Page 468 - TaxAdviser_2022

STATE & LOCAL TAXES

• Will a sale of the entity structured
Must a refund for tax as an asset sale increase the It is
base?
be separately • Will a sale of the entity structured important
reported to for tax as a stock sale be includible for practitioners
in the base?
the owners in ■ Does the PTE tax include the and taxpayers
order to determine distributive share of otherwise to read Notice
exempt owners?
the tax treatment? ■ Is there nonbusiness income that will 2020-75 and the
relevant state’s
be sourced to a state if the election is
made? PTE tax statute
■ Does Notice 2020-75 allow a ■ Does the PTE tax payment deducted
partnership to specially allocate the for federal tax purposes create a and any guidance.
PTE tax to the consenting/eligible nondeductible item for state taxes
owners? that reduces the shareholder basis
■ How will the PTE tax deduction before losses and deductions? ■ Does an operating agreement need
affect the Sec. 199A deduction? Is ■ Does the PTE tax regime provide to be reviewed by legal counsel and/
there a reduction in the Sec. 199A a full or partial credit to owners for or amended in order to optimize, or
qualified business income deduction? taxes paid? otherwise account for, an efficient
■ What is the timing of payment when ■ Are there limits on the shareholders’ election?
deducting for federal tax purposes ability to use the credit on their state ■ Are the entity and owners “eligible”
(some partners will have tax effects returns? as defined under the state’s PTE tax
depending on the year the distribu- ■ Will other states in which the PTE statute?
tion is made)? is doing business allow a credit for ■ Who determines if qualified taxpay-
■ Which year does the entity take the PTE tax at the owner level? ers (owners) consented?
the federal deduction? The owners ■ Is nonresident partner or shareholder ■ Who is charged with monitoring new
should consider the tax law on withholding still required when the state department of revenue guidance
“deposits” and methods of accounting. PTE election is made? or changes in the laws of the states in
■ How does the entity report any ■ Can the PTE election and payment which the PTE tax election has been
refund of the PTE tax? of PTE tax at the entity level satisfy made, or might be made, if the law or
■ Must a refund be separately reported a nonresident member’s state filing conditions changed?
to the owners in order to determine requirement (i.e., such that a separate ■ How will the election be made and
the tax treatment? filing by the member is not required)? documented, and what documenta-
■ Are there any complications for S ■ Can a passthrough entity still elect tion is needed to prove an owner
corporations related to: to file a composite return if a PTE consented or not to the election?
• Shareholder agreements? election is made? If yes, how is the ■ Is the election or vote made anony-
• Per share, per day allocation of PTE credit applied/claimed? mously with respect to other partners
income/expense? ■ Can estimated composite, with- or not? Note that the partnership and
• Disproportionate distributions? holding, and/or individual estimated its managers (and advisers) ultimately
• One-class-of-stock issue? payments be transferred to the PTE’s need to know who elected.
account to cover the PTE tax? ■ What are the mechanical issues
State issues involving the state PTE tax return
■ Does the PTE tax regime exclude Taxpayer and tax practitioner preparation? For example, if the
the PTE’s income from the owners’ issues return must be filed through the
returns? ■ What are the compliance costs state’s website, the tax practitioner
■ What income and deductions will be (including CPA fees)? may be required to obtain a power
included in the state taxable income ■ How much risk does the election of attorney or a specific type of
base for the PTE tax? create for the entity or owners, account authorization in order to be
• For example, will charitable assuming that the IRS issues no more able to prepare and release returns
contributions reduce the base? guidance? for clients. Note that even if that

28 September 2022 The Tax Adviser