Important Updates Related to Estimated Tax Payments for Electing Pass-through Entities

December 4, 2021

While Proposed Rule 810-3-36-.01 continues to be reviewed in accordance with the state’s administrative requirements, the ASCPA and the ADOR recognize that the 4th quarter estimated tax payment deadline is quickly approaching.  To assist taxpayers and practitioners with the calculation of the 4th quarter estimated tax payment, the ADOR provided responses to two frequently asked questions which have been previously submitted to the ASCPA by practitioners.  Please see the questions and responses from the ADOR below. Additional information will be provided once the review process for Proposed Rule 810-3-36-.01 has been completed and the rule is finalized by the ADOR.

 

 

Question:  Will the Electing PTE be allowed to carryforward a net operating loss to a future taxable year?

 

Answer:  ALDOR is statutorily constrained from proving the tax treatment you seek pursuant to § 40-18-161Specifically, § 40-18-161 states, “the following deductions shall not be allowed: The net operating loss deduction otherwise allowed by Section 40-18-15, subdivision (a)(16).” Based on the code, ALDOR did not incorporate the suggestion regarding the NOL carryforward.

 

Question:  For purposes of calculating the estimated tax payments for the initial year of the election, how should a loss in the prior year be considered by an S corporation and by a partnership?

 

Answer:  ALDOR’s intent is to treat partnerships and S Corporations which elect to be taxed at the entity level for Alabama income tax purposes consistently. 

 

The estimate payment requirement for a partnership will be consistent with IRC 6655(d)(1)(B).  

 

When an S Corporation makes the election to be an Electing PTE, it takes on different characteristics than the traditional S Corporation.   IRC 6655(g)(4)(A) treats the following taxes as imposed:

 

i.            The tax imposed by section 1374(a).

ii.           The tax imposed by section 1375(a).

iii.          Any tax for which the S corporation is liable by reason of section 1371(d)(2).

 

The Electing PTE tax does not fall within these categories.

             

Therefore, ALDOR takes the position to treat both the partnership and S corporation the same, in accordance with 6655(d)(1)(B).

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