La. Admin. Code tit. 61 § I-1001

Current through Register Vol. 50, No. 8, August 20, 2024

Section I-1001 - Election of Pass-Through Entities

A. Act 442 of the 2019 Regular Session of the Louisiana Legislature, allows S corporations, and other entities taxed as partnerships for federal income tax purposes, to make an election to be taxed in the same manner as if the entity was required to file a tax return with the Internal Revenue Service as a C corporation.

1. For taxable periods beginning on or before December 31, 2021, the income of entities that make the election under R.S. 47:287.732.2 shall be taxed at the following rates:

a. 2 percent upon the first $25,000 of Louisiana taxable income;

b. 4 percent upon the amount of Louisiana taxable income above $25,000 but not in excess of $100.000; and

c. 6 percent upon the amount of Louisiana taxable income above $100,000.

2. For taxable periods beginning on or after January 1, 2022, the income of entities that make the election under LA R.S. 47:287.732.2 shall be taxed at the following rates:

a. 1.85 percent upon the first $25,000 of Louisiana taxable income;

b. 3.5 percent upon the amount of Louisiana taxable income above $25,000 but not in excess of $100.000; and

c. 4.25 percent upon the amount of Louisiana taxable income above $100,000.

B. Requirements to Make the Election

1. Shareholders, members or partners holding more than one-half of the ownership interest in the entity based upon capital account balances on the day the election is made shall approve the election.

2. The entity shall provide the Department of Revenue at the time of making the election either:

a. a resolution signed by secretary of the corporation or equivalent officer or manager verifying that more than one-half of the ownership interest in the entity based upon capital account balances approved the election, or

b. other written proof that more than one-half the ownership interest in the entity approved the election.

3. An entity shall make the election on Form R-6980, Tax Election for Pass-Through Entities and the form shall be submitted to the Department of Revenue by email to Section 732.2 election@la.gov.

a. The following documentation shall be attached to Form R-6980:

i. a list of all owners, their addresses and their tax identification numbers as of the last day of the taxable year to which the election is effective;

ii. federal returns for the entity for the preceding three taxable years if applicable, including form K-1s and pass-through or disregarded entity forms such as Schedules C, E, and F;

iii. Repealed.

iv. formation documents of the entity such as the Articles of Incorporation, Partnership Agreement or Operating Agreement which specifically set forth how profits, losses and other tax items are distributed to the owners; and

v. a list of all unused Louisiana net operating losses, tax credit balances and other tax items earned at the entity level prior to the election.

vi. Repealed.

4. Any entity who files a composite partnership return pursuant to LA R.S. 47:201.1 is prohibited from making the election.

5. Elections are timely if made: at any time during the preceding taxable year of the year in which the election is first effective; at any time during the taxable year in which the election is first effective or on or before the 15^th day of the fourth month after the close of the taxable year in which the election is first effective.

a. The department will begin accepting elections on February 1, 2020 for taxable years beginning on or after January 1, 2019.

b. The secretary has the discretion to treat an election made after the fifteenth day of the fourth month after the close of the taxable year in which the election is first effective as timely if reasonable circumstances exist for the entitys failure to make a timely election.

i. The secretary shall consider whether to treat applications filed after the fifteenth day of the fourth month after the close of the taxable year as filed timely on a case-by-case basis.

ii. Reasonable circumstances may include, but are not limited to, death or serious illness of owners, death or serious illness of the entitys tax preparer, or federally declared natural disasters or emergencies.

iii. A determination that the entity and its owners will pay less total tax under the election shall not be a reasonable circumstance to consider a late election timely.

c. An election, once made, is effective for the entire taxable year for which is was made as well as all subsequent taxable years until the election is terminated.

C. Filing Tax Returns after Election

1. Each entity making the election shall file Louisiana Form CIFT-620, Corporation Income Tax and Franchise Tax Return, for the applicable taxable year for which the election was made and all taxable years thereafter unless the election is terminated.

2. Each entity making the election and filing the Louisiana Form CIFT-620 with all supporting documentation as required by the Department shall be required to file the return electronically in accordance with LAC 61:III.1505. Failure to comply with the electronic filing requirement of this section will result in the assessment of a penalty as provided for in R.S. 47:1520(B).

