S corp owning multi state PTE receives distribs > basis

Technical topics regarding tax preparation.
#1
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This happens to be an S corp that gets a K1 from a multi-state LLC. Share of liabilities dropped by end of 2018, creating a large excess of basis gain at the S corp level.

Any reason to decide how much (if any) of that gain to report to each state, any differently that a partial sale by the S corp of it's interest in the LLC would be reported? It's a pita and some guesswork to look at latest rules for a whole bunch of states on partial sale of an LLC interest. Safest would be to apportion same way as current year biz income to each state. But the state of domicile and the resident state for all the shareholders, CA, probably would disagree.

If you know of a list in RIA or CCH for which states expect apportionment of the gain and which don't, please let me know.

Len Raphael
Oakland CA
 

#2
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#3
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#4
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Terry, do you have a working link to the Pillsbury article?

"Common sense" would be that since the CA S corp holding company's sole asset is it's completely passive majority interest in a multi state operating LLC, that a gain by the S corporations on a deemed sale of some of it's interest in the multi state LLC, shouldn't be business income and thus apportionable to various states. No more than if the individual shareholders of the S corp held interests directly in a multi state LLC and sold some or all of their interest.

But multi state pass thru entity taxation is not common sense.

My impression is that some states would require apportionment of the gain and others would not. A mishash that's not consistent among the states. CA unlikely to challenge the S corp entirely CAresident shareholders paying tax to the other states and claiming a credit for tax paid to other states.

I'd have no problem doing that for this 2018 S corp return if we had known before the 2018 state extensions were filed, that there was a huge gain from distributions in excess. So pass thru withholderin/composite tax was underpaid for many states.
 


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