SLIDE 12 Oklahoma Pass‐Through Entity Tax Equity Act of 2019 Presentation for the Central Oklahoma Society of Enrolled Agents, September 11, 2019 Mark O. Neumeister
- D. R. Payne & Associates, Inc.
D . R . P a y n e & A s s o c i a t e s , I n c .
Last Updated 09/09/2019
- Reg. § 1.1366‐1(a)(2): Each shareholder must take into account separately the
shareholder's pro rata share of any item of income (including tax‐exempt income), loss, deduction, or credit of the S corporation that if separately taken into account by any shareholder could affect the shareholder's tax liability for that taxable year differently than if the shareholder did not take the item into account separately.
- Tax Cuts and Jobs Act conference report at footnote 172:
- “ . . . Additionally, taxes imposed at the entity level, such as a business tax imposed
- n pass‐through entities, that are reflected in a partner’s or S corporation
shareholder’s distributive or pro‐rata share of income or loss on a Schedule K‐1 (or similar form), will continue to reduce such partner’s or shareholder’s distributive
- r pro‐rata share of income as under present law.”
- However, see the same conference report: “In the case of State and local income
taxes, the deduction is an itemized deduction notwithstanding that the tax may be imposed on profits from a trade or business.” Referencing footnote 168.
- See “News Analysis: Could the IRS Identify SALT Workarounds as Listed Transactions” for
more discussion.
Federal Deduction of the Pass‐Through Entity Tax (continued)
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Mark O. Neumeister
D . R . P a y n e & A s s o c i a t e s , I n c .
Last Updated 09/09/2019
- Can HB 2665 tax imposed on a pass‐through entity, directly offset
rent or royalty, or investment income?
- Form 1065 instruction for Line 14:
- Taxes paid or incurred for the production or collection of income, or for the
management, conservation, or maintenance of property held to produce income. Report these taxes separately on line 13d of Schedule K and in box 13 of Schedule K‐1 using code W.
- Form 1120S instruction for Line 12:
- Taxes paid or incurred for the production or collection of income, or for the
management, conservation, or maintenance of property held to produce income. Report these taxes separately on line 12d of Schedule K and in box 12 of Schedule K‐1 using code S.
- Query: How do we treat activities such as rental that otherwise
qualify as “trade or business?”
Federal Deduction of the Pass‐Through Entity Tax—Non‐business Activities
Mark O. Neumeister
D . R . P a y n e & A s s o c i a t e s , I n c .
Last Updated 09/09/2019
- Confidence level required of the tax preparer for a tax position:
- National Association of Enrolled Agents: Code of Ethics and Rules of
Professional Conduct https://tinyurl.com/y45dpxf7
- Rule of Professional Conduct #8: Members and associates will take a
position on a tax return favorable to their clients only if there is substantial authority that the position will be sustained on its merits, unless the position is disclosed and there is at least a reasonable basis for it. If applicable law is unsettled, or the application of law to the facts in a given situation is uncertain, members and associates must explain the probable effects of various alternatives to their clients who make the final decision as to the position taken.
- Rule of Professional Conduct #21: Tax preparation or representation
services will be offered as authorized by the most current provisions of Circular 230.
Federal Deduction of the Pass‐Through Entity Tax—Tax Position Confidence Level & Disclosure
Mark O. Neumeister
D . R . P a y n e & A s s o c i a t e s , I n c .
Last Updated 09/09/2019
- AICPA Statement on Standards for Tax Services No. 1—Tax Return
Positions
- If no higher standard applies,
- 5a. A member should not recommend a tax return position or prepare or
sign a tax return taking a position unless the member has a good‐faith belief that the position has at least a realistic possibility of being sustained administratively or judicially on its merits if challenged.
- Notwithstanding paragraph 5a, a member may prepare or sign a tax return
that reflects a position if
- (i) the member concludes there is a reasonable basis for the position and
- (ii) the position is appropriately disclosed.
Federal Deduction of the Pass‐Through Entity Tax—Tax Position Confidence Level & Disclosure
Mark O. Neumeister
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