Clause (ii) of this subparagraph shall not apply if the preceding taxable year was not a taxable year of twelve months or if the individual did not file a return for such preceding taxable year.
For purposes of subparagraph (A) of this paragraph, any reduction of the excess of deductions allowed for the taxable year over gross income for such year, and any reduction in the amount of capital losses which would (without regard to section one thousand two hundred eleven of the internal revenue code) be allowed for such year, shall be treated as an increase in the applicable tax base.
N.Y. Tax Law § 685