Tax Commission, Auditing

Section R865-9I-56

Determination of Amounts Withheld by a Pass-Through entity that is an S Corporation Pursuant to Utah Code Ann. Section 59-10-116, 59-10-117, 59-10-118, 59-10-1403.2, and 59-10-1405

Notice of Proposed Rule

(Amendment)

DAR File No.: 33351
Filed: 01/28/2010 11:21:11 AM

RULE ANALYSIS

Purpose of the rule or reason for the change:

The proposed amendment clarifies statutory requirements for a pass-through entity to withhold income tax on behalf of its pass-through entity taxpayers.

Summary of the rule or change:

The proposed amendment clarifies that a pass-through entity is not required to withhold income tax on behalf of a pass-through entity taxpayer that is exempt from tax under Section 59-7-102.

State statutory or constitutional authorization for this rule:

• Section 59-10-117
• Section 59-10-116
• Section 59-10-1403.2
• Section 59-10-118
• Section 59-10-1405

Anticipated cost or savings to:

the state budget:

None--This language clarifies S.B. 23 (2009). Any fiscal impact would have been included in that bill. (DAR NOTE: S.B. 23 (2009) is found at Chapter 312, Laws of Utah 2009, and was effective 03/25/2009.)

local governments:

None--This language clarifies S.B. 23 (2009). Any fiscal impact would have been included in that bill.

small businesses:

None--This language clarifies S.B. 23 (2009). Any fiscal impact would have been included in that bill.

persons other than small businesses, businesses, or local governmental entities:

None--This language clarifies S.B. 23 (2009). Any fiscal impact would have been included in that bill.

Compliance costs for affected persons:

None--The proposed amendment is necessary so that a pass-through entity does not withhold tax on a taxpayer who is not required to pay tax. Without this amendment, a pass-through entity might believe it must withhold tax on a tax exempt entity and the tax exempt entity would then need to file a tax return for a refund of the tax.

Comments by the department head on the fiscal impact the rule may have on businesses:

No impact on businesses.

Michael J. Cragun, Commissioner

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Tax Commission
Auditing
210 N 1950 W
SALT LAKE CITY, UT 84134

Direct questions regarding this rule to:

• Michael Cragun at the above address, by phone at 801-297-3907, by FAX at 801-297-3919, or by Internet E-mail at [email protected]

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

03/17/2010

This rule may become effective on:

03/24/2010

Authorized by:

R. Bruce Johnson, Tax Commission Chair

R865. Tax Commission, Auditing.

R865-9I. Income Tax.

R865-9I-56. Determination of Amounts Withheld by a Pass-Through Entity that is an S Corporation Pursuant to Utah Code Ann. Section 59-10-116, 59-10-117, 59-10-118, 59-10-1403.2, and 59-10-1405.

(1) The provisions of this rule apply to a pass-through entity that is an S corporation. For provisions that apply to a pass-through entity that is not an S corporation, see rule R865-9I-13.

(2) A pass-through entity that is an S corporation with nonresident shareholders shall complete Schedule N of form TC-20S, and shall provide the following information for each nonresident pass-through entity taxpayer:

(a) name;

(b) address;

(c) social security number;

(d) percentage of S corporation held; and

(e) amount of Utah tax paid or withheld on behalf of that pass-through entity taxpayer.

(3) The income of a pass-through entity that is an S corporation shall be calculated by:

(a) adding back to the line on the Schedule K labeled Income/loss reconciliation" the amount included on that schedule for:

(i) charitable contributions;

(ii) total foreign taxes paid or accrued; and

(iii) recapture of a benefit derived from a deduction under Section 179, Internal Revenue Code; or

(b) if the pass-through entity that is an S corporation was not required to complete the line labeled Income/loss reconciliation" on the Schedule K, a pro forma calculation of the amounts for charitable contributions and foreign taxes paid or accrued, and of the amount that would have been entered on the Income/loss reconciliation" line shall be used for purposes of this rule.

(4) A pass-through entity that is an S corporation shall calculate the tax it withholds on behalf of its nonresident pass-through entity taxpayers by:

(a) multiplying the income of the pass-through entity by the rate in effect under Section 59-10-104; and

(b) subtracting from the amount calculated in Subsection (4)(a) any amounts withheld under Section 59-6-102.

(5) A pass-through entity that is an S corporation is not required to withhold a tax on behalf of a pass-through entity taxpayer that is exempt from taxation under Subsection 59-7-102.

 

KEY: historic preservation, income tax, tax returns, enterprise zones

Date of Enactment or Last Substantive Amendment: [September 17, 2009]2010

Notice of Continuation: March 20, 2007

Authorizing, and Implemented or Interpreted Law: 59-10-108 through 59-10-122; 59-10-1403.2; 59-10-1405