United States

Louisiana issues rules on pass-through entity C corp elections

TAX ALERT  | 

The Louisiana Department of Revenue has promulgated new corporate income tax regulations (see page 42) that establish procedures for pass-through entities electing to be taxed as C corporations. Pass-through entities electing to be taxed as C corporations must meet the following requirements: 

  • Shareholders, members or partners holding more than one-half of the ownership interest in the entity based upon capital account balances on the day the election is made shall approve the election
  • The entity must provide the department at the time of making the election either: a) a resolution signed by secretary of the corporation or equivalent officer or manager verifying that more than one-half of the ownership interest in the entity based upon capital account balances approved the election, or b) other written proof that more than one-half the ownership interest in the entity approved the election
  • The entity must make the election on Form R-6980, Tax Election for Pass-Through Entities, and submit the form to the department by email, with all documentation attached

Any entity that files a composite partnership return is prohibited from making the election. The regulations provide the procedures for terminating the election as well.

The department will begin accepting elections on Feb. 1, 2020, for taxable years beginning on or after Jan. 1, 2019. Elections can be made at any time during the preceding taxable year for which the election is effective or at any time during the taxable year in which the election is first effective or on or before the 15th day of the fourth month after the close of the taxable year in which the election is first effective. 

Once the election is made, the entity must electronically file Louisiana Form CIFT-620, Corporation Income Tax and Franchise Tax Return, for the applicable taxable year for which the election was made and all taxable years thereafter unless the election is terminated. The return must be accompanied by a pro forma Federal Form 1120, the Schedule K-1, and Forms R-6981, Statement of Owner’s Share of Entity Level Tax Items, and R-6982, Schedule of Tax Paid if Paid by Owner

The regulations state that all credits and net operating losses recognized by the entity prior to election are not available at the entity level. Moreover, all credits and net operation losses in years after the election is made may not pass through to the owners of the entity. 

Takeaways

There are many reasons why a pass-through entity may desire to be taxed as a C corporation for state income tax purposes. Entities operating in Louisiana now have the procedures for making that election. All interested taxpayers should consult with their tax advisors for additional information. 

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