For anyone interested in Louisiana property tax issues, the Louisiana Tax Commission has given notice of the dates for its annual Rules and Regulations hearings. Any interested party can submit a proposal to amend the current regulations to the Commission during this process. The Commission accepts written proposals that are presented in an open Commission meeting, followed by rebuttals from any opposing interests. The Commission announces any changes during an adoption hearing. The submission deadlines and hearing dates are set forth in the attached notice. If you have any questions, contact Jay Adams or any member of the Jones Walker SALT Team.
I was honored as the President of the Delta State University Alumni Association to address the new graduates at Delta State’s 95th Commencement Ceremony last Friday. Pictured with me are DSU President William LaForge and the keynote speaker, alumnus Walt Bettinger II, CEO of The Charles Schwab Corporation. Not pictured but also on stage was alumnus David Abney, former CEO and Chairman of UPS, who hooded Bettinger as he received an honorary Ph.D. from the University.
Mississippi recently passed a SALT cap workaround in the form of a flow-through entity election. Consistent with the roughly 26 other states having adopted similar schemes, the Mississippi bill presents several grey areas and questions that will need to be addressed through Department of Revenue guidance or possible technical corrections.
H.B. 1691, signed into law by Governor Reeves on April 14, authorizes certain pass-through entities to pay an entity-level income tax in lieu of the partners/owners paying income tax on those amounts at the individual level, thereby freeing up other state and local taxes for the limited federal itemized deduction (the SALT Cap). An “electing pass-through entity” is defined as a partnership, S Corporation or similar pass-through entity having made an election pursuant to the new code section (not yet codified or designated). The election will be made by submitting a designated form to the Department of Revenue on or before the 15th day of the third month following the close of the tax year (typically, March 15). Once made, the election is binding for all subsequent years until formally revoked by the entity.
The bill contains an interesting approval process that may override the internal voting procedures for many entities. To make or revoke an election, there must be “a vote by or written consent of the members of the governing body of the entity as well as a vote by or written consent of the owners, members, partners or shareholders holding greater than fifty percent (50%) of the voting control of the entity, within the time prescribed in this subsection.” Thus, the approval must be made at two levels even though management decisions may be centralized in a board or other governing body, the vote must pass by a specified threshold that may not be consistent with other voting rights/thresholds provided under an entity’s governance documents, and the votes must take place within a specified time frame. A strict reading of the vote requirement may also pose questions whether a simple manager governance structure constitutes a centralized board or “other governing body.”
Once made, each “owner, member, partner or shareholder” (not explicitly limited to individuals) will report his or her distributive share of the entity’s pass-through income, but that income will be exempt at the owner level. Each such owner, etc. in turn shall be allowed a credit against the taxes imposed under this chapter in an amount equal to his or her pro rata or distributive share of tax paid by the electing pass-through entity with respect to the corresponding taxable year. It is unclear why an individual Mississippi credit would be required with respect to this income given that it is explicitly exempt from tax, but one would assume no double benefit was intended.
The adjusted basis of the owners, members or partners of an electing pass-through entity in their ownership interests in the electing pass-through entity shall be calculated without regard to the election under this new provision.
Several additional details may need to be addressed under the new legislation:
- It is unclear how this new provision will operate in a tiered structure containing multiple pass-through entities, specifically whether the owner-level exemption is contingent on a tax payment having been made by that immediate pass-through entity as opposed to one further up the chain;
- Presumably income distributable to a corporate owner will be exempt as well as that received by individuals;
- It is unclear whether paying tax at the entity level will sever nexus for any corporate owners whose sole contact with the state is via that pass-through entity;
- The basis calculation rules in theory should help minimize federal/state differences in gain or loss calculations on a sale of an ownership interest;
- The bill does not appear to remove the existing option of filing composite returns on behalf of nonresident partners;
- The bill does not appear to alter how Mississippi apportions partnership income at the entity level, or the method of “flowing up” the entity’s apportionment factors for franchise tax purposes;
- Additional issues may arise as to how a resident partner claims the credit for income taxes paid to other states on any income exempt in Mississippi under this new law.
