PICPA News

A taxpayer sells stock in an S Corporation. The sales price is a base amount up front plus future payments depending on revenue for the following three years. How is this reported for sales price and basis for PIT purposes in the year of sale?

Nov 15, 2019

If the sale agreement is worded such that the proceeds from the sale cannot be assigned (the agreement must state this), the taxpayer could utilize the cost recovery method for reporting the gain.

How should PA-40 non-resident sellers (individual shareholder) of a PA S Corp present the gain from the sale of stock to the buyer when an IRC 338(h)(10) election has been made?

Nov 15, 2019

It would seem based on the above facts, the Information Return was prepared correctly, and therefore, the gain would not be included in the NRK1.

Scenario: AB LP, a partnership domiciled in Pennsylvania, sells an interest in a partnership and a patent. Assume for PA PIT purposes the gain from each sale is reported on Schedule D.

Nov 15, 2019

The Department of Revenue has issued guidance on gains from the sale of intangible assets. Please see Personal Income Tax Bulletin 2005-02 Gain or Loss Derived from the Disposition of a Going Concern.

What is the process the Department of Revenue intends to use in auditing payors of nonemployee compensation in instances where the payee performs services within and outside of Pennsylvania?

Nov 15, 2019

The Department of Revenue has the authority to request documentation to support the income allocation.

AB LP incorrectly withholds PA PIT on a corporate partner. What is the process for having the Department of Revenue credit the erroneously withheld PA PIT to the corporate partner’s CNIT account?

Nov 15, 2019

These types of scenarios would be addressed on a case by case basis. Please contact our office with specific information to address your concerns.

Will the Department of Revenue provide a specific section or sections in its return instructions that set forth the rules on how pass-through income from other pass-through entities should be treated for each class of income?

Nov 15, 2019

For business income, if reporting a loss from a pass-through entity, please refer to the PA-20S/PA-65 Information Return Schedule M Part II Section II (h) Other income adjustments that increase PA reportable income. If reporting income from a pass-through entity, refer to Section III (d) Other Income Adjustments that decrease PA reportable income.

How come a nonresident cannot participate in the filing of a PA-40 NRC in the instance where he/she holds interest in a pass-through entity in a single member LLC classified as a disregarded entity for federal income tax purposes or a revocable trust?

Nov 15, 2019

Only qualifying electing nonresident individual owners may be included in the filing of the PA-40NRC. An individual is defined as a natural person and shall include the members of a partnership or association and the shareholders of a Pennsylvania S corporation [72 P.S. §7301(l)].

Has the Department of Revenue further considered any income tax implications of the Wayfair decision? If so, can it provide guidance?

Nov 15, 2019

The Department of Revenue recently issued Corporation Tax Bulletin 2019-04, Nexus for Corporate Net Income Tax Purposes.

When can we expect market-based sourcing regulations?

Nov 15, 2019

The Department of Revenue hopes to issue this in early 2020 for public comment.

Is Form REV-986 required for taxpayers claiming PL 86-272 protection?

Nov 15, 2019

To the extent a taxpayer’s activities exceed the level where it would be permissible to file an RCT-101-D, Form REV-986 should be completed and filed as part of the taxpayer’s Form RCT101 where protection under PL 86-272 is being asserted.

What is the Board of Appeals' policy of refusing to grant relief in cases that involve the application of the net loss fixed dollar limitation for tax years after 2006? The R.B. Alden and General Motors cases involve pre-2007 tax years.

Nov 15, 2019

The PA Supreme Court held the fixed dollar net operating loss deduction (flat dollar cap) unconstitutional in the Nextel decision issued on Oct. 18, 2017. The Supreme Court, however, did not address whether this decision should be applied retroactively.

What is the status of the JP Morgan Securities, Inc. and New Cingular Wireless PCS cases, and what is the income producing activity/cost of performance appeals that the Department may litigate?

Nov 15, 2019

JP Morgan Securities, Inc. (Commonwealth Court Dkt. Nos. 663-666 FR 2016) were closed by stipulations for judgment satisfied August 7, 2019. New Cingular Wireless PCS, LLC (Commonwealth Court Dkt. Nos. 1001-1002 FR 2013, 16-17 FR 2016) are in the discovery phase of litigation. New Cingular Docket Nos. 151-153 FR 2018 are being reviewed by the Court separately due to jurisdiction issues.

