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S.A.L.T. Select Developments: Federal

Baker Donelson's S.A.L.T. Select Developments will identify important state and local tax developments.

State and local taxes impact almost every taxpayer. S.A.L.T developments in any one jurisdiction can be frequent and sometimes confusing. Where multiple jurisdictions are involved, staying current with state and local tax developments can be overwhelming for any taxpayer.

To assist you with staying current on a periodic basis, Baker Donelson's S.A.L.T. Select Developments will identify one or more recent state and local tax developments.

November 2020

Updates Reported – Although not directly a state or local tax development, on November 9, 2020, the Internal Revenue Service issued Notice 2020-75. That Notice addresses the deductibility of state income taxes by pass-through businesses pursuant to state statutes enacted particularly for the purpose of working around the state/local tax deduction limitation for individuals imposed pursuant to Internal Revenue Code Section 164(b)(6). That limitation is $10,000 ($5,000 in the case of a married individual filing a separate return) for the aggregate amount of various state and local taxes, which include real property taxes, personal property taxes, income tax and general sales taxes. The Notice recognized that certain jurisdictions have enacted or are contemplating the enactment of tax laws that impose either a mandatory or elective entity-level income tax on partnerships and S corporations that do business in that jurisdiction or have income derived from or connected with sources within the jurisdiction. In those situations, the Notice states that the jurisdiction's tax law may provide a corresponding offsetting, owner-level tax benefit, such as a full or partial credit, deduction, or exclusion. The Notice recognizes that there is uncertainty as to whether those entity-level payments must be taken into account in applying the above state/local tax deduction limitation at the owner level. The Notice goes on to state that the Treasury Department and the IRS intend to issue proposed regulations to provide certainty to individual owners of partnerships and S corporations in calculating the state/local tax deduction limitations, and based on the statutory and administrative authority referenced in the Notice, the forthcoming proposed regulations will clarify that "Specified Income Tax Payments" are deductible by partnerships and S corporations in computing their non-separately stated income or loss. The phrase "Specified Income Tax Payment" is defined in the Notice as any amount paid by a partnership or an S corporation to a state, a political subdivision of a state, or to the District of Columbia to satisfy its liabilities for income taxes imposed by that domestic jurisdiction on the partnership or the S corporation. More information can be found here.

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