Section Rev 303.01 - Compensation for Personal Services of Proprietor, Partner or Member(a) For purposes of this section, the following definitions shall apply: (1) "Actual personal services" means the services performed by a natural person, who is a proprietor, partner, or member of an unincorporated business organization, that are directly related to the operation of the unincorporated business organization taking the compensation deduction, but not in any capacity for another business organization;(2) "Amounts that are fairly attributable to the actual personal services of the proprietor, partner or member" means the amount as would be allowed using the standards set forth in section 162(a)(1) of the IRC, as amended, and Treasury Regulations, administrative rulings, and judicial cases interpreting such provision;(3) "Business activity" means "business activity" as defined in RSA 77-A:1I, XI;(4) "Capital business asset" for purposes of determining the amount of the addition to the fair and reasonable compensation deduction allowable under RSA 77-A:4, III(a) means a "capital asset" as defined in section 1221(a) of the IRC, as amended, and that the capital business asset is an asset used by the unincorporated business organization to conduct business activity;(5) "Unincorporated business organization" means a proprietorship, partnership, or limited liability company taxed as a proprietorship or partnership for federal income tax purposes;(6) "Gross selling price as commissions on the sale of business assets" for purposes of determining the amount of the addition to the fair and reasonable compensation deduction allowable under RSA 77-A:4, III(a) means the amount received in exchange for the sale or other disposition of a capital business asset measured by the sum of:b. Indebtedness assumed by the buyer or transferee; andc. The fair market value of any property, other than money, received in exchange for the capital business asset;(7) "Natural person" means a human being, as well as a trustee of a grantor trust not recognized as a business organization; and(8) "Total compensation" means the sum of compensation, as defined in Rev 301.10, fringe benefits, as defined in Rev 301.16, and any other form of remuneration for all proprietors, partners, or members rendering actual personal services to the unincorporated business organization.(b) An unincorporated business organization shall be allowed a compensation deduction for the total compensation that is reasonable and fairly attributable to its proprietors, partners, or members who render actual personal services to the unincorporated business organization.(c) The compensation deduction shall be determined for each proprietor, partner, or member who rendered actual personal services to the unincorporated business organization and shall be allowed for amounts that would be allowable as reasonable under IRC section 162(a)(1), as amended in the year the deduction is taken, Treasury Regulation section 1.162-7, administrative rulings and judicial cases interpreting IRC section 162(a)(1).(d) The amount determined in (c) above shall not exceed the amount reported as earned income, as defined in Rev 301.13, on the federal income tax returns of the proprietor, partner, or member, but may also include: (1) An amount not to exceed net income from rental properties from federal Form 1040, schedule E, federal Form 8825, and federal Form 4835; and(2) An amount not to exceed 15 percent of the gross selling price as commissions on the sale of capital business assets. If the proprietor, partner, or member acted as the broker or agent for the sale of capital business assets, the following shall apply: a. If no other broker or agent representing the seller was involved in the sale of the capital business asset, a commission not to exceed 15 percent of the total gross sales price as shown on federal Form 4797, federal Form 6252, federal Form 1065 schedule D, and federal Form 1040 for the sale of business assets; orb. If the partner, proprietor, or member acts as a co-broker, the maximum deduction shall be the difference between the amount determined in a. above and the amounts paid to other brokers or agents.(e) If an unincorporated business organization or group of related business organizations is under audit review by the department and did not elect the record-keeping safe harbor on the return being audited, the unincorporated business organization or group of related business organizations may elect the record-keeping safe harbor during the audit review by filing an amended return reporting a compensation deduction of up to $75,000 as total compensation for the tax year under audit review, which the department shall accept as reasonable.(f) The compensation deduction shall not reduce the taxable business profits of the unincorporated business organization to below zero.(g) An unincorporated business organization that deducts the record-keeping safe harbor amount of up to $75,000 as total compensation for the tax year shall not be required to keep records as provided under (d), above.(h) An unincorporated business organization that deducts in excess of the record-keeping safe harbor amount of $75,000 as total compensation for the tax year shall keep such records as are necessary to determine that the compensation deduction is reasonable under §162(a)(1) of the IRC, as it may be amended in the year the deduction is taken, and Treasury Regulations, administrative rules, and judicial decisions rendered thereunder.(i) A partnership business organization electing to be taxed as a corporation for federal income tax purposes shall: (1) Not take a compensation deduction under RSA 77-A:4, III; and(2) Take a reasonable compensation deduction as allowed under IRC section 162 when such deduction is: a. Taken on the entity's federal corporate return filed with the Internal Revenue Service; andb. In accordance with Rev 302.14.(j) Where a proprietor, partner, or member provides actual personal services for multiple business organizations, the records of each business organization shall comply with the requirements of (i), above.(k) Where a proprietor, partner, or member provides actual personal services for multiple business organizations, the deduction claimed by each business organization shall be for the actual personal services rendered to it by the individual in the capacity of the proprietor, partner, or member of the specific business organization for which the deduction is taken.(l) Remuneration for the actual personal services performed by a spouse shall be deductible: (1) As compensation in determining the gross business profits of the business organization when the spouse is an employee; or(2) Under the provisions of RSA 77-A:4, III if the spouse is not an employee of the business organization and performs the personal services as a surrogate for the proprietor, partner, or member.N.H. Code Admin. R. Rev 303.01
#4192, eff 12-23-86; ss by #4438, eff 6-22-88; ss by #5490, eff 10-19-92; ss by #6853, eff 9-23-98; ss by #8709, eff 8-25-06
Amended byVolume XXXV Number 06, Filed February 12, 2015 , Proposed by #10758, Effective 1/16/2015, Expires1/16/2025.Amended by Number 10, Filed March 9, 2023, Proposed by #13552, Effective 2/7/2023, Expires 2/7/2033.