NY Adjusts Stock Option Allocation Rules for Part-year Residents

A memo from the Department said the rules for statutory stock options and stock appreciation rights are changed so that a nonresident individual could elect to use an allocation period from the date the option was granted to the earliest of:

• the date the option was exercised,
• the date the individual’s services terminated, or
• the date the compensation was recognized for federal income tax purposes.

For restricted stock, for those individuals who do not elect to include the value in income at the time the award is granted, the allocation period can be from the date the option was granted to the earliest of:

• the date the stock was substantially vested (transferable or not subject to substantial risk of forfeiture),
• the date the individual’s services terminated, or
• the date the stock was sold.

The rules are changed for taxable years beginning in 2006 only.

A previous amendment established an allocation period from the grant date to the option vesting date (See NY Clarifies Stock Option Allocation Rules ). The rules provide that the capital gain realized on such options should be multiplied by a factor equal to the number days the individual worked in the state for the grantor during the allocation period divided by the total number of days worked in or out of the state during the allocation period.

The Department said the allocation periods were changed in response to a New York State Court of Appeals decision.

The Department’s memo is here .