On September 22, 2023, North Carolina Gov. Roy Cooper announced that House Bill (HB) 259, the 2023 Appropriations Act, shall become law without his signature. While the budget bill includes a number of changes, one revision to the Taxed Partnership Election is of a time-sensitive nature. These amendments expand the eligibility of partnerships to make the Taxed Partnership Election.
Under previous law, partnerships were not permitted to make the Taxed Partnership Election if the partnership had any partners who were not one of the following:
- An individual
- An estate
- A trust described in Section 1361(c)(2) of the Code
- An organization described in §1361(c)(6) of the Code
- A partnership, including an entity that is classified as a partnership for federal income tax purposes, or an S corporation as defined in General Statutes (GS) 105-131(b)
HB 259 amends GS 105-154.1(a) retroactive to January 1, 2022 such that partnerships are not permitted to make the Taxed Partnership Election if the partnership had any partners who are not one of the following:
- An individual
- An estate
- Any of the following:
- A trust described in §1361(c)(2) of the Code
- A trust if such trust does not have as a beneficiary any person other than an individual, an estate, a trust, or an organization described in §1361(c)(6) of the Code
- An organization described in §1361(c)(6) of the Code
- A partnership, including an entity that is classified as a partnership for federal income tax purposes, or an entity that is classified as a corporation for federal income tax purposes
The amendments of HB 259 now permit a partnership with partners which are C corps and other types of trusts to make the Taxed Partnership Election. North Carolina statute regarding the calculation of taxable income of a taxed partnership has not been amended, so while a partnership is permitted to make the Taxed Partnership Election with partners who are described in item 5 above, the income of those partners is not included in the tax base. The taxable income base of taxed partnership would, however, include any income of partners described in item 3a above.
For tax years beginning on or after January 1, 2022, partnerships that could not make the Taxed Partnership Election on their timely filed return are permitted to make the election by filing an amended return on or before October 15, 2023.
If you have any questions or need assistance, please reach out to a professional at FORVIS.