2023 Taxed S Corporations and Taxed Partnerships Law Changes

This subsection was amended as part of the 2023 SALT Workaround Update. Under prior law, an S Corporation was not allowed to make or revoke the election to be a Taxed S Corporation after the due date of the return, including extensions.

As amended, an S Corporation cannot make or revoke the election to be a Taxed S Corporation after the North Carolina S Corporation tax return is filed for the taxable year.

(Effective for taxable years beginning on or after January 1, 2023; SB 174, s. 1.6.(b), S.L. 2023- 12.)

This sub-subdivision was repealed as part of the 2023 SALT Workaround Update. Prior to its repeal, G.S. 105- 131.1A(b)(1)b required a Taxed S Corporation to include each resident shareholder’s pro rata share of the Taxed S Corporation’s income or loss not attributable to North Carolina in the computation of North Carolina taxable income. Beginning with the 2023 tax year, a Taxed S Corporation is only required to include each shareholder’s pro rata share of the Taxed S Corporation's income or loss attributable to North Carolina in its computation of North Carolina taxable income.

(Effective for taxable years beginning on or after January 1, 2023; SB 174, s. 1.6.(a), S.L. 2023- 12.)

This subsection was repealed as part of the 2023 SALT Workaround Update. For taxable years beginning January 1, 2023, the North Carolina taxable income of a Taxed S Corporation no longer includes a resident shareholder’s pro rata share of the Taxed S Corporation’s income or loss not attributable to North Carolina. As such, the tax credit is no longer needed.

(Effective for taxable years beginning on or after January 1, 2023; SB 174, s. 1.6.(a), S.L. 2023- 12.)

This subsection was amended as part of the 2023 SALT Workaround Update. Under prior law, G.S. 105-154(d) did not apply to a Taxed Partnership.

As amended, G.S. 105-154(d) applies to a Taxed Partnership if the Taxed Partnership is owned by one or more nonresident partners described in G.S. 105-154.1(a)(5). In such cases, the provisions of G.S. 105-154(d) apply to those partners.

(Effective for taxable years beginning on or after January 1, 2022; SB 174, s. 1.5.(a), S.L. 2023- 12.)

This subsection was amended as part of the 2023 SALT Workaround Update. Under prior law, a partnership was not allowed to make or revoke the election to be a Taxed Partnership after the due date of the return, including extensions.

As amended, a partnership cannot make or revoke the election to be a Taxed Partnership after the North Carolina partnership income tax return is filed for the taxable year.

(Effective for taxable years beginning on or after January 1, 2023; SB 174, s. 1.6.(e), S.L. 2023- 12.)

This subdivision was amended as part of the 2023 SALT Workaround Update to expand the list of permissible partners of a partnership allowed to make the election to be a Taxed Partnership.

Under prior law, a partnership could not make the election to be a Taxed Partnership if the partnership was owned by a partner who was not one of the following:

(1) An individual. 
(2) An estate. 
(3) A trust described in Internal Revenue Code (“IRC”) section 1361(c)(2). 
(4) An organization described in IRC section 1361(c)(6).

As amended, a partnership cannot make the election to be a Taxed Partnership if the partnership is owned by a partner who is not one of the following:

(1) An individual. 
(2) An estate. 
(3) A trust described in Internal Revenue Code (“IRC”) section 1361(c)(2). 
(4) A trust if such trust does not have a beneficiary any person other than an individual, an estate, a trust, or an organization described in IRC section 1361(c)(6). 
(5) An organization described in IRC section 1361(c)(6). 
(6) A partnership, including an entity that is classified as a partnership for federal income tax purposes. (7) An entity that is classified as a corporation for federal income tax purposes.

(Effective for taxable years beginning on or after January 1, 2022; SB 174, s. 1.5.(b), S.L. 2023-12. Amended by HB 259, s. 42.21.(a), S.L. 2023-134.)

This subsection was added as part of the 2023 SALT Workaround Update. New G.S. 105-154.1(a1) allows a partnership that could not make the election to be a Taxed Partnership on a timely filed North Carolina partnership income tax return for tax year 2022 to make the election by filing an amended return for tax year 2022 on or before October 15, 2023.

(Effective for taxable years beginning on or after January 1, 2022; HB 259, s. 42.21(b). S.L. 2023- 134.)

This subdivision was amended as part of the 2023 SALT Workaround Update to remove the following partners from the computation of North Carolina taxable income of a Taxed Partnership:

(1) A partnership, including an entity that is classified as a partnership for federal income tax purposes. 
(2) An entity that is classified as a corporation for federal income tax purposes.

(Effective for taxable years beginning on or after January 1, 2022; SB 174, s. 1.5.(c), S.L. 2023- 12.)

This sub-subdivision was repealed as part of the 2023 SALT Workaround Update. Prior to its repeal, G.S. 105- 154.1(b)(1)b required a Taxed Partnership to include each resident partner's distributive share of the Taxed Partnership's income or loss not attributable to North Carolina in its computation of North Carolina taxable income. Beginning with the 2023 tax year, a Taxed Partnership is only required to include each partner's distributive share of the Taxed Partnership's income or loss attributable to North Carolina in its computation of North Carolina taxable income.

(Effective for taxable years beginning on or after January 1, 2023; SB 174, s. 1.6.(a), S.L. 2023- 12.)