On January 20, 2012, the Office of Tax and Revenue ("OTR") will publish its proposed combined reporting regulations. Reed Smith's D.C. State Tax Team has obtained a copy of the proposed regulations in advance of tomorrow's publication in the D.C. Register. For a link to an advanced copy of the proposed regulations, please visit www.reedsmith.com/dctax.
We will be collecting comments from interested parties to submit to OTR on a client-anonymous basis. Taxpayers may submit comments on the proposed regulations through February 20, 2012.
Introduction
The District has enacted mandatory unitary combined reporting for tax years beginning after December 31, 2010. Under the combined reporting legislation, taxpayers engaged in a unitary business with one or more corporations (that are part of a water's-edge combined group) must file a combined report that includes the income, and the allocation and apportionment factors of all such corporations.
The attached proposed combined reporting regulations represent OTR's first effort at interpreting and implementing the combined reporting legislation.
Highlights from the Proposed Regulations
A few highlights from the regulations include:
- Definition of "Commonly Controlled Group." A group of businesses is considered to be "commonly controlled" when there is common ownership or control of stock representing more than 50 percent of the voting power of the corporations in the group.
- Corporations Included in and Excluded from the Combined Group. The corporations to be included in a combined group include, but are not limited to, any financial institution, utility company, transportation company, S corporation, a real estate investment trust (REIT), and a regulated investment company (RIC). Insurance companies are specifically excluded from the combined group.
- Newly Formed and Newly Acquired Corporations. There is a rebuttable presumption that newly formed entities will have "instant unity" and will be considered a part of the unitary business as of the date of formation. However, newly acquired entities are presumed to not be a part of the unitary business as of the date of acquisition. Instead, a unitary relationship is presumed to exist in the succeeding reporting period after the first reporting period subsequent to an acquisition.
- Pre-Combination Net Operating Losses. Net operating loss carryforwards from a consolidated return will be determined on a separate entity basis. The carryforward can be utilized only by that taxable member that is part of the unitary group in offsetting the taxable member's District taxable income, and cannot be used by other members of the combined reporting group.
- Transitional Issues Not Addressed. The proposed regulations do not address transitional issues. Representatives with OTR have indicated that such issues will be addressed through an OTR Notice.
Reed Smith's D.C. State Tax Team will be collecting comments from interested parties to submit to OTR on a client-anonymous basis. Taxpayers may submit comments on the proposed regulations through February 20, 2012.
About This Reed Smith State Tax Alert
For more information on D.C.'s new combined reporting regime or any other D.C. tax matter, please contact the authors of this Alert or another member of the Reed Smith State Tax Group. For more information on Reed Smith's D.C. tax practice, visit www.reedsmith.com/dctax.
About Reed Smith State Tax
Reed Smith's state and local tax practice is comprised of more than 30 lawyers across seven offices nationwide. The practice focuses on state and local audit defense and refund appeals (from the administrative level through the appellate courts), as well as planning and transactional matters involving income, franchise, unclaimed property, sales and use, and property tax issues.
Client Alert 2012-016