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
Scenario: On July 1, 2013, an individual taxpayer moves to Pennsylvania from New Jersey. The taxpayer has owned an interest in a pass-through entity for the past ten years.
On July 1, 2013, an individual taxpayer moves to Pennsylvania from New Jersey. The taxpayer has owned an interest in a pass-through entity (Partnership or S Corporation) for the past ten years. The entity has never conducted business in Pennsylvania and no NRK-1’s or RK-1’s were issued for years prior to 2013. For the 2013 and 2014 tax years the taxpayer received an RK-1 from the entity.
For purposes of the taxpayer’s ability to deduct losses passed-through from the entity or for determining gain or loss from the sale of their interest in the entity, how is the taxpayer’s basis determined for Pennsylvania PIT purposes? Would the computations differ if the entity had been conducting business in Pennsylvania for the past several years and had issued NRK-1’s to the taxpayer for years prior to their obtaining residence in Pennsylvania? Does the tax structure of the state where the taxpayer moved from have any impact on their PA Basis?
For instance, NJ’s Gross Income Tax is very similar to Pennsylvania’s PIT in that it is not based on federal principals and losses in one category of income may not offset gains in another. Would the taxpayer’s New Jersey basis be the carryover basis used for PIT purposes?
For purposes of calculating the individual taxpayer’s basis, the taxpayer would use their federal basis as of July 1, 2013 (the date they became a resident) as a starting point (i.e. initial basis) and adjust it going forward according to Pennsylvania Personal Income Tax rules. The starting point would not change if the entity had been conducting business in Pennsylvania for the past several years. The federal basis would be used as the initial basis and not another state’s basis regardless of the other state’s tax structure.