Current through Register Vol. 42, No. 11, August 30, 2024
(1)
(a) For
taxpayers who are shareholders of an Alabama S corporation with a tax year
which began before January 1, 1990, each shareholder of an Alabama S
corporation shall include in his individual Alabama income tax return each year
his pro rata share of the:
1. separately
stated items of income, loss, deduction or credit attributed to Alabama by the
Alabama S corporation for the corporation's taxable year which ends with or
during the individual's tax year; and
2. nonseparately stated items of income,
loss, deduction or credit attributed to Alabama by the Alabama S corporation
for the corporation's taxable year which ends with or during the individual's
tax year.
(b) For
taxpayers who are shareholders of an Alabama S corporation with a tax year
which began after December 31, 2010 -
1. Each
resident shareholder shall include in his individual Alabama income tax return
each year his pro rata share of the:
(i)
separately stated items of income, loss, deduction or credit of the Alabama S
corporation for the corporation's taxable year which ends with or during the
individual's tax year;
(ii)
nonseparately stated items of income, loss, deduction or credit of the Alabama
S corporation for the corporation's taxable year which ends with or during the
individual's tax year; and
(iii)
the Alabama resident's inclusion of both the separately stated and
nonseparately stated items shall be determined consistently with
Code of Ala. 1975, §§
40-18-162 and
40-18-14 and without regard to (a) above.
2. Each nonresident shareholder shall include
in his individual Alabama income tax return each year his pro rata share of
the:
(i) separately stated items of income,
loss, deduction or credit attributed to Alabama by the Alabama S corporation
for the corporation's taxable year which ends with or during the individual's
tax year.
(ii) nonseparately stated
items of income, loss, deduction or credit attributed to Alabama by the Alabama
S corporation for the corporation's taxable year which ends with or during the
individual's tax year.
(2) Any item included in the shareholder's
pro rata share shall retain the same character as if received directly by the
shareholder from the source. For example, the shareholder's pro rata share of
interest income earned by the Alabama S corporation from United States
government obligations would be exempt to the shareholder as if received
directly by that shareholder from the U.S. Government.
(3) If the sum of the separately stated and
nonseparately stated items of income, loss and deduction is a net loss
attributed to Alabama, that loss may be deducted on the individual return of
the shareholder to the extent permitted below.
(a) The net loss to be deducted on the return
may not exceed the shareholder's Alabama adjusted basis in the stock of the
Alabama S corporation, plus the shareholder's Alabama adjusted basis in any
indebtedness of the Alabama S corporation to the shareholder.
1. For each year, the limitation is the
Alabama adjusted basis of the shareholder's stock as determined under Reg.
810-3-164-.01(1),
plus the Alabama adjusted basis of any indebtedness due the shareholder as
determined under Reg.
810-3-164-.01(2).
2. Any loss in excess of the Alabama adjusted
basis of the stock and indebtedness may be carried forward to the next
succeeding year.
3. The Alabama
adjusted basis of the stock and/or any indebtedness due the taxpayer will not
be less than zero.
(4) For taxpayers who are shareholders of an
Alabama S corporation with a tax year which began after December 31, 1996 and
before January 1, 2011 each shareholder shall include in gross income their
deemed distributive share of the income or loss of the Alabama S corporation
apportioned and allocated to Alabama. Therefore, no income from sources without
Alabama is included and no credit or deduction is allowable to the shareholder
or the Alabama S corporation for income taxes paid by the shareholder or the
corporation to any other state, local or foreign government in connection with
such income.
(5) For taxpayers who
are shareholders of an Alabama S corporation with a tax year which began after
December 31, 2010 -
(a) resident shareholders
include in gross income their deemed distributive share of the entire income or
loss of the Alabama S corporation. Therefore, resident shareholders are allowed
a credit, computed in accordance with Code of Ala.
1975, §
40-18-21(a),
for income taxes paid by or on behalf of the shareholder (including composite
return and withholding payments) to any other state in which the corporation is
treated as an S corporation.
(b)
nonresident shareholders include in gross income their deemed distributive
share of the income or loss of the Alabama S corporation apportioned and
allocated to Alabama. Therefore, no income from sources without Alabama is
included and no credit is allowable to the nonresident shareholder for income
taxes paid by the shareholder to any other state in connection with such
income.
(6) With the
exception noted below, the amendments to this regulation which were filed with
the Legislative Reference Service on March 21, 2011 are effective for tax years
beginning after December 31, 2010. The Department of Revenue will not enforce
these regulatory changes for tax periods ending prior to January 1, 2011, or
for gains associated with the taxable disposition of all or any portion of a
taxpayer's assets or Subchapter K interests where the parties to the
transaction can document that negotiations began prior to January 1, 2011 and
continued with regularity until the transaction was completed in 2011. These
amendments are consistent with the Administrative Law Division's Ruling,
McNees v. Department of Revenue, DOCKET NO. 06-523, entered
December 12, 2006.
(7) The
Department will not rely on the amendments to this regulation which were filed
with the Legislative Reference Service on March 21, 2011 for tax periods
beginning after December 31, 2011. For tax periods beginning after December 31,
2011, the Department will issue new regulatory language addressing the issues
to which these amendments pertain.
Authors: Catherine McCary, Ann F. Winborne, CPA,
Individual and Corporate Tax Division; Joe Garrett, Tax Policy
Administrator
Statutory Authority: Code of Ala.
1975, §§
40-2A-7(a)(5) and
40-18-162.
