Discussion:CA business, nonresident issue
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Discussion Forum Index --> Tax Questions --> CA business, nonresident issue
| 6 February 2008 | |
| S corp has a small amount of CA source income and expenses. It also has an investment in an LLC that allocates out-of-state sourced rental income. The S corp has a nonresident shareholder.
Lacerte is showing all of the S corp income as CA source on the nonresident shareholder's CA Sch K-1. I think the nonresident shareholder should receive only an allocation of the S corporation's CA activities and none of the allocations from the out-of-state LLC. I will have to override Lacerte, and I am hoping for a reality check before I assume that the software is limited. Am I missing something? Thank you! | |
| 6 February 2008 | |
| Here's a guess... Lacerte is making the rental income taxable CA income because it is earned by a CA Corp. If LLC shareholder was an CA individual rather than a CA S Corp then the individual be taxed on all of the income in CA and would get credit on CA return for taxes paid to other states. Since S Corp not paying taxes to other states no credit available and pass through income taxed as CA income only. This is a guess, this is only a guess. Had this been a good answer someone else would have answered it first. :)
My rule of thumb is "don't use the overrides" in Lacerte. The Lacerte software is pretty good and when I think I need an override I usually find I was wrong in my reasoning or I entered it wrong in the program. Yes, Lacerte is smarter (much smarter) than I am. | |
| 6 February 2008 | |
| Thanks for the response. I have the same thoughts when I have to do overrides....hence the reason for the post. I understand the thought process, but it still seems to me that the income being allocated should retain its status as sourced out-of-state. I'll wade through my Spidell book and see if I can find any guidance. Thanks again. | |
| February 6, 2008 | |
| Jessica, I know I have to do the same thing (override) for a CA LLC w/ rental real estate that also has some bank interest income. Lacerte wants to show that bank interest as CA Source to the NR member. | |
| 6 February 2008 | |
| The question is whether the S corporation and the LLC of which it is a member are engaged in a unitary business. If so, you must apportion the entire net income of the S corporation (including the flowthrough income from the LLC) for purposes of both the entity-level tax and the flowthrough of California source income to the nonresident stockholder. The factors flow through from the LLC to the extent of the S corporation's P&L interest in it.
All depends on the facts -- are these discrete rental properties, separately managed, or are they part of a unitary real estate business? | |
| 6 February 2008 | |
| Aside from everything else, if you override you cannot electronically file. A statement of adjustment could be used to avoid the override and still arrive appropriate amount given that what you are doing is correct. taxea | |
