RULES AND REGULATIONS
Title 61—REVENUE
DEPARTMENT OF REVENUE
[ 61 PA. CODE CHS. 151 AND 153 ]
Amended Report—Corporation Taxes
[40 Pa.B. 3356]
[Saturday, June 19, 2010]The Department of Revenue (Department), under section 6 of The Fiscal Code (72 P. S. § 6), amends § 153.54 (relating to changes made by Federal government) and adds §§ 151.14 and 153.66 (relating to amended report; and applicability) to read as set forth in Annex A.
Purpose of this Final-Form Rulemaking
This final-form rulemaking provides a procedure for the filing of amended Corporate Tax reports for tax reports governed by the assessment process in the act of October 18, 2006 (P. L. 1149, No. 119) (Act 119). New § 151.14 reflects the replacement of the Corporate Tax settlement process with an assessment process.
Explanation of Regulatory Requirements
This final-form rulemaking provides clear instructions for corporate taxpayers filing amended reports. The Department adds § 151.14 to outline the provisions for filing Corporate Tax amended reports. Examples in Chapter 153 (relating to corporate net income tax) have been amended with updated language. Obsolete language has been replaced throughout § 153.54. Specifically, obsolete language was removed in § 153.54(b)(1) regarding the Report of Change Form. Section 153.54(g) has been expanded to explain: (1) Corporate Net Income Tax settled prior to January 1, 2008; and (2) Corporate Net Income Tax not settled prior to January 1, 2008. In addition, an ''applicability'' section is added in § 153.66 to clarify that §§ 153.61—153.65 apply to taxes settled prior to January 1, 2008.
In the final-form rulemaking, § 153.54(a) has been amended to remove the obsolete term ''corrected report'' and replace it with ''Report of Change.'' Also, a new sentence has been added to clarify the Department's long-standing policy regarding changes in Federal losses. In addition, examples have been added to § 153.54(h) to address changes initiated by the taxpayer.
Affected Parties
The Commonwealth's corporate taxpayers and tax practitioners may be affected by this final-form rulemaking. The final-form rulemaking adds a fourth leg to what the Department has already accomplished for the education of the tax community on the changes to Amended Reports under Act 119. The Department has done the following: (1) added detailed language in the Instruction Booklet for Form RCT 101; (2) published a notice on the Department's web site entitled ''Notice to Pennsylvania Taxpayers Regarding Amended Corporate Tax Reports;'' and (3) participated in numerous seminars in the tax community on this subject.
Comment and Response Summary
Notice of proposed rulemaking was published at 39 Pa.B. 1207 (March 7, 2009). The proposed rulemaking is being adopted with amendments to read as set forth in Annex A.
The Department prepared a comment and response document that is available to interested parties by contacting Mary R. Sprunk, Office of Chief Counsel, Department of Revenue, P. O. Box 281061, Harrisburg, PA 17128-1061.
The Department received one comment from the public during the public comment period. No comments were received from either the House Finance Committee or the Senate Finance Committee (Committees). The Independent Regulatory Review Commission (IRRC) submitted comments on the proposed rulemaking. The following is a summary of the Department's responses to the key issues referenced in the comments.
The Department added clarifying language in § 151.14(b) and (c) to address comments requesting time frames and examples of changes for the amended report process.
The Department added clarifying language in § 151.14(e) for taxpayers to understand that the Department's failure to revise the tax due the Commonwealth is not an appealable action and will not change existing appeal rights.
New § 153.54(h) has added a ''Report of Change'' provision to address amended Federal Income Tax returns, which include any document allowed or authorized by the IRS for a taxpayer to adjust their Federal taxable income. Examples of ''proof of acceptance by the Federal government'' have been added to § 153.54(h).
Fiscal Impact
The Department has determined that the final-form rulemaking will have minimal fiscal impact on the Commonwealth.
Paperwork
The final-form rulemaking will not create additional paperwork for the public or the Commonwealth.
