NYC UBT for Fund Managers and GPs: NYC-204 and the UBT Credit

Which entity owes NYC UBT: the management company, GP or fund?

A partnership management company generally has taxable fee income; an own-account trading fund may qualify for a full investment exemption. The GP needs its own analysis: the fund's exemption does not automatically settle every kind of income the GP receives. NYC-204 instructions, pages 2–3.

Qualifying property includes securities, derivatives and similar positions, but excludes dealer positions and debt acquired in the ordinary course of business, such as business lending.

Administrative Code section 11-502(c)(2) covers own-account investment activity and holding interests, outside the ordinary course of a trade or business, in entities themselves engaged solely in qualifying activities. The statute is reproduced in an NYC Finance ruling; the ruling's outcome concerns its stated facts.

For a GP, distinguish an incentive allocation of the trading fund's profits from a performance fee paid for services. A qualifying fund interest may support an investment exemption for the allocation. A fee is business income. The instructions preserve the character of a partner's share even when disproportionate to capital, but exclude guaranteed payments and payments treated federally as made to a nonpartner. Review agreements, K-1s and actual activities before claiming an exemption. NYC-204 instructions, pages 4–5.

The partial exemption under section 11-502(c)(4) uses an asset test, not a revenue test. At least 90% of the entity's average monthly gross asset value must consist of qualifying property, interests in entities with no City unincorporated business, or qualifying interests held as an investor. The exemption protects qualifying investment activity, while other business income remains taxable. Attach NYC-WPE. NYC-204 instructions, pages 2–3.

For interests in a City business, either of two investor tests can apply. First, the other entity primarily does qualifying investing, and your share of each income, gain, deduction, credit and loss item is not materially different from your share of the others. Second, you are not a general partner and do not manage or participate in its daily business. Do not assume every GP interest meets that definition. The instructions also preserve eligibility for the full exemption despite other-business gross receipts of $25,000 or less; this is not a general exemption for a fee business.

For a new manager's filing tests, see the first tax year for a new hedge fund. For entity books, NYC-204s and partners' New York returns with IT-219, see hedge fund tax services.

How is management income allocated when people work outside the City?

NYC UBT generally uses one receipts factor for a business operating inside and outside the City. Service receipts follow where the services are performed, so staff and partner work locations matter more than where the client lives. NYC-204 instructions, Schedule E.

The factor divides City gross income by total gross income. For work in Connecticut, New Jersey, Florida or a home office outside the City, document where the fee-producing services occurred. Keep location records and a supportable method for dividing work on the same engagement.

Management, administration or distribution receipts from a regulated investment company follow a special rule based on its shareholders' City domicile. Do not apply this rule to every private trading fund or assume registration as an investment adviser changes the rule. Registered securities and commodities brokers and dealers also have special sourcing rules. NYC-204 instructions, pages 12–13.

A different allocation method requires a written request separate from the return. Until Finance gives consent, use the prescribed method and pay accordingly. An entity's distributive share from another City partnership generally uses that partnership's City allocation, rather than blending its receipts into the recipient's own factor.

For the tax consequences outside NYC, see business income tax in other states.

Which deductions does NYC UBT add back or limit?

NYC UBT starts with federal partnership information but makes City adjustments. Partner compensation and deducted income taxes can increase the base; the City then provides a limited allowance for active partners' services and a specific exemption. NYC-204 instructions, Schedules A and B.

The services allowance is for reasonable compensation for partners' personal services and replaces salary deductions regardless of withdrawals. Count partners actively rendering services. If Schedule A line 12 is a loss, the allowance is zero. Several businesses share one specific exemption.

The City generally disallows federal bonus depreciation, with Liberty Zone and Resurgence Zone exceptions. Finance Memorandum 26-2 supplements the annual instructions; estimates paid after May 28, 2026 must reflect the newer changes.

Use the City's loss schedule to distinguish older losses. A federal K-1 loss alone does not establish a City loss deduction. NYC-204 instructions, page 6.

Do we file NYC-204 or NYC-204EZ, and when are payments due?

A partnership carrying on or liquidating a business wholly or partly in NYC must generally file when total gross business income, wherever earned, exceeds $95,000, before deducting the cost of goods sold or services performed. Filing can be required even when credits eliminate the tax. NYC-204 instructions, page 2.

A wholly exempt trading fund generally need not file, even with large investment receipts. It may file NYC-204EZ to state that it is exempt. A partnership claiming only a partial investment exemption must use NYC-204 with NYC-WPE. NYC-204EZ instructions.

NYC-204EZ is unavailable in several other cases, including allocation outside NYC, a net operating loss deduction, any investment income or loss, a UBT paid credit, PTET add-backs or City depreciation and other decoupling adjustments. Finance Memorandum 26-2. Full-year business income after the active-partner allowance must not exceed $90,000; short periods have lower limits. Check all form restrictions.