The bill is effective January 1, 2022, but the deadline for making an election for the 2021 tax year had already lapsed prior to passage so unless a technical correction is passed, it effectively is available for the 2022 year and thereafter.
Jones Walker LLP will continue to monitor this issue and will pass along any additional guidance that might be issued by the Department.
WHEN: TUESDAY, SEPTEMBER 20, 2022
WHERE: HILTON AMERICAS-HOUSTON
Please Save the Date for Jones Walker’s 14th Annual State & Local Tax Seminar! We will be back for our live, in-person program in Houston!
Be sure to check back for upcoming program details! This program is intended for industry tax professionals and will be recommended for Texas and Louisiana CPE.
Full brochure coming soon!
Questions? Contact Courtney Farley at firstname.lastname@example.org
Team Fleur De Que was once again named the Top Fundraising Team at the Annual Hogs for the Cause barbecue festival and competition. Jones Walker SALT Team leader, Jay Adams, has been a proud member of Team Fleur De Que for several years and helps his team raise money to contribute to the needs of families with children fighting pediatric brain cancer. This year, Jay was joined in the festivities by Jones Walker SALT partner Bill Backstrom and Jones Walker SALT associate Jeff Birdsong.
Please click here to learn more about Hogs for the Cause and how you can contribute.
As we have written before, any property owner whose property has been damaged or rendered non-operational as a result of an emergency declared by the governor can seek a reduction in the value of their affected property even though January 1st has passed. See La. R. S. 47:1978.1. On March 23, 2022, Louisiana Governor John Bel Edwards declared a statewide state of emergency due the severe storm that spawned several tornadoes. As such, if your property was damaged, destroyed, or rendered non-operational as a result of the storms, you have the right to seek a reassessment of your affected properties. The Louisiana Tax Commission issued Statewide Advisory No. 01-2-22 regarding the declaration.
We are thankful we are able to enjoy the sights, sounds, and most importantly the King Cakes! Our SALT Team celebrated with king cakes from around New Orleans, and even a homemade cake from our own John Fletcher. We would like to send special thanks to La Boulangerie, Nolita Bakery, Randazzo’s Camellia City Bakery, Beth Biundo, Chez Pierre, and Bywater Bakery for helping us celebrate and enjoying the sweets of Mardi Gras!
In the 2021 Louisiana Regular Legislative Session, the Louisiana Legislature enacted Act 287 making wholesale changes to the Louisiana income tax reporting and audit regime for partners and partnerships. Effective June 2021, the Act’s updated reporting obligations were made applicable to 2021 returns filed in 2022, prompting a need for guidance with respect to how the Louisiana Department of Revenue (the Department) would implement the changes. On February 15, 2022, the Department provided such guidance, issuing its first Revenue Information Bulletin under Kevin Richard’s leadership of the Department: Revenue Information Bulletin 22-007.
RIB 22-007 provides:
- Effective for the 2021 tax year, all partnerships (including state law partnerships and LLCs treated as partnerships for federal income tax purposes) which do business in Louisiana or derive any income from Louisiana sources are required to annually file Form IT-565 , Partnership Return of Income.
- The due date has been extended to May 15th for calendar year partnerships and the 15th day of the fifth month after the close of the fiscal year for fiscal year partnerships.
- There are a handful of exemptions from filing the updated Form IT-565:
- Partnerships classified as a disregarded entity under the Internal Revenue Code and wholly owned by Louisiana resident individuals (including LLCs disregarded pursuant to Proc. 2002-69);
- Partnerships not required to file an IRS Form 1065 with the Internal Revenue Service; and
- Partnerships which elect to be taxed as a corporation and file Form-620 with the Department.
- Given the expanded requirement for filing partnership returns, Louisiana is discontinuing the Composite Partnership Return for partnerships with out of state partners. Similar information to what had been previously reported on the discontinued return will now be included in Schedule 6922 of the Form IT-565.
