Or. Admin. R. 150-314-0522

Current through Register Vol. 63, No. 6, June 1, 2024

Section 150-314-0522 - Pass-through entity elective tax: Electing entities using a fiscal year; when addition and credit claimed by member

(1) The pass-through entity elective tax (PTE-E tax) program is available on a calendar-year basis for tax years beginning on or after January 1, 2022 and before January 1, 2026.

(2) Partnerships and S corporations (and limited liability companies (LLCs) electing to be taxed as partnerships or S corporations) that use a fiscal year other than a calendar year for accounting purposes under section 441 of the Internal Revenue Code may elect to be liable for and pay the PTE-E tax for the calendar year that includes the last day of the electing entity's fiscal year, provided that the electing entity's fiscal year begins on or after January 1, 2022 but before January 1, 2026.

Example 1: Sunbrook Farms, Inc., an S corporation, uses a fiscal year beginning May 1 and ending April 30 for accounting purposes. Sunbrook may elect to pay the PTE-E tax for the 2023, 2024, 2025, or 2026 calendar years. If it makes the election for calendar year 2023, it will calculate the PTE-E tax based on its income for the fiscal year that begins May 1, 2022 and ends April 30, 2023. If Sunbrook makes the election for calendar year 2026, it will calculate the PTE-E tax based on its income for the fiscal year that begins May 1, 2025 and ends April 30, 2026.

Example 2: Willows LLC, which elects to be taxed as a partnership, uses a fiscal year beginning August 1 and ending July 31. Willows wants to make the PTE-E tax election for calendar year 2022, for its fiscal year ending in 2022. Because its 2022 tax year begins before January 1, 2022, the election is not available. Willows must wait until calendar year 2023 to make the election for its fiscal year that begins after January 1, 2022 and ends in 2023.

Example 3: Watson and Creek, a partnership, wants to make the PTE-E tax election. The partnership has been using a fiscal year beginning April 1 and ending March 31 for accounting purposes. In 2022, a change in partners holding a majority interest requires Watson and Creek to adopt a different tax year. As of January 1, 2023, the partnership will use a calendar year for accounting purposes. The partnership has a short tax year for 2022 that begins April 1, 2022 and ends December 31, 2022. Watson and Creek can make the PTE-E tax election for calendar year 2022 because their short tax year begins after January 1, 2022 and the last day of the short tax year is included in calendar year 2022.

(3) A personal income taxpayer who is a member of an electing entity, or of an entity that is a member of an electing entity, will report the taxpayer's distributive share of the following items on the personal income tax return filed for the tax year of the taxpayer that includes the last day of the electing entity's fiscal year:

(a) The addition for PTE tax deducted under section 164 of the Internal Revenue Code on a federal return filed by the electing entity for the entity's fiscal year.

(b) The credit against tax due under ORS chapter 316 for the PTE-E tax paid by the electing entity for the calendar year for which it makes the election.

Example 4: Rebecca is a shareholder in Sunbrook Farms, Inc., the S corporation from Example 1. Sunbrook elects to pay the PTE-E tax for calendar year 2026. On her 2026 Oregon personal income tax return, Rebecca will report her distributive share of income from Sunbrook's 2026 fiscal year in the usual manner. She will report an addition for her share of the PTE-E tax deducted by Sunbrook on its federal return for fiscal year 2026. Rebecca will also claim the credit for her share of the PTE-E tax paid by Sunbrook for calendar year 2026.

Or. Admin. R. 150-314-0522

REV 35-2022, adopt filed 12/28/2022, effective 1/1/2023; REV 24-2023, amend filed 12/26/2023, effective 1/1/2024

Statutory/Other Authority: ORS 305.100

Statutes/Other Implemented: 2021 Oregon Laws ch. 589 & 2022 Oregon Laws ch. 82 § 3