Louisiana: Guidance issued on pass-through entity election

The Department of Revenue recently issued Revenue Information Bulletin No. 19-019 addressing the state’s new elective pass-through entity tax. Recall, effective for tax years beginning on or after January 1, 2019, Louisiana allows an S corporation or an entity taxed as a partnership for federal income tax purposes to elect to be taxed as if the entity had filed a federal income tax return as a C corporation.  A corresponding individual income tax exclusion applies for income that is taxed at the entity level. The RIB confirms that the exclusion is available only to individuals who are shareholders, members and partners of electing entities.  The RIB also provides guidance on how and when to make the election on new Form R-6980.  Specifically, the election must be made on or after February 1, 2020 for the 2019 tax year. Shareholders, members, or partners holding more than one half of the ownership interest in the electing entity must approve the election. The determination as to whether owners holding more than one half of the ownership interest approved the election will be made by examining the owners’ capital account balances, or (if there are no capital accounts) ownership percentages. Following review of the election form and verification of the required documentation, the Department will notify entities by email that the election has been approved. An approved election is effective for the entire taxable year for which it was made as well as all subsequent years until the election is terminated. Importantly, the RIB also clarifies that the act of electing entity level taxation will not, in and of itself, subject the electing entity to franchise tax liability. Please contact Amy Hatten at 713- 319-2649 with questions.