3. The following documents shall be attached to the Louisiana Form CIFT-620 when filed:

a. Repealed.

b. Schedule K-1s as actually issued to the owners of the entity for the taxable year as well as Form R-6981, Statement of Owners Share of Entity Level Tax Items, reflecting any income that remains taxable to the entitys owners in Louisiana after the election such as dividends and interest; and

c. Louisiana Form R-6982, Schedule of Tax Paid if Paid by Owner, calculating how much tax would have been due if the entity had passed the income through to its owners and the tax had been paid at the owner level.

4. Modification of Income and Loss

a. Taxpayers with an ownership interest in an entity making the election shall make a modification, as follows:

i. Resident individual taxpayers shall make a modification on Schedule E of their Louisiana Form IT-540, Louisiana Resident Income Tax Return, in accordance with R.S. 47:297.14. A non-resident or part-year resident shall make the modification on the Nonresident and Part-Year Resident (NPR) Worksheet of the Louisiana Form IT-540B, Louisiana Nonresident and Part-Year Resident Income Tax Return.

ii. Resident and nonresident trusts or estates shall make a modification on Lines 2D and 3D and Schedule A, respectively, of their Louisiana Form IT-541, Fiduciary Income Tax Return.

b. The modification shall be made for all income or loss of the entity that was included by the individual or fiduciary owners in the calculation of federal adjusted gross income or federal taxable income, respectively, but which is being taxed at the entity level for Louisiana income tax purposes after the election is made.

c. The modification shall not be made for any income or loss that remains taxable for Louisiana individual or fiduciary income tax purposes to the entity's owners, such as interest income and dividend income.

d. For calculation purposes, individual or fiduciary income taxpayers with an ownership interest in an entity making the election shall submit a pro forma Federal Form 1040 or 1041, respectively, that excludes any income, deductions or other tax items that were included in the calculation of Louisiana net income on the entity's Louisiana Form CIFT-620.

5. Net Operating Losses

a. Louisiana net operating losses recognized in taxable years prior to the election that have previously been passed through to the owners are tax items of the owners and any such losses are not available for utilization at the entity level in taxable years to which the election applies.

b. Louisiana net operating losses for any taxable year to which the election applies are tax items of the entity and any such losses shall not pass through to the owners of the entity regardless of whether or not the election is terminated in a future taxable year.

6. Tax Credits Granted to Pass-Through Entities

a. Louisiana tax credits earned in taxable years prior to the election that have previously passed through to the owners are tax items of the owners and any such credits are not available for utilization at the entity level in taxable years to which the election applies.

b. Louisiana tax credits earned for any taxable years to which the election applies are tax items of the entity and any such credits shall not pass through to the owners of the entity regardless of whether or not the election is terminated in a future taxable year.

D. Termination of the Election. Entities who make the election pursuant to R.S. 47:287.732.2, may apply to the secretary of the Department of Revenue to terminate the election. Any such termination request requires the written approval of more than one-half of the ownership interest based upon capital account balances on the date the request is submitted. A taxpayer may request a termination of the election by electronic submission of Louisiana Form R-6983, Termination of the Pass-Through Entity Tax Election, and satisfying the requirements of either method of termination, as follows:

1. The secretary may terminate the election if the entity shows a material change in circumstances.

a. A significant change in federal law may be considered a material change in circumstances.

b. A tax increase resulting from the decision to make the election, in and of itself, shall not be considered a material change in circumstances.

c. The request to terminate the election shall include a written explanation of the material change which warrants termination.

d. Once the entity has filed a Louisiana income tax return for a taxable year for which the election has been made or a subsequent taxable year, the secretary shall not grant a termination of the election to apply to such taxable year for which a return has already been filed.

2. A taxpayer may terminate the election by filing an application for prospective termination.

a. For purposes of this Paragraph, an application shall be considered timely and complete when all required documentation has been submitted on or before November 1 prior to the close of the taxable year for calendar year filers or sixty days prior to the close of the taxable year for fiscal year filers.

3. An entity applying for termination under either method provided in this Subsection must provide the Department either:

a. A resolution signed by secretary of the corporation or equivalent officer manager verifying that more than one-half the ownership interest in the entity based upon capital account balances approved the election, or

b. Other written proof that more than one-half the ownership interest in the entity based upon capital account balances approved the request for termination.

La. Admin. Code tit. 61, § I-1001

Promulgated by the Department of Revenue, Policy Services Division, LR 4643 (1/1/2020), Amended LR 482991 (12/1/2022), Amended by the Department of Revenue, Tax Policy and Planning Division, LR 50365 (3/1/2024).

AUTHORITY NOTE: Promulgated in accordance with R.S. 47:287.732.2, 300.6, 300.7 and 1511.