Companies Operating in D.C. Should ACT NOW!!

Has your company been operating under a structure that has historically kept owners or certain entities in the group from filing District of Columbia (D.C.) income/franchise tax returns?

Is your company planning to have a big sale or transaction before the end of 2012?

If the answer to any of the above questions is "yes," then my recommendation is that you act now. Review your structure, review the new DC rules and determine if any changes would be cost-beneficial.

OTHER QUESTIONS TO CONSIDER

Does your company operate within the District of Columbia (DC)? Does your company own real estate within DC? Does your company have several entities within its organizational structure, owned by corporations, limited liability companies, limited liability partnerships, or even individuals? Do those owners own more than 50%? Do those entities operate a unitary business? Does the group of entities include passive holding companies, and unincorporated businesses?

KEY CHANGES

As mentioned in a previous post, DC recently passed regulations that impose combined reporting for commonly controlled, unitary groups of entities.

  1. Entities without DC nexus may be required to be included in a DC return causing income that historically escaped taxation in DC to now get taxed. 
  2. New nexus presumptions for passive holding companies and managing partners of partnerships operating in DC may cause entities and owners that used to escape taxation in DC to now be taxed.

STARTING POINT

  1. Does our group of companies meet the ownership test?
  2. Does our group of companies meet the unitary test?

UNINCORPORATED BUSINESSES CONFUSION

Unincorporated businesses are required to be included in DC combined returns if they meet the requirements.  One of the big concerns or issues is "how" they are included.  At the moment, the regulations do provide guidance, but the guidance doesn't make complete sense.  If you read this section in the regulations, it seems like the income from the unincorporated business is going to get taxed twice because of the adjustments to the owner's information that is included in the combined return as well.  Hopefully this is something DC will change before next year's returns are due.

This blog

Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States.  He also writes a weekly column in Tax Analysts State Tax Notes entitled, "The SALT Effect."  For more info, visit his website: www.leveragestateandlocaltax.com

You can reach Brian at strahle@leveragesalt.com.

Connect with Brian on LinkedIn. Follow Brian on Twitter. Join the Leverage | SALT LinkedIn Group, connect and contribute with your colleagues!  

Because state and local taxes are deceptively simple and endlessly complicated.

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