Q&A with the Pennsylvania Department of Revenue

How does S Corporation A disclose the 338(h) transaction and the credit on Schedule K-1 and how does the individual shareholder report the credit on the PA-40 so PA will accept the return without correspondence to the shareholder?

Jun 19, 2012
The PA-20S/PA-65 should back out the gain on the sale of assets reported on the Federal either on the Schedule M or the Schedule D. The PA return should not include the fictitious gain from the 338(h)(10) transaction. The PA shareholder should pick up the gain on the sale of stock on the PA-40 Schedule D. The Schedule GL should show the tax paid to the other state on the transaction.

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These documents provide a summary of the answers provided by the Department of Revenue to the PICPA Committee on State Taxation at its annual question and answer session. These documents are classified as revenue information issued for informational purposes only for the convenience of PICPA members. Pursuant to 61 Pa. Code Section 3.4, these documents should not be relied upon for any purpose or used in tax appeals. Taxpayers requiring a binding opinion on their specific fact situation may request a written letter ruling under 61 Pa. Code Section 3.3.