We provide here a written summary of answers provided by the Department of Revenue to the committee at periodic question and answer sessions. 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 a specific fact situation may request a written letter ruling under 61 Pa. Code Section 3.3.
Q&A with the Pennsylvania Department of Revenue
A liquidation of a subsidiary or an upstream merger is not book income for GAAP. Why are DOR auditors treating this as book income for PA CST/Franchise tax purposes?
A liquidation of a subsidiary or an upstream merger (which is treated as a “Section 332” liquidation) is not book income for GAAP. Why are the PA Department of Revenue auditors treating this as book income for PA CST/Franchise tax purposes?
This question was asked and answered in 2006. The response at that time is still applicable. This would be a liquidating distribution and would be dividend income in the calculation of book income for PA CS/FF purposes. If the taxpayer is able to establish that their method of accounting, on a separate company basis, allows an increase in retained earnings without effecting net income it will be considered by the Department’s auditors and taxing officers.