An individual-owned disregarded LLC uses NYC-202 and IT-219 Part 2. Its calendar-year return and payment are due April 15, 2027; the partnership dates below do not apply.

For partnerships with the calendar tax year shown above:

Return dates follow NYC-204's third-month deadline. NYC-5UB publishes installment dates and later-start schedules. Fiscal years use adjusted dates. Filing the annual return and paying in full by February 16, 2027 can replace the January installment or a declaration first due in January; it does not excuse earlier missed estimates.

A federal or State extension does not extend the City return. Pay at least 90% of final tax, less prior payments and credits, or the full prior-year tax if that year had 12 months and that method is permitted. A partnership with $1,000,000 or more of City taxable income in any of the three years immediately preceding must use the current-year test. An insufficient payment denies the extension; interest can accrue on the unpaid balance. NYC-EXT instructions.

How do the business tax credit and UBT paid credit work?

The business tax credit and UBT paid credit reduce the entity's UBT; the resident partner's personal credit is IT-219, covered next. The first depends on calculated tax; the second addresses income already taxed in another partnership and included in the recipient's base. NYC-204 instructions, page 7.

A management company or GP subject to UBT may claim the UBT paid credit when it receives a distributive share or guaranteed payment from another UBT-paying partnership and includes that income in its own base. This does not apply merely because an exempt trading fund distributes profits.

Attach NYC-114.7 and a separate Schedule B for each distributing partnership. Obtain the underlying NYC-204, Schedule C and the recipient's K-1. The credit is limited by the recipient's additional tax from including that partnership's income, among other limits. Unused UBT paid credit may carry forward for up to seven years, subject to NYC-114.7's rules and partnership-continuity limits. NYC-114.7 instructions.

How does an NYC-resident partner claim the UBT credit on IT-219?

An NYC-resident individual, estate or trust partner may claim an IT-219 credit for the partner's eligible share of partnership UBT. The percentage depends on City taxable income, and the allowed credit cannot exceed the eligible City personal income tax. Use the taxable income on your City personal return, including other taxable income. Currently published IT-219 line 9 uses IT-201 line 47 for full-year residents and IT-360.1 line 47 for part-year residents. Unused credit is neither refundable nor carried forward. IT-219 instructions.

The upper phaseout subtracts from 23% the result of (City taxable income minus $1,000,000) divided by $250,000, multiplied by 8%. Local Law 133 of 2026 applies from January 1, 2026. The published 2025 IT-219 does not reflect this change; use the applicable tax-year form.

For individual partners, complete the claim in this order:

1. Obtain the partnership's NYC-204 and your share information. IT-219 Part 1 starts with NYC-204 line 23 plus line 20, then applies your Schedule C, column I share; do not use cash distributions as the allocation measure.
2. If the partnership supplies your computed UBT share, enter it on Part 1 line 5 and attach its statement, as the instructions permit.
3. For several partnerships, complete a separate IT-219 Part 1 for each. Add their line 5 amounts on the main IT-219 and submit the additional forms.
4. Complete Part 4 for your residency. On currently published forms, full-year residents transfer IT-219 line 16 to IT-201-ATT line 8; part-year residents transfer line 11 to IT-360.1 line 54. Submit IT-219, additional partnership forms and required statements with your New York personal return. Check line references against the applicable tax-year forms.

Resident estates and trusts use IT-219 Schedule A, claim only the share not allocated to beneficiaries, and transfer line 11 to IT-205 line 22, subject to their City tax limit. A full-year City nonresident cannot claim this resident credit.

These steps follow IT-219 and its instructions. The addition of NYC-204 line 20 matters when the partnership itself received a UBT paid credit.

A part-year resident partner uses the Part-year resident UBT allocation worksheet in the instructions, based on resident days and the applicable tax period. Worksheet A is for a different claim. For a joint City return, joint City taxable income determines the percentage; mixed-residency spouses can require separate claims.

Can NYC PTET help our partners, and who can use it?

New York City's pass-through entity tax (NYC PTET) lets an eligible partnership deduct entity tax payments in computing federal partnership income, while eligible direct owners receive a City personal income tax credit. Whether this reduces an owner's total tax depends on their circumstances. NYC PTET does not replace UBT, and federally deducted PTET is added back when calculating UBT. IRS Notice 2020-75, section 3.02. NYC PTET rules; NYC-204 instructions.

An eligible partnership needs a New York State PTET election, a State partnership filing requirement and at least one City-taxpayer partner; publicly traded partnerships are excluded. The City and State elections are made together online during January 1 through March 15 of the year covered, adjusted for weekends and holidays. For the tax year shown, the deadline was March 16, 2026. An authorized person who can bind the partnership and sign its returns must electronically sign the election. Tax professionals cannot elect for clients; it becomes irrevocable after the deadline. NYC PTET election rules.

