The FTB is still in the process of updating forms and form instructions to reflect the recent changes to California’s passthrough entity elective tax and Passthrough Entity Elective Tax Credit made by SB 113 (Ch. 22-3). While many of the changes require only modifications to the form instructions, we’ve heard from practitioners that some software companies are still not letting them e-file these returns (even if the entity is not paying the passthrough entity elective tax).
The FTB has also stated that it has not yet updated Schedule P (540), Alternative Minimum Tax and Credit Limitations — Residents, to reflect the elimination of the tentative minimum tax (TMT) limitation.
Many practitioners have contacted us to report problems with e-filing passthrough entity returns and how the passthrough entity elective tax is being reflected on their clients’ returns. These problems are caused by software that has not yet been updated to reflect the SB 113 changes. Unfortunately, some of these changes will not be made until after the March 15 filing deadline.
Before filing passthrough entity returns reporting the passthrough entity elective tax or Passthrough Entity Elective Tax Credit, tax professionals should ensure that their software has been updated to reflect all the changes made by SB 113. If your software has not been updated, consider putting these returns on extension until your software has been updated to reflect the following changes:
- Repealing the TMT limitation on the Passthrough Entity Elective Tax Credit (this also impacts the credit ordering rules on Schedule P (540));
- Including guaranteed payments in the entity’s qualified net income;
- Allowing partnerships with partnership owners to make the election; and
- Allowing a partnership/S corporation/LLC to pay the tax on behalf of SMLLC owners if the SMLLC is owned by an individual, estate, or trust.
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