20 NYCRR § 9-5.3

Corporate stockholders’ treatment of distribution and capital of a DISC

Official textus-ny/regstax.ny.gov

# (a)

Since a DISC is not subject to tax on its earnings and profits, no deduction is allowed for the dividends distributed to a corporation owning stock of a DISC.

# (b)

Deemed distributions from a DISC or a former DISC that are taxable as dividends pursuant to IRC section 995(b) must be treated as business income.

# (c)

Actual distributions from a DISC or a former DISC must be treated as business income, unless such distributions meet the requirements of subdivision (d) of this section.

# (d)

Actual distributions from a DISC or a former DISC will be treated as investment income if:

# (1)

such distributions are treated as being made out of “other earnings and profits” for
Federal income tax purposes under IRC section 996; and

# (2)

the stock of the DISC meets the definition of investment capital.

# (e)

Any gain or loss recognized for Federal income tax purposes on the disposition of stock in a DISC or a former DISC must be treated as business income, whether or not the stock of the DISC meets the definition of investment capital.

# (f)

The corporate stockholder’s distributive share of the DISC’s investments in the stocks, bonds or other securities or indebtedness from a DISC must be treated as business capital.

Source: official source document (DTF adopted rule text, December 2023 corporate reform)

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