Effectiveness/Sunset Date
The final-form rulemaking will become effective upon final publication in the Pennsylvania Bulletin. The final-form rulemaking is scheduled for review within 5 years of publication. A sunset date has not been assigned.
Contact Person
The contact person for an explanation of the final-form rulemaking is Mary R. Sprunk, Office of Chief Counsel, Department of Revenue, Dept. 281061, Harrisburg, PA 17128-1061.
Regulatory Review
Under section 5(a) of the Regulatory Review Act (71 P. S. § 745.5(a)), on February 20, 2009, the Department submitted a copy of the notice of proposed rulemaking, published at 39 Pa.B. 1207, to IRRC and to the Committees on Finance for review and comment.
Under section 5(c) of the Regulatory Review Act, IRRC and the Committees were provided with copies of the comments received during the public comment period, as well as other documents when requested. In preparing the final-form rulemaking, the Department has considered all comments from IRRC, the Committees and the public.
Under section 5.1(j.2) of the Regulatory Review Act (71 P. S. § 745.5a(j.2)), on May 12, 2010, the final-form rulemaking was deemed approved by the Committees. Under section 5.1(e) of the Regulatory Review Act, IRRC met on May 13, 2010, and approved the final-form rulemaking.
Findings
The Department finds that:
(1) Public notice of intention to amend the regulations has been given under sections 201 and 202 of the act of July 31, 1968 (P. L. 769, No. 240) (45 P. S. §§ 1201 and 1202) and the regulations thereunder, 1 Pa. Code §§ 7.1 and 7.2.
(2) The amendments are necessary and appropriate for the administration and enforcement of the authorizing statute.
Order
The Department, acting under the authorizing statute, orders that:
(a) The regulations of the Department, 61 Pa. Code Chapters 151 and 153, are amended by adding §§ 151.14 and 153.66 and by amending § 153.54 to read as set forth in Annex A.
(b) The Secretary of the Department shall submit this order and Annex A to the Office of General Counsel and the Office of Attorney General for approval as to form and legality as required by law.
(c) The Secretary of the Department shall certify this order and Annex A and deposit them with the Legislative Reference Bureau as required by law.
(d) This order shall take effect upon publication in the Pennsylvania Bulletin.
C. DANIEL HASSELL,
Secretary(Editor's Note: For the text of the order of the Independent Regulatory Review Commission relating to this document, see 40 Pa.B. 2838 (May 29, 2010).)
Fiscal Note: Fiscal Note 15-445 remains valid for the final adoption of the subject regulations.
Annex A
TITLE 61. REVENUE
PART I. DEPARTMENT OF REVENUE
Subpart B. GENERAL FUND REVENUES
ARTICLE VI. CORPORATION TAXES
CHAPTER 151. GENERAL PROVISIONS
REPORTING § 151.14. Amended report.
(a) Applicability. This section applies to taxes imposed under Articles IV, VI, VII, VIII, IX, XI and XV of the Tax Reform Code of 1971 and not settled prior to January 1, 2008, along with the following:
(1) Corporate Loans Tax imposed under sections 19—24 of the State Personal Property Tax Act (72 P. S. §§ 3250-10—3250-15).
(2) Co-operative Agricultural Corporate Net Income Tax Act imposed under the Co-operative Agricultural Association Corporate Net Income Tax (72 P. S. §§ 3420-21—3420-30).
(3) The electric co-op corporation membership fee imposed under 15 Pa.C.S. § 7333 (relating to license fee; exemption from excise taxes).
(4) Gross Receipts Tax on private bankers imposed under section 1 of the act of May 16, 1861 (P. L. 708, No. 660) (72 P. S. § 2221).
(b) General.
(1) An amended report may be filed by a taxpayer, on a form prescribed by the Department under oath or affirmation of an authorized officer, within 3 years after filing of the original report. An amended report may be filed for the purpose of bringing to the attention of the Department a correction to the original report or to provide additional information which the taxpayer requests the Department to consider.
