AICPA Comments on Passthrough Tax Payment Deductibility
The American Institute of CPAs (AICPA) has submitted recommendations to the Internal Revenue Service (IRS) regarding the deductibility of payments by passthrough entities (PTE), such as partnerships and S corporations, for certain state and local ...
Oct. 27, 2021
The American Institute of CPAs (AICPA) has submitted recommendations to the Internal Revenue Service (IRS) regarding the deductibility of payments by passthrough entities (PTE), such as partnerships and S corporations, for certain state and local income taxes. IRS Notice 2020-75 clarifies that these taxes are deductions allowable in computing the non-separately stated income of such entities and states an intent to develop and issue proposed regulations regarding PTE taxes.
Many states have enacted or are preparing to enact state and local income tax legislation, and taxing localities can have different approaches to these taxes. These recommendations identify and provide additional information to the Department of the Treasury and the IRS regarding certain issues arising for S corporation shareholders with respect to the Notice and various states’ enacted legislation imposing PTE taxes on the passthrough entity.
The AICPA recommends:
- That any actual distributions to compensate owners that are either ineligible or do not elect to participate in a PTE tax assessment are treated similarly to tax payments under IRS regulations, and
- Further clarification in proposed regulations of the definition of a qualified “specified income tax payment” and the character and classification of the associated deduction.