2022 Taxed S Corporations and Taxed Partnerships Law Changes
This subsection was amended by the 2021 General Assembly to add subdivision (11) to provide a definition of a Taxed S Corporation. As enacted, a Taxed S Corporation means an S Corporation for which a valid election under G.S. 105-131.1A(a) is in effect.
(Effective for taxable years beginning on or after January 1, 2022; SB 105, s. 42.5.(a), S.L. 2021-180.)
This section was added by the 2021 General Assembly as part of the legislation that created North Carolina’s SALT Workaround for PTEs.
G.S. 105-131.1A(a) was added to allow an S Corporation to elect to have the income tax under Article 4 of Chapter 105 imposed on the S Corporation. The S Corporation must make the election on its timely filed annual return and may not revoke the election after the due date of the return (including extensions).
G.S. 105-131.1A(b) was added to impose an income tax on the taxable income of a taxed S Corporation. The tax is levied, collected, and paid annually. The tax is imposed on the North Carolina taxable income of the taxed S Corporation at the rate levied in G.S. 105-153.7. The North Carolina taxable income of a taxed S Corporation is determined as follows:
(1) North Carolina taxable income of a taxed S Corporation is equal to the sum of the following:
a. Each shareholder’s pro rata share of the taxed S Corporation’s income or loss, subject to the adjustments provided in G.S. 105- 153.5 and G.S. 105-153.6, attributable to North Carolina, and
b. Each resident shareholder’s pro rata share of the taxed S Corporation’s income or loss, subject to the adjustments provided in G.S. 105-153.5 and G.S. 105-153.6, not attributable to North Carolina.
(2) Separately stated items of deduction are not included when calculating each shareholder’s pro rata share of the taxed S Corporation’s taxable income. Note: Separately stated items are those items described in section 1366 of the Internal Revenue Code (“Code”) and the regulations adopted under it.
(3) The adjustments required by G.S. 105-153.5(c3) are not included in the calculation of the taxed S Corporation's taxable income.
G.S. 105-131.1A(c) was added to allow a taxed S Corporation that qualifies for a tax credit to apply each shareholder's pro rata share of the taxed S Corporation's credits against the shareholder's pro rata share of the taxed S Corporation's income tax. An S Corporation must pass through to its shareholders any credit required to be taken in installments pursuant to the provisions of Chapter 105 if the first installment was taken in a taxable period that the election was not in effect.
An S Corporation cannot pass through to its shareholders any of the following:
(1) Any credit allowed under Chapter 105 for any taxable period the S Corporation makes the taxed S Corporation election and the carryforward of the unused portion of such credit;
(2) Any subsequent installment of such credit required to be taken in installments by this Chapter after the S Corporation makes the taxed S Corporation election and the carryforward of any unused portion of such installment.
With respect to resident shareholders, new G.S. 105-131.1A(d) provides that a taxed S Corporation is allowed a credit against the taxes imposed by this section for income taxes imposed by and paid to another state or country on income taxed under this section. The credit allowed by this subsection is administered in accordance with the provisions of G.S. 105-153.9.
G.S. 105-131.1A(e) was added to allow a deduction for shareholders of a taxed S Corporation as specified in G.S. 105-153.5(c3)(1). This deduction is only allowed if the taxed S Corporation complies with the provisions of G.S. 105-131.1A(g).
G.S. 105-131.1A(f) was added to require shareholders of a taxed S Corporation to make an addition as provided in G.S. 105-153.5(c3)(2).
G.S. 105-131.1A(g) was added to require the full amount of the tax payable as shown on the taxed S Corporation return to be paid to the Department within the time allowed for filing the return. In the case of any overpayment by a taxed S Corporation of the tax imposed under this section, only the taxed S Corporation may request a refund of the overpayment.
If the taxed S Corporation files a return showing an amount due with the return and does not pay the amount shown due, the Department may collect the tax from the taxed S Corporation pursuant to G.S. 105-241.22(1). The Department must issue a notice of collection for the amount of tax debt to the taxed S Corporation. If the tax debt is not paid to the Department within 60 days of the date the notice of collection is mailed to the taxed S Corporation, the shareholders of the S Corporation are not allowed the deduction provided in G.S. 105-153.5(c3)(1).
G.S. 105-131.1A(h) was amended to provide the basis of both resident and nonresident shareholders of a taxed S Corporation shall be determined as if the taxed S Corporation election has not been made and each of the shareholders of the taxed S Corporation had properly taken into account each shareholder's pro rata share of the taxed S Corporation's items of income, loss, and deduction in the manner required with respect to a S Corporation for which no such election is in effect.
