Do S corporations with privilege-tax subsidiaries still add back Schedule E losses in Kansas?

Plain-English summary

Kansas Notice 13-04 explains a narrow carve-out from the 2012 business-loss add-back for certain S corporations tied to Kansas privilege-tax subsidiaries.

Background. Section 12 of 2012 House Bill 2117 added the addition modification at K.S.A. 2012 Supp. 79-32,117(b)(xix), requiring, for tax years beginning after December 31, 2012, an add-back of business losses reported on federal Schedule C (line 12), Schedule E (line 17) and Schedule F (line 18) to the extent deducted in determining federal adjusted gross income.

The 2013 change. Section 3 of 2013 House Substitute for Senate Bill 83 amended (b)(xix) to carve out S corporations with wholly owned subsidiaries subject to the Kansas privilege tax from the Schedule E / line 17 portion of the add-back. As a result, such S corporations are not required to add back losses reported from Schedule E and on Line 17 of the federal Form 1040.

Effective date. House Sub for SB 83 is effective upon publication in the Kansas Register; the Department interprets the amended (b)(xix) to be effective for tax years 2013 and after. (The notice bears no printed issue date; SB 83 took effect on its Kansas Register publication on April 25, 2013.)

What this means for you

S corporations with wholly owned privilege-tax subsidiaries

• You no longer add back the Schedule E / line 17 losses that (b)(xix) otherwise requires, for tax year 2013 and later.

Other pass-through businesses

• The general (b)(xix) loss add-back still applies to Schedule C, E and F losses.

Common questions

Who benefits from the carve-out? S corporations with wholly owned subsidiaries subject to the Kansas privilege tax.

Which losses are no longer added back? Losses reported from Schedule E and on Line 17 of the federal Form 1040.

When is it effective? Tax years 2013 and after.

What statute changed? K.S.A. 79-32,117(b)(xix), amended by Section 3 of 2013 House Substitute for Senate Bill 83.

Citations and references

• K.S.A. 79-32,117(b)(xix) -- the business-loss addition modification, amended to exclude S corporations with wholly owned privilege-tax subsidiaries from the Schedule E add-back.
• 2013 House Substitute for Senate Bill 83, Section 3 -- the amending legislation.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 13-04

Original ruling text

Policy & Research Phone: 785-296-3081
915 SW Harrison St FAX: 785-296-7928
Topeka KS 66612-1588 www.ksrevenue.org
Nick Jordan, Secretary Department of Revenue Sam Brownback, Governor
Richard Cram, Director

                                      NOTICE 13-04

                           KANSAS PRIVILEGE TAX - LOSSES

  During the 2012 Legislative Session HB 2117 was passed and signed into law. Section 12

of the Bill amended K.S.A. 79-32,117, which deals with addition and subtraction modifications,
to add a new addition modification. The new modification, which was codified as K.S.A. 2012
Supp. 79-32,117(b)(xix), provided for the addition of:

       (xix) For all taxable years beginning after December 31, 2012, the amount of
 any: (1) Loss from business as determined under the federal internal revenue code
 and reported from schedule C and on line 12 of the taxpayer's form 1040 federal
 individual income tax return; (2) loss from rental real estate, royalties, partnerships, S
 corporations, estates, trusts, residual interest in real estate mortgage investment
 conduits and net farm rental as determined under the federal internal revenue code
 and reported from schedule E and on line 17 of the taxpayer's form 1040 federal
 individual income tax return; and (3) farm loss as determined under the federal
 internal revenue code and reported from schedule F and on line 18 of the taxpayer's
 form 1040 federal income tax return; all to the extent deducted or subtracted in
 determining the taxpayer's federal adjusted gross income. For purposes of this
 subsection, references to the federal form 1040 and federal schedule C, schedule E,
 and schedule F, shall be to such form and schedules as they existed for tax year 2011,
 and as revised thereafter by the internal revenue service.

 During the 2013 Legislative Session in House Substitute for Senate Bill 83. Section 3 of

the Bill amended K.S.A. 2012 Supp. 79-32,117(b)(xix) to provide:

 (xix) For all taxable years beginning after December 31, 2012, the amount of any: (1)
 Loss from business as determined under the federal internal revenue code and
 reported from schedule C and on line 12 of the taxpayer's form 1040 federal
 individual income tax return; (2) loss from rental real estate, royalties, partnerships, S
 corporations, except those with wholly owned subsidiaries subject to the Kansas
 privilege tax, estates, trusts, residual interest in real estate mortgage investment
 conduits and net farm rental as determined under the federal internal revenue code
 and reported from schedule E and on line 17 of the taxpayer's form 1040 federal
 individual income tax return; and (3) farm loss as determined under the federal
 internal revenue code and reported from schedule F and on line 18 of the taxpayer's
 form 1040 federal income tax return; all to the extent deducted or subtracted in
 determining the taxpayer's federal adjusted gross income. For purposes of this
 subsection, references to the federal form 1040 and federal schedule C, schedule E,
 and schedule F, shall be to such form and schedules as they existed for tax year 2011,
 and as revised thereafter by the internal revenue service.

  As a result of this amendment S corporations with wholly owned subsidiaries subject to

Kansas privilege tax will not be subject to the K.S.A. 2012 Supp. 79-32,117(b)(xix) requirement
to add back losses reported from Schedule E and on Line 17 of the taxpayer's federal Form 1040
income tax return.

  House Sub for SB 83 indicates it is effective upon publication in the Kansas Register. The

Department of Revenue is interpreting the amended provisions of K.S.A. 79-32,117(b)(xix) to be
effective for tax years 2013 and after.

                                 Taxpayer Assistance

Additional copies of this notice, forms or publications are available from our web site,
www.ksrevenue.org. If you have questions about privilege tax, please contact:

                             Taxpayer Assistance Center
                            Kansas Department of Revenue
                            915 SW Harrison St., 1st Floor
                              Topeka, KS 66612-1588
                                Phone: 785-368-8222
                                 Fax: 785-291-3614