Q&A with Pennsylvania Department of Revenue

Personal Income Tax

Does Pennsylvania follow IRC Sec. 336(e) for C Corporation, S corporations, and/or partnerships?
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?
Scenario: A trust has been in existence for many years, but has never had income nor a need to file a return.
Does Pennsylvania have any comments on the IRS regulations (effective Aug. 27, 2018) to combat workarounds related to the federal SALT deduction?
Recently, the DOR indicated that services like CCH, RIA, LEXIS, and Bloomberg constitute taxable sales of software and/or taxable sales of digital products. What is the basis for the DOR’s change of position?
In 2016, a question was posed asking DOR’s position regarding the PIT treatment of an IRC sec. 351 transaction with boot. The Department never provided an answer. What is the DOR’s position on this issue?
For PIT purposes, are federal income tax principles “acceptable by standards of the accounting profession” ?
What are the PA PIT tax consequences of a conversion of a PA S Corporation to a limited partnership, and would the transaction be subject to tax?
How does PA apply the income producing activity/cost of performance method for PIT purposes? For example, does the DOR’s application of the IPA/COP method in Information Notice Corporation Taxes 2014-01 also apply for PIT purposes?
PA-40 Schedule OC credits seem to be a continual issue that causes refunds to be delayed and/or billings to be issued. Is there not a better way than to send credit award letters and allocation schedules to the Bureau of Corporation Accounting Division?
Are the Schedule C reviews being handled by RSI (Revenue Solutions Inc.) and if they are, couldn’t improved analytics be utilized to more accurately reflect Schedule C’s that may actually need to be reviewed?
In the event the DOR does not accept the Schedule C as filed, and denies some expenses resulting in a change in taxable income, will that information be shared with the IRS and local taxing authorities?
What procedure is next after the second Schedule C Review notice? Will it be another request for information, a billing notice, or something else?
Is there a threshold for the number of Schedule C expenses that can be reviewed?

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Q&A with Pennsylvania Department of Revenue

Personal Income Tax

Does Pennsylvania follow IRC Sec. 336(e) for C Corporation, S corporations, and/or partnerships?

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?

Scenario: A trust has been in existence for many years, but has never had income nor a need to file a return.

Does Pennsylvania have any comments on the IRS regulations (effective Aug. 27, 2018) to combat workarounds related to the federal SALT deduction?

Recently, the DOR indicated that services like CCH, RIA, LEXIS, and Bloomberg constitute taxable sales of software and/or taxable sales of digital products. What is the basis for the DOR’s change of position?

In 2016, a question was posed asking DOR’s position regarding the PIT treatment of an IRC sec. 351 transaction with boot. The Department never provided an answer. What is the DOR’s position on this issue?

For PIT purposes, are federal income tax principles “acceptable by standards of the accounting profession” ?

What are the PA PIT tax consequences of a conversion of a PA S Corporation to a limited partnership, and would the transaction be subject to tax?

How does PA apply the income producing activity/cost of performance method for PIT purposes? For example, does the DOR’s application of the IPA/COP method in Information Notice Corporation Taxes 2014-01 also apply for PIT purposes?

PA-40 Schedule OC credits seem to be a continual issue that causes refunds to be delayed and/or billings to be issued. Is there not a better way than to send credit award letters and allocation schedules to the Bureau of Corporation Accounting Division?

Are the Schedule C reviews being handled by RSI (Revenue Solutions Inc.) and if they are, couldn’t improved analytics be utilized to more accurately reflect Schedule C’s that may actually need to be reviewed?

In the event the DOR does not accept the Schedule C as filed, and denies some expenses resulting in a change in taxable income, will that information be shared with the IRS and local taxing authorities?

What procedure is next after the second Schedule C Review notice? Will it be another request for information, a billing notice, or something else?

Is there a threshold for the number of Schedule C expenses that can be reviewed?