PTET refund roadmap — Expert insights with Dave Kirk
On this episode of the Tax Section Odyssey podcast episode, Dave Kirk, National Tax Partner — EY, and Chair of the AICPA’s Pass-through Entity Tax Task Force, discusses the complexities surrounding state tax refunds related to the pass-through entity tax (PTET) and delves into the challenges posed by the lack of IRS guidance, the application of the tax benefit rule and varying state regulations. Dave emphasizes the importance of consistency in handling these refunds and advises practitioners to involve taxpayers in decision-making due to the inherent uncertainties and risks. AICPA resources FAQ on the Federal Taxation of State Income Tax Refunds for PTET Payments — FAQ guidance on the federal taxation of state income tax refunds for PTET payments. AICPA list of taxpayer and practitioner considerations for whether to elect into a state pass-through entity (PTE) tax — Various issues should be considered when deciding whether a taxpayer can, and should, elect into a state PTE tax. Pass-through Entity (PTE) Taxes States’ Legislation and Tax Authorities’ Information and Guidance — A state-by-state PTE matrix tracking and linking to legislative updates, guidance, as well as other relevant information. State and Local Tax (SALT) Roadmap and Resource Center — Browse the reference library for the latest guidance and tools to address your state and local tax needs including tax rates, due dates, nexus, PTE tax and more. Transcript April Walker: On today's podcast, listen to learn more about how to handle refunds related to the pass-through entity tax. Hello everyone and welcome to the AICPA's Tax Section Odyssey podcast, where we offer thought leadership on all things tax facing the profession. I'm April Walker, a Lead Manager from the Tax Section and I'm here today with a repeat guest, Dave Kirk. Dave's with National Tax at EY. He is the knower of a lot of things, but specifically today we're going to talk about PTET. Dave, let's start off with, I think when we chatted before, we talked about pass-through entity tax fun with that, we're delving into a very specific issue related to it. Let's first talk about the challenges. There are so many challenges around this, the lack of guidance around PTET, but today we're going to talk about refunds and there isn't guidance really. How has that impacted our practitioners? Dave Kirk: First of all, thanks for having me again. Being the leader of the PTET Task Force for the AICPA and having to deal with this for E&Y nationally, I've probably spent 500 hours of my life on this that I'm not getting back. It's just that each state is different. You could probably group states together. It usually requires a case-by-case analysis on how the deduction was taken, when the deduction was taken, and how much money the taxpayer is getting back. The [IRS] Notice 2020-75 only talked about taking the deduction. There was not one word in that notice talking about refunds. You're right, April, there is no formal guidance from the IRS on PTET refunds. But this is also not the first time in US history where a state government has given money back to a taxpayer. Our federal tax system, as we currently know, it has only been around for 110 years or so. We do have guidance scattered throughout that last century of payments of taxes, deductions for taxes and recoveries. You might call it the common law of refunds that we would use in the absence of anything specific coming out of the government on how to deal with this. Walker: Tax benefit rule, right? It's been around for a little bit. Kirk: Yeah. There's two aspects of the tax benefit rule. There's the exclusionary aspect of it, and that's been codified about 40 years ago into Sec. 111 of the code. Then there's also the inclusionary aspect which kind of says, hey, you got a benefit for a payment back in a prior year and you have got that payment returned. That should be something, that should be Sec. 61, gr
