Current through Register Vol. 43, No. 02, November 27, 2024
(1) Definitions -
(a) "Passive investment income" means gross
receipts from royalties, rents, dividends, interest (excluding installment
sales to customers and income of lending and financing companies), annuities,
and sales or exchanges of stock or securities to the extent of any gains
therefrom.
1. For any tax year in the
recognition period, passive investment income shall not include any recognized
built-in gain or loss. See Section
40-18-174,
Code of
Ala. 1975.
(b) "Net passive income" means passive
investment income less deductions directly connected with the production of
such income.
(c) "Excess net
passive income" means an amount which bears the same ratio to the net passive
income as the amount by which the passive investment income exceeds 25 percent
of the gross receipts bears to the passive investment income. Therefore,
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pii = passive investment income for the tax year
npi = net passive income for the tax year
GR = total gross receipts for the tax year
1. The amount of excess net passive income
shall not exceed the S corporation's taxable income for the tax year as
determined under Section
40-18-161,
Code of
Ala. 1975.
(2) The tax is imposed upon S corporations
which have Alabama accumulated C corporation earnings and profits. If, for the
taxable year, such S corporations have passive investment income which
constitutes more than 25 percent of gross receipts, then a tax is imposed on
the income of the S corporation for that taxable year.
(3) The tax is computed by multiplying 5
percent times the Alabama excess net passive income.
(4) Those corporations subject to the tax
should complete the appropriate schedules of Form 20S, which is due on the
fifteenth day of the third month following the end of the tax year. See Rule
810-3-42-.01. The tax is due at
the same time as the return.
(a) Those
corporations subject to the tax should complete the appropriate schedules of
Form 20S, which is due on the fifteenth day of the third month following the
end of the tax year. See Rule
810-3-42-.01. The tax is due at
the same time as the return. An extension will be granted up to a maximum of
six months to file the Alabama S corporation income tax return. An extension of
time to file the return is not an extension of time for payment of the tax. The
amount of tax due must be paid on or before the due date of the return without
regard to the extension to file the return. Interest and penalties are due on
all taxes not paid on or before the unextended due date. See Rules
810-3-39-.02 and
810-3-42-.01.
(5) The Department may waive the
excess net passive income tax if the S corporation establishes that it made a
good-faith determination at the close of the tax year that it had no C
corporation earnings and profits and that it distributed such earnings and
profits within a reasonable time after determining that they existed.
(a) A request for waiver of the passive
investment income tax shall be made in writing to the Department. The request
must contain a description of how and on what date the S corporation determined
that it had no C corporation earnings and profits at the end of the tax year, a
description of how and on what date it was determined that the S corporation
had C corporation earnings and profits at the end of the tax year, and a
description (including dates) of any steps taken to distribute such earnings
and profits.
(b) If the earnings
and profits have not been distributed, the request must contain a timetable for
distribution and an explanation of why such timetable is reasonable. Before the
waiver may be granted, all subchapter C earnings and profits must have been
distributed.
(6) In
administering and interpreting this regulation, the Department will consider
administrative rulings and decisions in respect to the similar provisions to
the Internal Revenue Code and Rules thereunder.
Authors: Tiniko Arrington, Johnnie Simon, Verlon
Frost, Catherine McCary
Statutory Authority:
Code of Ala.
1975, §§
40-2A-7(a)(5),
40-18-175.
