corresponding Federal statute, petitioner cites Karsch v. Commissioner of Int. Rev. ( 8 T.C. 1327) and Jacobs v. Commissioner of Int. Rev. ( 7 T.C. 1481); but these cases were decided under the Revenue Act of 1924, with the applicable provisions of which section 364, as amended in 1957, is in substantial conformity. Thus, the comparison affords no guide. The Revenue Act of 1921, on the other hand, so far as here material, accorded with section 364, as constituted prior to the 1957 amendment and hence as here involved. Thus, the Revenue Act of 1921 referred (in § 218, subd. [a]), in language nearly identical with that of the clause to be construed here, to "any accounting period of the partnership ending within the fiscal or calendar year upon the basis of which the partner's net income is computed." Under this act it was held that the dissolution of a partnership did not end the accounting period. ( Tooke v. Commissioner of Int. Rev., 17 B.T.A. 690; cf. Bankers' Trust Co. v. Bowers, 295 F. 89, there cited.) The distinction is noted and discussed in Karsch ( supra, p. 1332) and Jacobs ( supra, p. 1484) and is not only dispositive of petitioner's argument but strongly fortifies respondents' contrary contention. It is clear that the 1957 amendment to section 364 was intended to effect conformity with the amended Federal statute; and the State Tax Commission's memorandum in support of the amendatory bill not only indicated that purpose but noted that under the existing law the close of the partnership taxable year, rather than the date of disposition of a partnership interest, controlled. (1957 Leg. Ann. 356.) The somewhat lengthy clause and additional sentence added by the amendment involved so substantial and material a change in phraseology as to require the conclusion that "the law so amended did not originally embrace the amended provisions". (McKinney's Cons. Laws of N.Y., Book 1, Statutes, § 193.) Determination confirmed, with $25 costs. Bergan, P.J., Gibson, Herlihy and Taylor, JJ., concur.