(2) The Department will only consider additional information if it is submitted with an amended report. The taxpayer may submit any information it believes is relevant to the determination of its tax. The filing of an amended report is not a new report.
(3) The Department will not accept an amended report that challenges the Department's policy, its interpretation of the statutes or the constitutionality of the Commonwealth's statutes. Any challenges of the Department's policy, its interpretation of the statutes or the constitutionality of the Commonwealth's statutes shall be made by filing a petition for reassessment or a petition for refund.
(c) Prerequisite. An amended report will not be considered by the Department unless the taxpayer consents in writing, on a form prescribed by the Department, to the extension of the assessment period for the tax year to 1 year from the date of the filing of the amended report or 3 years from the filing of the original report, whichever period last expires. See section 407.4 of the TRC (72 P. S. § 7407.4). In addition, the taxpayer is required to maintain records until the end of the extended assessment period.
(d) Petition rights.
(1) An amended report does not replace the filing of a Petition for Reassessment or a Petition for Refund.
(2) The filing of an amended report does not extend the time limits for a taxpayer to file a Petition for Reassessment or a Petition for Refund.
(e) Review of amended report.
(1) The Department is not obligated to revise the tax due the Commonwealth upon review of an amended report. Its failure to revise the tax due the Commonwealth is not an appealable action and will not change any existing appeal rights of the taxpayer.
(2) If the Department determines an adjustment of the taxpayer's account is appropriate, it will adjust the corporation's tax on the Department's records to conform to the revised tax as determined and will credit the taxpayer's account to the extent of any overpayment resulting from the adjustment or assess the taxpayer's unpaid tax and unreported liability for tax, interest or penalty due the Commonwealth, whichever is applicable.
(f) Amended report filed when tax liability is under appeal.
(1) An amended report involving issues under appeal will be forwarded to the appropriate administrative appeal board or to the Office of the Attorney General, to be included in the appeal.
(2) If the amended report involves issues other than those under appeal, the Department may review the amended report. The review of a report does not obligate the Department to change the tax due the Commonwealth and will not change any existing appeal rights of the taxpayer. If the Department determines that a change to the tax liability is appropriate, it will adjust the corporation's tax on the Department's records to conform to the revised tax as reported. The Department will credit the taxpayer's account to the extent of any overpayment resulting from the adjustment or assess the taxpayer's unpaid tax and unreported liability for tax, interest or penalty due the Commonwealth, whichever is applicable.
(g) Additional information required to be provided with an amended report. An amended report filed with the Department must contain the following:
(1) An agreement to the extension of the assessment period as described in subsection (c).
(2) The calculation of the amended tax liability.
(3) Revised Pennsylvania supporting schedules, if applicable.
(4) A complete explanation of the changes being made and the reason for those changes.
(5) Other information required by the Department to support the calculation of the amended tax liability.
CHAPTER 153. CORPORATE NET INCOME TAX
REPORTS AND PAYMENT OF TAX § 153.54. Changes made by Federal government.
(a) General. If the amount of taxable income, as returned by a taxpayer to the Federal government, is finally changed or corrected by the Commissioner of the Internal Revenue or by another agency or court of the United States, the taxpayer, within 30 days after the receipt of the final change or correction, shall make a report of change, under oath or affirmation, to the Department showing the finally changed or corrected taxable income, upon which tax is required to be paid to the United States. See section 406 of the TRC (72 P. S. § 7406). A change or correction of taxable income includes an increase or decrease in Federal taxable income before net operating loss deduction and special deductions.
(b) What is required to be filed with the Department. The following are required to be filed with the Department:
(1) A Report of Change as prescribed by the Department.
(2) Where a Federal audit has been conducted a copy of the summary of the Federal agent's report, commonly referred to as an ''RAR.''
(3) The Department may require the taxpayer to submit additional information or proof as it deems necessary.