Under Tax Law section 873(c), partners eligible for the City credit owe their shares of unpaid NYC PTET. Partners eligible for State or City PTET credits can owe the entire unpaid tax if they are general, managing or controlling partners, own more than 50%, have compliance duties or made the election. Assessment generally runs for three years from return filing, with statutory exceptions including no return or fraud; this is not a release of assessed debt. Tax Law sections 873(a) and 683.

Only eligible direct partners who are City-resident individuals, trusts or estates taxable under the City personal income tax can receive the City credit. A corporate or partnership partner cannot claim it, and an upper-tier partnership cannot pass it to its owners. A disregarded entity is looked through to its tax owner. For City PTET, a moving partner is classified as resident if resident for at least half of the year; this differs from the IT-219 resident-day worksheet. NYC PTET calculations.

The City PTET credit uses IT-653 and can produce a refund; owners also add the claimed credit to income. NYC PTET credit rules. See the State PTET election guide for the broader election decision.

What if NYC-204 was filed late or never filed?

Late City filing and late payment can create separate penalties, plus interest. Where a City filing obligation exists, a federal partnership return does not satisfy it; reconcile missing City returns, payments and affected partner credits. NYC-204 instructions, pages 2 and 7.

The combined ordinary filing and payment charges cannot exceed 5% for a single month, subject to the minimum for delays over 60 days. Reasonable cause can matter; attach an explanation if requesting relief. Estimate underpayments have a separate calculation on NYC-221.

Legal form matters for unpaid UBT. New York general partners without an LLP liability shield are jointly liable for partnership debts under Partnership Law section 26(a). LLC members generally are not liable solely because of their status under LLC Law section 609(a); NYC PTET has the separate liability rules above.

Report federal or State tax-base changes on amended NYC-204 within 90 days of final determination or signing a waiver. Amended federal or State returns, final federal partnership adjustments and administrative adjustment requests also trigger that reporting period. A partner entity reports its lower-tier partnership's changes within the same period; check the Federal/State Partnership Change box on page 1 and attach the required documents. Older alternative adjustment actions had a May 4, 2026 deadline. NYC-204 instructions, pages 1 and 4–5; see correcting a filed business return.

For 2025 amended returns solely reporting these new City decoupling adjustments, Finance Memorandum 26-2 provides interest and penalty relief; use condition code AB. Returns under a valid extension that report these adjustments use code OB and the required worksheet.

Gather Forms 1065 and K-1s, prior NYC returns, payments, notices, agreements, work locations and residency dates. Resolve each entity's position before claiming partner credits. For several missing years, follow catching up on unfiled business returns; federal penalties are covered in late filing and payment penalties.

What changes if we switch to an S corporation?

A management company taxed as an S corporation generally moves from UBT to the City's GCT under NYC Finance's rules; compare the full consequences in fund management company: LLC or S corporation.

When does UBT stop if we move the office out of the City?

Moving the office does not by itself end UBT if business work continues in NYC under the City's activity and allocation rules; review the business and partner move separately in a fund manager moving to Florida or Texas.

Example

Illustrative only. All amounts are US dollars. A full-year partnership management company has two equally sharing active partners and performs all work in NYC. Each renders services worth at least $10,000. Fee profit before partner pay and the City allowance is $2,400,000, after other City adjustments. There are no losses or other credits.

One partner is a full-year NYC resident with City taxable income of $1,300,000, including other income and personal deductions, and enough eligible City personal income tax to use the credit. Under the law for the guide's tax year, the IT-219 percentage is 15%, producing a $7,125 credit on the $47,500 share. With less eligible City tax, the allowed credit would be smaller and the unused amount would expire.

A second partner who is a full-year City nonresident cannot claim this resident credit merely because the management company paid UBT. The company's UBT and each partner's residency are separate questions.

Different for you?

• You manage several entities, claim a GP exemption or your partners claim IT-219 credits: for NYC-204s and partners' New York returns with IT-219, use hedge fund tax services. Bring entity agreements, Forms 1065 and K-1s, prior NYC-204s, work-location records and partner residency dates.
• You have missing City returns or uncertain prior-year exemptions: coordinate the entity corrections and affected partner claims through hedge fund tax services and catching up on unfiled business returns.
• You are deciding on PTET: the deadline and irrevocable election require advance review; see the PTET election guide.
• Staff work outside NYC or New York: review employees in another state.
• You are launching the fund: see the first tax year for a new hedge fund.
• You are changing the management company's tax status: see LLC or S corporation for a fund management company.
• You or the business are leaving New York: see a fund manager moving to Florida or Texas.