- For partnerships filing a Form IT-565 for the first time, the Department outlined the procedure for obtaining a Louisiana Partnership Account Number:
- If the partnership has previously filed a Composite Partnership Return with a Department-issued account number, the partnership will continue to use the same number.
- If the partnership has registered with the Department for a non-income tax return, e.g. sales or withholding, then it will need to follow the procedure set out in the RIB for acquiring a partnership account number through LaTAP.
- If the partnership has never filed a Louisiana tax return with the Department, the partnership will file its 2021 Form IT-565 with its FEIN, leaving the Louisiana account number blank. The Department will subsequently issue a partnership account number.
- Partnerships are encouraged to use electronic filing.
- The Department is in the process of implementing additional regulations further reducing eligibility for filing paper returns.
- Partnerships filing a Form IT-565 with the new composite return schedule, Schedule 6922, are required to file electronically.
As the usage of Bitcoin, Ether, and other cryptocurrencies proliferates throughout the US economy, it may seem inevitable that a comprehensive regulatory regime will sprout up around these novel assets. Thus far, the regulation has been piecemeal, primarily limited to pronouncements from the Internal Revenue Service (IRS), the Securities and Exchange Commission, and the Office of the Comptroller of the Currency covering the individual aspects of cryptocurrency that fall under each agency’s purview.
Over the years, Congress has contemplated enacting such a wide-ranging cryptocurrency regulatory regime; its members have held hearings, solicited comments, and drafted dozens of bills on the subject. Despite the buildup, Congress’ first intervention in the world of cryptocurrency was quite limited. On November 15, 2021, President Biden signed the Infrastructure Investment and Jobs Act (the Act) into law, appropriating billions of dollars for infrastructure improvements and other government projects. However, beyond just appropriating funds, the Act also created a new reporting regime for cryptocurrency transactions.
Specifically, the Act created two new reporting obligations. Prior to the Act, Internal Revenue Code Section 6045 required “brokers” that are dealers/middlemen in “covered security” transactions to issue a Form 1099-B to both the brokers’ customers and the IRS identifying the sales of securities through the broker, the customer’s adjusted basis in the security, and the proceeds from the transaction.
The Act expanded the definition of broker to include “any person who (for consideration) is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.” The Act also expanded the definition of “covered security” to include “digital assets,” defined as “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary.”
In addition to expanding the Form 1099-B reporting obligation, the Act expanded the requirement under Internal Revenue Code Section 6050I that banks and other businesses report certain cash transactions in excess of $10,000 to the IRS to include reporting similar transactions undertaken with digital assets. Both of these provisions go into effect with returns and statements required to be filed after December 31, 2023.
As with any new legislation, there are several open issues with respect to these expanded reporting obligations. First, the extent of the revised definition of a broker is unclear. Does it apply to cryptocurrency miners? Does it apply to software developers who work in the cryptocurrency space? Second, the scope of the newly defined “digital assets” is opaque. As of this newsletter, there are hundreds of cryptocurrencies in circulation, each with slightly different characteristics. Further, there has been rampant growth in the market for non-fungible tokens (NFTs), which can demonstrate ownership of virtual assets or tangible assets. Will all cryptocurrencies and NFTs be subject to the rules related to “digital assets”?
Both Treasury and Congress are aware of these issues. Treasury has indicated that it will be promulgating regulations clarifying its view on these definitions in the very near future, though it has yet to tip its hand on their substance. Meanwhile, a bipartisan group of senators have expressed sympathy toward the concerns of cryptocurrency users and have already proposed amendments to the new reporting regime. Whether Treasury adopts a broad or narrow interpretation of “broker” and “digital assets,” these senators will likely push legislation furthering their own interpretation of the reporting requirements.
The legal treatment of cryptocurrency is a rapidly developing field, and impacted industries need to monitor legislative (both federal and state) and agency developments in order to stay in compliance. Keep an eye on this space for news and analysis of developments related to cryptocurrency.