(Effective for taxable years beginning on or after January 1, 2022; SB 105, s. 42.5.(c), S.L. 2021-180.)
This subsection was amended by the 2021 General Assembly as part of the legislation that created North Carolina’s SALT Workaround for PTEs. Language was added to clarify the application of G.S. 105-153.9(a)(4) with respect to a taxed S Corporation.
(Effective for taxable years beginning on or after January 1, 2022; SB 105, s. 42.5.(e), S.L. 2021-180.)
This section was added by the 2021 General Assembly as part of the legislation that created North Carolina’s SALT Workaround for PTEs.
G.S. 105-154.1(a) was added to allow a partnership to elect to have the income tax under Article 4 of Chapter 105 imposed on the partnership. The partnership must make the election on its timely filed annual return and may not revoke the election after the due date of the return (including extensions). The election cannot be made by a publicly traded partnership or by a partnership that has, at any time during the taxable year, a partner who is not one of the following:
(1) An individual;
(2) An estate;
(3) A trust described in section 1361(c)(2) of the Internal Revenue Code (“Code”); or
(4) An organization described in section 1361(c)(6) of the Code.
G.S. 105-154.1(b) was added to impose an income tax on the taxable income of a taxed partnership. The tax is levied, collected, and paid annually. The tax is imposed on the North Carolina taxable income of the taxed partnership at the rate levied in G.S. 105-153.7. The North Carolina taxable income of a taxed partnership is determined as follows:
(1) North Carolina taxable income of a taxed partnership is equal to the sum of the following:
a. Each partner’s distributive share of the taxed partnership’s income or loss, subject to the adjustments provided in G.S. 105-153.5 and G.S. 105-153.6, attributable to North Carolina, and
b. Each resident partner’s distributive share of the taxed partnership’s income or loss, subject to the adjustments provided in G.S. 105- 153.5 and G.S. 105-153.6, not attributable to North Carolina.
(2) Separately stated items of deduction are not included when calculating each partner’s distributive share of the taxed partnership’s taxable income. Note: Separately stated items are those items described in section 702 of the Code and the regulations adopted under it.
(3) The adjustments required by G.S. 105-153.5(c3) are not included in the calculation of the taxed partnership's taxable income.
G.S. 105-154.1(c) was added to allow a taxed partnership that qualifies for a tax credit to apply each partner's distributive share of the taxed partnership's credits against the partner's distributive share of the taxed partnership's income tax. A partnership must pass through to its partners any credit required to be taken in installments pursuant to the provisions of Chapter 105 if the first installment was taken in a taxable period that the election was not in effect.
A partnership cannot pass through to its partners any of the following:
(1) Any credit allowed under Chapter 105 for any taxable period the partnership makes the taxed partnership election and the carryforward of the unused portion of such credit;
(2) Any subsequent installment of such credit required to be taken in installments by this Chapter after the partnership makes the taxed partnership election and the carryforward of any unused portion of such installment.
G.S. 105-154.1(d) was added to allow a deduction for partners of a taxed partnership as specified in G.S. 105-153.5(c3)(3). This deduction is only allowed if the taxed partnership complies with the provisions of G.S. 105-154.1(f).
G.S. 105-154.1(e) was added to require partners of a taxed partnership to make an addition as provided in G.S. 105-153.5(c3)(4).
G.S. 105-154.1(f) was added to require the full amount of the tax payable as shown on the taxed partnership return to be paid to the Department within the time allowed for filing the return. In the case of any overpayment by a taxed partnership of the tax imposed under this section, only the taxed partnership may request a refund of the overpayment.
If the taxed partnership files a return showing an amount due with the return and does not pay the amount shown due, the Department may collect the tax from the taxed partnership pursuant to G.S. 105-241.22(1). The Department must issue a notice of collection for the amount of tax debt to the taxed partnership. If the tax debt is not paid to the Department within 60 days of the date the notice of collection is mailed to the taxed partnership, the partners of the partnership are not allowed the deduction provided in G.S. 105-153.5(c3)(3).
G.S. 105-154.1(g) was added to provide the basis of both resident and nonresident partners of a taxed partnership shall be determined as if the taxed partnership election has not been made and each of the partners of the taxed partnership had properly taken into account each partner's distributive share of the taxed partnership's items of income, loss, and deduction in the manner required with respect to a partnership for which no such election is in effect.
(Effective for taxable years beginning on or after January 1, 2022; SB 105, s. 42.5.(h), S.L. 2021-180.)