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Composite Returns and Nonresident Withholding for Pass-Through Entities: Navigating the Multistate Complexities

Determining Whether to File Composite Returns, Dealing With Withholding Requirements

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Tuesday, July 30, 2024

Recorded event now available

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This course will offer tax professionals a deep dive into composite tax provisions and the withholding requirements of pass-through entities with nonresident shareholders and partners. The panel will provide an advanced level look at the specific issues facing tax advisers to pass-through entities regarding composite return and withholding requirements.

Description

Tax advisers working with pass-through entities must navigate the landscape of reporting and withholding where the pass-through entity has nonresident shareholders or partners. While states differ in their requirements for collecting tax from nonresident shareholders and partners of pass-through entities, there are common themes. Most states have a mandatory withholding scheme; however, some states provide the option to elect out of mandatory withholding, in some cases through filing composite tax returns.

A principal benefit of filing a composite return is the convenience for partners or shareholders to avoid the filing of nonresident state income tax returns. This benefit is offset in certain states, particularly those with high top marginal rates, that impose the tax at the top rate on income reported on a composite return.

Further, a composite return may preclude an individual shareholder or partner from claiming credits or deductions that may apply if the taxpayer filed a nonresident return. Tax advisers must understand various tax impacts to determine whether to advise filing a composite return.

Listen as our experienced panel offers a comprehensive view of states' approaches to composite returns and nonresident withholding for pass-through entities.

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Outline

  1. The landscape of withholding requirements, composite returns, and partnership audit rules
  2. Withholding requirements on nonresident shareholders/partners
  3. Measures to enforce nonresident filing and payment of taxes
  4. Mechanics of electing and filing composite returns
  5. Elections and strategies
  6. Taxation of the disposition of interest by nonresident shareholders/partners
  7. Tax reporting and planning issues specific to S corporations
  8. State pass-through entity taxation (avoiding the SALT cap)

Benefits

The panel will discuss these and other essential questions:

  • Which states offer elections other than defaulting to withholding on nonresident partners or shareholders?
  • What are the built-in exceptions to withholding requirements for pass-through entities with nonresident partners or shareholders?
  • Which states offer the option of electing to file composite returns? Which states require composites?
  • When should a pass-through entity not elect to file a composite return?
  • What are the specific risks to identify and avoid withholding for nonresident partners or shareholders?

Faculty

Kim Buresh
Kim Buresh
Director
Andersen

Ms. Buresh has over 12 years of experience in state and local tax. She provides corporate and high net worth clients...  |  Read More

Ashley De Rada, JD, LLM
Ashley De Rada, JD, LLM
Manager, WNT - SALT Income & Incentives
KPMG

Ms. De Rada is a Manager in KPMG’s Washington National Tax SALT Income & Incentives group based in Los...  |  Read More

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