Read STATE CORPORATION INCOME TAX RETURN CHECKLIST 2004 text version

STATE CORPORATION INCOME TAX RETURN CHECKLIST 2004

Client Name and Number:_______________________________________________________________________________ Prepared by: ________________________ Date: _________________ Reviewed by: _______________ Date: ___________ COMMENTS OR EXPLANATION

100) GENERAL INFORMATION 101) For state tax forms, instructions, tax codes, cases, regulations, rulings, procedures, etc., refer to the AICPA's Internet web page at www.aicpa.org/yellow/index.htm. 102) For comprehensive charts and lists of various items and requirements (e.g., tax rates, filing dates, extensions, estimated taxes, exemptions, reports, limitation periods, NOL deductions, etc.), refer to a state tax reporter service or the Federation of Tax Administrator's Internet web page at www.taxadmin.org. 103) Obtain information concerning state tax audits and correspondence. 104) If a federal audit has been settled, consider notifying state(s). 105) Determine if the client has sufficient connection with any other state that may require an income, franchise or privilege tax return. (Note that requirements for filing a franchise or privilege tax return may differ from requirements for filing an income tax return.) If multistate, see items under checklist section #500 and check nexus information. 106) Consult the Unique Considerations for State Corporation Tax Returns (also in this AICPA Tax Practice Guides and Checklists publication package) for common problems and unique tax issues for each state tax return to be prepared. Also consult the various Nexus, Multistate Tax and State NOL Issues Practice Guides in this AICPA Tax Practice Guides and Checklists publication package for further information relevant to the checklist sections #111, #600, and #700. 107) Obtain and review information related to state statutory, regulatory, judicial, administrative changes or amnesty programs since the filing of the prior return. 108) Review prior year returns for elections, NOLs, etc. 109) Consider the impact of any acquisitions, divestitures and reorganizations on state income and franchise taxes. 110) Determine if the operations of a division have changed substantially during the year, including a sale or transfer of a major portion of the assets located in a particular state. 111) Determine with the client the proper filing status (separate, unitary, combined, or consolidated) for multicompany entities. (Note election possibilities or a mandatory method.) 112) Determine if the impact of intercompany transactions (e.g. eliminations, deferred intercompany transactions, etc) have been properly accounted for in the various state tax liabilities.

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STATE CORPORATION INCOME TAX RETURN CHECKLIST 2004

DONE 113) If an S corporation, consider composite filing for nonresident shareholders. In addition, determine state tax treatment if any QSubs exist: .1) Review S corporation provisions for each state. .2) Review taxation of S corporation shareholders, especially nonresidents, for each state. 114) Consider if disaster relief provisions apply. 200) INCOME 201) If the state uses income on the federal return as a starting point, either before or after the net operating loss deduction or special deduction, transfer income information from the federal return. 202) Determine if federally exempt (e.g., municipal) interest and dividends are subject to add back. (Note possible offset of direct and/or apportioned indirect expenses against the tax-exempt income.) 203) Determine each state's tax-exempt interest and dividends for possible subtraction (e.g., home state interest if all states' interest was added back in checklist section #202). (Note possible offset of direct and/or apportioned indirect expenses against the tax-exempt income.) 204) Determine interest and dividends from U. S. government obligations for possible subtraction. (Note possible offset of direct and/or apportioned indirect expenses against the tax-exempt income.) 205) Check for any other income taxable on the state return that was not taxed on the federal return. 206) Check for any income taxable on the federal return that may not be taxable on the state return. 300) DEDUCTIONS 301) Determine any differences between federal and state deductions (e.g., state tax deduction, dividend received deduction, depreciation). 302) Determine any differences between federal and state carryovers (e.g., capital loss, excess charitable contributions, NOLs). 303) Determine the state's treatment of 30% & 50% additional firstyear depreciation & § 179 deduction. (JGTRRA 2003) 400) TAX COMPUTATION AND CREDITS 401) Determine any state alternative minimum tax. 402) Compute any applicable tax credits (e.g., investment, jobs, enterprise, environmental, rehab) including carryovers. _________ _________ ______ ______ ______________ ______________ _________ _________ _________ ______ ______ ______ ______________ ______________ ______________ N/A COMMENTS OR EXPLANATION

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STATE CORPORATION INCOME TAX RETURN CHECKLIST 2004

DONE _________ N/A ______ COMMENTS OR EXPLANATION ______________

403) Compute any credit recapture. 404) Confirm amounts and dates of any state and local estimated tax deposits/payments (including withholding) for the year, prior year overpayments, and extension payments.

