Page 467 - TaxAdviser_2022

filing forms, allowance of state credit for • Are the voting requirements
entity tax paid to another state, interac- The AICPA State consistent with the PTE tax
tion with other state tax rules, etc. It is statute?
important for practitioners and taxpayers and Local Tax TRP • Do the allocation provisions
to read Notice 2020-75 and the relevant will continue to properly allocate any PTE tax
state’s PTE tax statute and any guidance to each partner in a way that
and forms from the state tax agency monitor, develop, reflects the partner’s share of the
prior to making any decisions. and update resources economics?
The AICPA State and Local Tax and keep members • Does the agreement allow cash
Technical Resource Panel (SALT TRP) distributions to nonelecting/
has been closely tracking PTE tax de- informed as nonconsenting/ineligible owners?
velopments and, among other things, has developments • If there is a cash distribution
created an interactive U.S. map that links provision, are distributable earn-
to state-specific information. Members happen. ings reduced by the partner’s share
of the SALT TRP (and the AICPA of any PTE tax expense?
SALT Deduction PTE Tax Task Force) • Are guaranteed payments reduced
also have pooled their knowledge to ■ Is the PTE tax statute one that by the partner’s share of any PTE
compile four lists of questions to con- automatically sunsets if the SALT tax expense?
sider in deciding whether to elect into cap sunsets on Dec. 31, 2025, or does
a state PTE tax. These lists, set forth it expire on Dec. 31, 2025, regardless, Federal issues
below, may be helpful for taxpayers and or is it permanent? ■ How is excess PTE tax credit taxed?
fellow practitioners to review before ■ Which entities or types of owners are ■ For federal income tax purposes, is
making decisions on electing into a PTE allowed to make the election? the PTE tax deduction a Sec. 162 or
tax in any state. ■ Can resident and nonresident a Sec. 212 deduction?
owners make an election or consent ■ Has Temp. Regs. Sec. 1.67-1T(c)
Election issues to participate (if that is part of the been considered?
■ Is the PTE tax statute elective or state’s PTE tax regime)? • It provides for allocation of
mandatory (only Connecticut’s is ■ What forms need to be filed? expenses related to both a trade or
mandatory so far)? ■ What is the entity withholding tax business activity and a production-
■ What percentage of ownership is re- rate? of-income activity using a
quired to make the election and what ■ What is the PTE tax rate? “reasonable basis.”
is the voting procedure (remember, ■ What is the highest individual tax ■ Does the PTE tax reduce self-
voting requirements/procedures may rate (relates to composite filers)? employment tax or net investment
vary from state to state)? ■ Is there an exclusion of income (e.g., income tax?
■ Is the PTE required to make Wisconsin) or a flowthrough of ■ Will additional disclosures be neces-
estimated state tax payments? income and credit for PTE tax paid sary for all shareholders to properly
■ When are estimated payments due? (refundable or nonrefundable) (e.g., treat the PTE tax deduction under
■ When is the election due? Has the the majority of the states)? the net investment income tax rules
election or filing been extended, ■ What are the benefits to members/ and passive activity rules?
especially when enacted in the first partners and what are potential ■ Can the entity apply a loss carry-
year the election is available? detriments? forward from a prior year?
■ What is the effective date of the elec- ■ How is the PTE tax credit used ■ Does the state election and payment
tion? Is the effective date retroactive? in sequence with other credits for sequencing create a “deposit” for
■ Is the election binding for just the owners? federal tax purposes, such as where
current year or for multiple years? ■ Is there any alternative minimum tax the payment was made in one year,
■ Is the election required to be made issue from using a PTE tax credit? but the entity cannot elect until the
annually? ■ Double-check the operating or subsequent year when the election
■ When can the election be revoked? partnership agreement and consider: can be made?
■ What are the voting requirements/ • Does the agreement even permit ■ Will the IRS allow payment alone
procedures and notification proce- the PTE to elect to pay a PTE to be enough for a federal deduction
dures for revocation? tax? (ignore deposit issues)?

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