How does the Department of Revenue determine on audit whether a corporate taxpayer's method of sourcing service receipts is reasonable?

Nov 15, 2019

During the course of an audit, the auditor requests a full description of the taxpayer’s business activities, where the service is delivered, and the method used for sourcing those receipts.

Scenario: Under IRC § 860E a holder of a residual interest in a Real Estate Mortgage Investment Conduit (REMIC) is required, at a minimum, to pay tax on its excess inclusion income (EII).

Nov 15, 2019

Scenario: Under IRC § 860E a holder of a residual interest in a Real Estate Mortgage Investment Conduit (REMIC) is required, at a minimum, to pay tax on its excess inclusion income (EII). A REMIC residual interest holder is instructed to report taxable income on federal Form 1120, line 30, for each year in an amount no less than EII and a net operating loss will be generated. This treatment is required whether the taxpayer reports a loss on federal Form 1120, line 28.

Week Ending Nov. 15, 2019

Nov 15, 2019

In this issue: Record Expungement Allowed for Pennsylvania Licensees; IFO Issues Five-Year Pa. Economic Outlook; Pa. Bill Would Establish State Solvency Commission; and more.

Is this credit limited to sales tax paid to certain states and, if so, specifically which states are those and what is the basis/rationale for just those states?

Nov 14, 2019

Go to www.revenue.pa.gov, use the search tool, and type REV-227 in the search box; hit enter.

Given the U.S. Supreme Court’s decision in the Wayfair case, is the Department of Revenue considering any changes to existing sales and use tax nexus and collection rules?

Nov 14, 2019

The Department is analyzing the effect of Wayfair on sales and use tax nexus and collection rules.

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A taxpayer sells stock in an S Corporation. The sales price is a base amount up front plus future payments depending on revenue for the following three years. How is this reported for sales price and basis for PIT purposes in the year of sale?

How should PA-40 non-resident sellers (individual shareholder) of a PA S Corp present the gain from the sale of stock to the buyer when an IRC 338(h)(10) election has been made?

Scenario: AB LP, a partnership domiciled in Pennsylvania, sells an interest in a partnership and a patent. Assume for PA PIT purposes the gain from each sale is reported on Schedule D.

What is the process the Department of Revenue intends to use in auditing payors of nonemployee compensation in instances where the payee performs services within and outside of Pennsylvania?

AB LP incorrectly withholds PA PIT on a corporate partner. What is the process for having the Department of Revenue credit the erroneously withheld PA PIT to the corporate partner’s CNIT account?

Will the Department of Revenue provide a specific section or sections in its return instructions that set forth the rules on how pass-through income from other pass-through entities should be treated for each class of income?

How come a nonresident cannot participate in the filing of a PA-40 NRC in the instance where he/she holds interest in a pass-through entity in a single member LLC classified as a disregarded entity for federal income tax purposes or a revocable trust?

Has the Department of Revenue further considered any income tax implications of the Wayfair decision? If so, can it provide guidance?

When can we expect market-based sourcing regulations?

Is Form REV-986 required for taxpayers claiming PL 86-272 protection?

What is the Board of Appeals' policy of refusing to grant relief in cases that involve the application of the net loss fixed dollar limitation for tax years after 2006? The R.B. Alden and General Motors cases involve pre-2007 tax years.

What is the status of the JP Morgan Securities, Inc. and New Cingular Wireless PCS cases, and what is the income producing activity/cost of performance appeals that the Department may litigate?

How does the Department of Revenue determine on audit whether a corporate taxpayer's method of sourcing service receipts is reasonable?

Scenario: Under IRC § 860E a holder of a residual interest in a Real Estate Mortgage Investment Conduit (REMIC) is required, at a minimum, to pay tax on its excess inclusion income (EII).

Week Ending Nov. 15, 2019

Is this credit limited to sales tax paid to certain states and, if so, specifically which states are those and what is the basis/rationale for just those states?

What are the qualifications or limitations to this credit for sales tax legally paid other states?

Does Pennsylvania allow a credit against use tax for sales tax legally paid to another state?

Will the Wayfair decision have any impact on the recent marketplace provisions?

Given the U.S. Supreme Court’s decision in the Wayfair case, is the Department of Revenue considering any changes to existing sales and use tax nexus and collection rules?

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