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405) Prepare estimated tax vouchers. 406) Compute tax underpayment penalties. 500) MULTISTATE ISSUES 501) Determine in which states a multistate corporation is required to file income or franchise tax returns. Consult the AICPA Nexus, Multistate Tax and State NOL Issues Practice Guides for guidance and for an overview of nexus and details on ordering the AICPA State Tax Nexus Checklist/Practice Guide. 502) Consult the Nexus, Multistate Tax and State NOL Issues Practice Guides (also in this AICPA Tax Practice Guides and Checklists publication package) for information on multistate allocation and apportionment and net operating loss issues. 503) If the corporation is not taxable in more than one state, determine if the corporation is permitted to apportion its income. 504) Determine the available methods of dividing the income tax base of a multistate corporation for all states for which returns are required (e.g., separate accounting, specific allocation, formulary apportionment). (Note any states with special elections available.) 505) If separate accounting method is a beneficial option, determine if necessary records for separate accounting are available. 506) Determine the need to distinguish between business income and nonbusiness income. (Note the respective tests.) 507) If the corporation has income subject to specific allocation: .1) Identify income subject to specific allocation. .2) Determine treatment of expenses directly or indirectly related to allocated income. (These are generally added back or netted against the applicable income.) 508) Determine if the state in which you are filing requires or permits unitary, combined or consolidated reporting and which test(s) applies. 509) Determine each state's restriction on the offset of capital gains against capital losses. 510) Determine the total income that is to be apportioned.

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DONE 511) Determine each state's apportionment formula for business income: .1) Check if any of the states' formulas differ from the standard three-factor formula (e.g., double weighted sales factor, a formula with less than three factors or a specific formula based on the corporation's industry). .2) Check the various states' rules that establish: (a) which items are included in the factors, (b) the timing of entry and removal from the factors, (c) the evaluation of items included in the factors, and (d) how items are assigned to a particular state (e.g., mobile property) and included in that state's apportionment factor numerator. 512) Determine the amounts to be included in the property factor and check the various states' rules concerning the use of cost or adjusted book values in property values. 513) Determine the amounts to be included in the payroll factor and check the various states' rules for treatment of special classes of compensation such as compensation of corporate officers, commissions and other compensation, or payments to independent contractors. 514) Determine the amounts to be included in the sales factor considering each state's rules concerning "throwback" sales. 515) Reconcile the denominator of the sales factor to the amount of sales reported on the federal return. 516) Determine the availability of like-kind exchange treatment if exchanged properties are located in different states. _________ _________ _________ ______ ______ ______ ______________ ______________ ______________ N/A COMMENTS OR EXPLANATION

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600) STATE NOL ISSUES 601) Determine each state's rules concerning calculation of net operating losses (NOLs) and any related carrybacks or carryforwards. 602) Determine each state's starting point for calculation of a NOL, such as federal taxable income with or without NOL modification, or federal taxable income before the federal NOL deduction with a state specific NOL calculation. 603) For multistate returns: .1) Determine each state's effect on the NOL and the amount of carryback or carryforward due to state modifications, apportionment factors, and the allocation of nonbusiness income.

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DONE .2) .3) Determine if the corporation filed a state return in the year the loss was generated and if that fact impacts the use of the loss. Determine if NOL carryforwards and carrybacks use the apportionment factor for the year of the loss or for the year the loss is utilized. _________ N/A ______ COMMENTS OR EXPLANATION ______________

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604) For affiliated groups of corporations filing a consolidated return: .1) .2) Determine if state NOLs may need to be tracked on a separate entity basis. Check for state requirements concerning separate return filing years and effects on NOL carryforwards and carrybacks. _________ _________ ______ ______ ______________ ______________

605) If combined corporate reporting is allowed or required by a state, check if combined or separate method is used for calculating the NOL for that state. 606) Check on the treatment of any NOL carryovers if a corporation has had a reorganization, acquisition, or liquidation. 607) Consult the Nexus, Multistate Tax and State NOL Issues Practice Guides (also in this AICPA Tax Practice Guides and Checklists publication package) for an explanation of state net operating loss issues. 700) OTHER 701) Attach extensions and other required attachments. 702) Identify planning opportunities (e.g., economic incentives) for minimizing state taxes. 703) Identify and report any out of jurisdiction purchases for use tax. 704) Advise the client of their exposure to other business tax programs (e.g., sales, gross receipts, license, employment, inventory, property, etc.) and unclaimed property obligations. 705) Consider preparing a workpaper schedule for the file concerning state items to track, carryforward items, and any matters of future concern. 706) Determine if client has filed and paid all unclaimed property reports. 707) Check NAUPA Internet web page at www.unclaimed.org to determine if client is owed any unclaimed property. COMMENTS OR EXPLANATIONS

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