N.J. Admin. Code § 18:7-11.16

Current through Register Vol. 56, No. 11, June 3, 2024

Section 18:7-11.16 - Return to be filed by an S Corporation

(a) Except as may be provided otherwise by this section, an S corporation, that is, one which has made an election under section 1361 et seq., of the Internal Revenue Code of 1954, as amended and supplemented, must complete its New Jersey corporation business tax return on its own separate basis as though no election had been made under the Federal statute.

(b) Except as may be provided otherwise by this section, in preparing its corporation business tax return the taxpayer cannot assume that ordinary income or loss (Federal taxable income) is equal to Federal taxable income before net operating loss deduction and special deductions for New Jersey corporation business tax purposes, when the taxpayer has elected Federal S corporation treatment. Certain amounts not necessarily limited to I.R.C. § 179 expenses and Form 1120-S dividends that qualify for the dividend exclusion are not included as part of the S corporation's ordinary income (loss) computation, but rather are passed directly through to the shareholder on the Federal Form K-1 Schedule. For corporation business tax purposes these amounts are included in the computation of entire net income, as if the corporation were a C corporation and no Federal S corporation election were made.

Example 1: S Corporation has 1985 taxable income for Federal tax purposes of $ 100,000. However, not included in computation of such amount is a $ 5,000 I.R.C. § 179 expense and $ 10,000 of S Corporation dividends received from a different corporation that qualify for the Federal dividend exclusion. Barring any other difference between Federal taxable income and New Jersey taxable income per Schedule A, Form CBT-100, New Jersey taxable income before net operating loss deduction (NOL) and special deductions is computed as such:

$ 100,000	Federal Taxable Income
(5,000)	I.R.C. § 179 Expense
10,000	Qualifying S Corporation Dividends
$ 105,000	New Jersey Taxable Income Before NOL and Special Deductions

Example 2: S Corporation is liquidating under I.R.C. § 337. When disposing of its real property during the 12 month distribution period, the corporation recaptures for Federal tax purposes $ 5,000 of I.R.C. § 291 expenses which an S Corporation does not include as part of Federal taxable income if it were an S Corporation for the three preceding years before the I.R.C. § 337 election and the I.R.C. § 1363(b) election. Since the S Corporation is treated as a C Corporation for State tax purposes, the I.R.C. § 291 recapture is part of taxable income before net operating loss and special deductions on Schedule A, Form CBT-100.

(c) With respect to tax years beginning after July 7, 1993, S corporation status may be elected for New Jersey purposes by the shareholders of a Federal S corporation. The filing of an election Form CBT-2553 with the Division of Taxation to be recognized as a New Jersey S corporation is required. A New Jersey S corporation is entitled to pay its tax at a preferential rate as provided in N.J.S.A. 54:10A-5(c)(2) and (3) and to report and pay its tax liability on Form CBT-100S.

N.J. Admin. Code § 18:7-11.16

Amended by 49 N.J.R. 1694(a), effective 6/19/2017