(c) When a Report of Change is required to be filed. A Report of Change is required to be filed with the Department within 30 days of receipt of the final change or correction in taxable income as returned to the Federal Government. A Report of Change is required to be filed whether the Federal taxable income has been increased or decreased. See section 406(a) of the TRC.
(d) When a change or correction in Federal taxable income is final and received. A change or correction will be final and received as follows:
(1) A change or correction which increases the taxable income as returned to the Federal Government is final when a Federal Notice and Demand for Payment is issued to the taxpayer. Such a change or correction is received by the taxpayer on the date the taxpayer receives the Federal Notice and Demand for Payment.
Example 1. Taxpayer files a 2003 Report with the Department in conformity with its Federal Return as filed in 2003. In 2004 the Internal Revenue Service audits the taxpayer's Return which results in an increase of the taxpayer's Federal taxable income. Taxpayer does not contest this change. Thirty days after receipt of a Federal Notice and Demand for Payment, the taxpayer is required to file a Report of Change with the Department.
Example 2. Taxpayer files a 2003 Report with the Department in conformity with its Federal Return as filed in 2003. In 2004 the Internal Revenue Service audits the taxpayer's Return which results in an increase of taxpayer's Federal taxable income. Taxpayer contests this change and files a petition in the United States Tax Court. The United States Tax Court upholds the Internal Revenue Service's action. Taxpayer does not appeal the United States Tax Court's decision. Thirty days after receipt of a Federal Notice and Demand for Payment, the taxpayer is required to file a Report of Change with the Department.
Example 3. Taxpayer files a 2003 report with the Department in conformity with its Federal return as filed in 2003. In 2004 the Internal Revenue Service audits the taxpayer's return which results in an increase of the taxpayer's Federal taxable income. Taxpayer contests this change and pursues all administrative and judicial remedies available without paying the contested amount of tax. The United States Supreme Court upholds the Internal Revenue Service's action. Thirty days after receipt of a Federal Notice and Demand for Payment, the taxpayer is required to file a Report of Change with the Department.
(2) A change or correction which decreases the taxable income as returned to the Federal Government is ''final'' when the taxpayer receives a refund or credit. The change or correction is received by the taxpayer on the date the taxpayer receives the refund or credit.
(3) A change or correction which does not increase or decrease the taxpayer's Federal tax is final when the taxpayer receives a notice from the IRS that its return will be adjusted in accordance with the examination report. The change or correction is ''received'' by the taxpayer on the date the taxpayer receives notice from the IRS that its return will be adjusted in accordance with the examination report.
Example. Taxpayer files a 2003 report with the Department in conformity with its Federal return as filed in 2003. In 2005 the Internal Revenue Service audits taxpayer's Federal return. The audit does not result in an increase in the Federal tax, but a change in the Commonwealth taxable income does occur due to the Federal action. Taxpayer is required to file a Report of Change within 30 days of notification by the Internal Revenue Service of its action.
(e) More than one change or correction in Federal taxable income for a particular tax year. A taxpayer is required to file a Report of Change for each change or correction by the Commissioner of Internal Revenue or by any other agency or court of the United States in the taxpayer's taxable income as reported to the Federal Government.
Example. As a result of a Federal audit of its 2003 Federal return, the taxpayer's Federal taxable income has been increased and the taxpayer has paid the Federal government additional tax. Since the taxpayer's Commonwealth taxable income also increased for 2003, taxpayer has filed a Report of Change with the Department. Thereafter, in a separate and subsequent court action the taxpayer contests the change in its Federal taxable income for 2003 and receives a refund from the Federal Government. Since its Commonwealth taxable income for 2003 has been decreased by this separate and subsequent action, the taxpayer is required to file a second Report of Change with the Department.
(f) Penalties for failure to file a Report of Change. Where there has been a final change or correction in the amount of taxable income, as returned by the taxpayer to the Federal government, which results in an increase in the taxable income, the taxpayer is required to file a Report of Change with the Department within 30 days after receipt of the final change or correction. If the taxpayer fails to file a Report of Change within the 30-day period, there shall be added to the tax a penalty of $5.00 for every day during which the taxpayer is in default, but the Department may abate a penalty in whole or in part. See section 406(a) of the TRC.
(g) Report of Change required to report Federal change or correction.
(1) Corporate Net Income Tax settled prior to January 1, 2008. When a Federal change or correction in taxable income as reported to the Federal government occurs within 1 year of the date of settlement and, therefore, a Commonwealth amended report could be timely filed as provided in § 153.64 (relating to amended report), the taxpayer nevertheless is required to file a Report of Change. Filing an amended report will not satisfy the requirement of filing a Report of Change.
Example. Taxpayer files a Federal Return on March 15, 2003. Based upon that return, the taxpayer files its Commonwealth Report on April 15, 2003. In August of 2003, the IRS discovers an error in the taxpayer's return. Taxpayer shall file a Report of Change even though the final change or correction was received within the period in which the taxpayer could file an amended report. An amended report will not satisfy the requirement of filing a Report of Change.
(2) Corporate Net Income Tax not settled prior to January 1, 2008. When a change or correction in taxable income as reported to the Federal government occurs, the taxpayer is required to file a Report of Change regardless of whether or not an amended report could have been timely filed as provided in § 151.14 (relating to amended report). This requirement applies to changes or corrections initiated by either the taxpayer or the Federal government. Filing an amended report will not satisfy the requirement of filing a Report of Change.
Example. Taxpayer files a Federal Return on March 15, 2007. Based upon that return, the taxpayer files its Commonwealth Report on April 15, 2007. In August of 2008, the IRS conducts an audit and notifies taxpayer that its Federal taxable income is different than the reported figure. Taxpayer shall file a Report of Change even though the final change or correction was received within the period in which the taxpayer could file an amended report. An amended report will not satisfy the requirement of a Report of Change.
(h) Changes initiated by the taxpayer.
(1) A Report of Change shall be filed, and additional tax due paid, within 30 days of the date the amended Federal return is filed, or would have been filed in the case of a corporation participating in the filing of a consolidated Federal return.
(2) The taxpayer shall provide a copy of the amended Federal Income Tax return if the Report of Change is filed due to a change in Federal taxable income based on the filing of an amended Federal Income Tax return. In addition, the Department may also require proof of acceptance of the amended Federal Income Tax return. Examples of proof of acceptance by the Federal government include the following:
(i) Copy of the IRS refund check.
(ii) IRS statement of adjustment to your account.
(iii) IRS account transcript.
(iv) Other documentation at the discretion of the Department.
(3) Amended Federal Income Tax returns include any document allowed or authorized by the IRS for a taxpayer to adjust the taxpayer's Federal taxable income.
Example 1. Taxpayer files a Federal Return on March 15, 2007. Based upon that return, the taxpayer files its Commonwealth Report on April 15, 2007. In August of 2008, the taxpayer discovers taxable income was underreported and files an amended Federal Income Tax return. Taxpayer shall file a Report of Change even though the final change or correction was received within the period in which the taxpayer could file an amended report. An amended report will not satisfy the requirement of a Report of Change.
Example 2. Taxpayer files a Federal Return on March 15, 2007. Based upon that return, the taxpayer files its Commonwealth Report on April 15, 2007. In March 2009, when filing the Federal Income Tax return for 2008, the taxpayer files Federal Form 1139, Corporation Application for Tentative Refund, adjusting 2006 Federal taxable income for a capital loss carryback for 2008. Taxpayer shall file a Report of Change even though the final change or correction was received within the period in which the taxpayer could file an amended report. An amended report will not satisfy the requirement of a Report of Change.
SETTLEMENT AND RESETTLEMENT § 153.66. Applicability.
Sections 153.61—153.65, regarding settlement and resettlement, apply to taxes settled prior to January 1, 2008.
[Pa.B. Doc. No. 10-1116. Filed for public inspection June 18, 2010, 9:00 a.m.]
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