New York Advisory Opinion TSB-A-81(7)I: When a taxpayer who sold a business on an installment basis changes residence from New York to another state partway through the year, must he accrue the entire remaining unrecognized gain to the resident portion of the year, and can he avoid that by filing an affidavit instead of a bond?

Plain-English summary

Benjamin M. Schaffer sold his New York business in 1979 while a New York resident, with payments due on an installment basis from 1979 through 1984. In January 1981 he moved his residence to New Jersey, becoming a New York nonresident partway through that tax year. He asked whether he had to accrue - that is, treat as immediately taxable - the entire remaining unrecognized gain from the installment sale to the resident portion of 1981, and whether he could avoid that by instead filing a signed affidavit promising to keep paying tax on the gain as installments arrived, or by posting a surety bond or other collateral such as a New York State bond.

The Department explained that Tax Law section 654(c)(1) requires a taxpayer who changes from resident to nonresident status mid-year to accrue, to the pre-change portion of the year, any item of income or gain "accruing prior to the change of status" that isn't otherwise already includible in New York income - regardless of the taxpayer's accounting method. Since Schaffer's future installment payments represented gain not yet included in his New York income, he was required to accrue the full remaining gain to the resident portion of 1981.

However, section 654(c)(4) and 20 NYCRR 148.11 provide a narrow escape hatch: a taxpayer can avoid the accrual by filing a surety bond, a bond of the State of New York, or other Department-acceptable security, conditioned on including the installment amounts in his New York income for future years just as if he had remained a resident. The Department was explicit that the affidavit Schaffer proposed - a signed statement of his intention to pay - is NOT a permitted substitute for accrual under the law or regulations; only a qualifying bond or acceptable collateral works. The opinion also flagged one adjacent point: interest income on the installment sale contract is never accruable on a residence change; instead, the nonresident continues to report that unearned interest on nonresident returns as it is actually received.

What this means for you

Taxpayers moving out of New York mid-year with pending installment-sale payments

Expect to accrue - pay tax now on - your entire remaining unrecognized gain for the resident portion of your move year, unless you post a qualifying bond or security before filing; simply promising in writing to keep paying as installments arrive is not a legally recognized alternative.

Taxpayers considering the bond alternative to avoid accrual

File a surety bond, a New York State bond, or other Department-acceptable security that meets all the requirements of 20 NYCRR 148.11 before your return is due - and understand that choosing this route obligates you to include the installment payments in your New York income for every future year, just as if you had never left New York.

Accountants advising clients selling New York businesses on an installment basis before a move

Flag the accrual trap early: an out-of-state move mid-sale can trigger immediate taxation of the entire remaining gain unless a bond is arranged in advance, and remind clients that interest income on the contract is treated differently - it's never accruable and stays reportable as received on nonresident returns.

Common questions

Q: I sold my New York business on an installment plan and then moved out of state - do I owe tax on all the future payments right away?
A: Generally yes - Tax Law section 654(c)(1) requires you to accrue (treat as immediately taxable) the entire remaining unrecognized gain to the resident portion of your move year, unless you file a qualifying bond or security.

Q: Can I just sign an affidavit promising to keep paying tax on the installments as I receive them, instead of accruing the gain now?
A: No. The Department was explicit that an affidavit is not a legally permitted substitute for accrual - only a surety bond, a New York State bond, or other Department-acceptable security satisfies the escape-hatch requirement.

Q: What happens to the interest portion of my installment sale payments after I move?
A: Unlike the gain itself, interest on the installment contract is never accruable on a change of residence - you continue to report it on your nonresident returns for the years you actually receive it.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/income_ao_1981.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/income/a81_7i.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-81 (7) I
Income Tax
September 7, 1981

Taxpayer Services Division
Technical Services Bureau
This corrected Advisory Opinion replaces
TSB-A-81(7)-I dated July 15, 1981, which
should be destroyed.
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. I810422C

On April 22, 1981, a Petition for Advisory Opinion was received from Benjamin M. Schaffer,
441 Franklin Turnpike, Mahwah, New Jersey 07430.
The issues raised are:
1) whether Petitioner, who changed his status from resident to nonresident during 1981,
must accrue to the portion of such taxable year prior to such change the entire amount of gain
(to the extent not already included in his New York adjusted gross income for prior taxable
years or otherwise so includible for such portion of 1981) from a sale made prior to such
change of status, payment for which is made on an installment basis both before and after
such change of status; and
2)

whether Petitioner may avoid the requirement of accrual by filing:
A)

an affidavit, signed by Petitioner, affirming his intention to pay the tax on
such gain over a period of years as installment payments are received,

B)

a surety bond, or

C)

other collateral, specifically a New York State bond.

In 1979, while he was a resident of New York, Petitioner sold his New York business.
Payments for such business were scheduled on an installment basis over a period from 1979 to 1984.
In January of 1981, Petitioner changed his residence from New York to New Jersey. The installment
payments received or to be received subsequent to Petitioner's change of residence are the subject
matter of the Petition.
Section 654(c)(1) of the Tax Law provides, in part:
"If an individual changes his status from resident to nonresident, he shall, regardless of his
method of accounting, accrue for the portion of the taxable year prior to such change of status
any items of income, gain, loss or deduction accruing prior to the change of status, if not
otherwise properly includible ... or allowable for New York income tax purposes for such
portion of the taxable year or for a prior taxable year."
Section 654(c)(4) of the Tax Law provides:
JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-81 (7) I
Income Tax
September 7, 1981
"The accruals under this subsection shall not be required if the individual files with the tax
commission a bond or other security acceptable to the tax commission, conditioned upon the
inclusion of amounts accruable under this subsection in New York adjusted gross income for
one or more subsequent taxable years as if the individual had not changed his resident
status."
Section 148.11(a) of the Personal Income Tax Regulations (20 NYCRR 148.11(a)) provides,
in part:
"The return for the period prior to a change from resident to nonresident status may be filed
without the special accruals referred to herein if the taxpayer files with the Tax Commission
a surety bond or other security acceptable to the Tax Commission, in an amount not less than
the amount of additional income tax which would be payable if no such bond or security
were filed."
Section 148.11(c) of such regulations provides:
"In lieu of a surety bond, the following security will be accepted:
(1) United States Treasury bonds
(2) Bonds of the State of New York
(3) Bonds of any political subdivision of New York State...
(4) Other security acceptable to the Tax Commission."
Accordingly, Petitioner is advised that, except as provided below, he is required to accrue
the entire amount of the gain from the sale of his business (to the extent not already included in his
New York adjusted gross income for prior taxable years or otherwise so includible for the subject
portion of 1981) to the portion of the subject taxable year prior to his change of residence from New
York to New Jersey.
Petitioner is further advised that the affidavit proposed in his Petition is not permitted by law
or regulation as a substitute for the required accrual. However, the filing of either a surety bond or
a bond of the State of New York which meets all of the requirements of section 148.11 of the
Personal Income Tax Regulations (20 NYCRR 148.11) would be an acceptable substitute for the
required accrual. In such case, Petitioner would have to include in his New York adjusted gross
income for subsequent taxable years such amounts as would have been so included for such years
if Petitioner had not changed his resident status. It is to be noted that interest on an installment sale
contract which involves the sale of the assets of a business carried on in New York is not accruable
upon a change of residence. The unearned interest income as of the date of the change of residence
is to be reported on nonresident returns for the years in which such income is received.

DATED: June 23, 1981

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau