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| September, 2003 | The
Monthly Newspaper of the NYSSCPA |
Vol.
8, No. 9 |
New York State Flow-Through Entity Estimated Tax Payments
By Neil H. Tipograph
Beginning Sept.15, certain flow-through entities are required to pay New York state estimated taxes on behalf of certain owners.
Partnerships, including LLCs and LLPs, will pay New York state estimated taxes for partners that are C corporations and nonresident individuals. S corporations will pay New York state estimated taxes for nonresident individual shareholders. The new entity-level estimated tax procedures are generally modeled after the procedures applicable to the New York state individual estimated tax payments. Accordingly, the entity-level payments are due on April 15, June 15, Sept. 15 and Jan.15. Prior year safe-harbor rules apply with certain modifications. Underpayment (and other) penalties will be assessed on noncompliance.
Certain partners and shareholders are exempt from the application of the estimated tax rules due to the $300 de minimis rule; the inclusion in a group New York state nonresident personal income tax return; or in special situations where the entity’s income from New York sources will not be included in the owner’s New York taxable income (e.g., a tax-exempt corporate partner).
The New York State Department of Taxation and Finance has just released forms and instructions to implement this new withholding regime. Practitioners can download a forms package from the tax department’s website at www.tax.state.ny.us. The forms will be filed quarterly. Estimated payments made on behalf of individual owners will be included on Form IT-2658, “Report of Estimated Tax for Nonresident Individual Partners and Shareholders.” Estimated payments made on behalf of corporate owners will be included on Form CT-2658, “Report of Estimated Tax for Corporate Partners.”
The instructions provide a number of favorable provisions, including relief from the duplicity of the April 2003 and June 2003 estimated tax payments; deductions for self-employed health insurance and Keogh contributions in computing income subject to estimated tax; and the provision of a 2003 safe harbor based on 2002 taxable income. These provisions are the result, in part, of the lobbying efforts of certain members of the New York State Society of CPAs’ New York, Multistate and Local Taxation Committee.
Tax practitioners need to act immediately to meet the Sept.15 filing deadline. Tax practitioners should instruct their partnership and S corporation clients with income from New York sources to immediately contact the partners and shareholders of the affected entities. The entities need to determine or confirm the residency status of the individual partners and shareholders, the filing status of the corporate partners (C, S, or tax-exempt), and the partners’ and shareholders’ compliance with the April 15, 2003, and June 15, 2003, estimated tax rules.
It is anticipated that certain tax software providers will not process the new tax forms during 2003. Accordingly, practitioners may be required to prepare the IT-2658 and CT-2658 manually for the Sept.15 and Jan.15 deadlines.
Neil H. Tipograph, CPA, MBA, is a partner at Imowitz Koenig & Co., LLP, in New York City, and is a member of the NYSSCPA’s New York, Multistate and Local Taxation Committee.
