Iowa Administrative Code › Agency 701 - Revenue Department › Title V - Pass-through Entity Income Tax › Chapter 403 - Apportionment of Income for Resident Shareholders of S Corporations › Rule 701-403.3 - Distributions

Current through Register Vol. 47, No. 3, July 24, 2024
Distributions from income not previously taxed by Iowa
				  include the amount of all cash distributions and the fair market value of all
				  property distributions made during the year, except as follows:
1. Distributions from income not subject to
				Iowa tax due to exclusion under Iowa Code section
				422.7 (i.e., interest from
				federal securities or certain securities issued by Iowa). For purposes hereof,
				all distributions for a year shall be deemed to be made proportionally from
				income subject to Iowa tax and from income not subject to Iowa tax.
				Distributions from income apportioned outside of Iowa shall not be deemed to be
				made from income not subject to Iowa tax.
2. Distributions from income previously taxed
				by Iowa for a year in which the S corporation was a C corporation and which is
				taxed as a dividend or capital gain for federal income tax purposes.
3. Distributions from income previously taxed
				by Iowa for a year prior to the first tax year the resident shareholder elected
				to apportion income within and without Iowa.
4. Distributions treated as a return of
				capital for federal income tax purposes for tax years beginning prior to
				January 1, 2004.
5. For tax years
				beginning on or after January 1, 2004, any distributions paid from income for
				which the taxpayer can prove that Iowa tax has been previously paid. Any
				distributions paid from income apportioned outside of Iowa for tax years in
				which the resident shareholder elected to apportion income within and without
				Iowa will be considered distributions for which Iowa tax has not been
				previously paid, and cannot be excluded for purposes of this rule.
For purposes of this rule, a distribution is taken into
				  account on the date the corporation makes the distribution, regardless of when
				  the distribution is treated as received by the shareholder. Distributions shall
				  first be deemed made from current year income of the S corporation to the
				  extent thereof. If distributions during a year exceed the current income of the
				  S corporation, any excess distributions shall be considered made first from the
				  immediately preceding year income of the S corporation, and then to each
				  preceding year income of the S corporation in reverse chronological order, and
				  then in accordance with the ordering rules set forth in Section 1368 of the
				  Internal Revenue Code and the regulations thereunder.
EXAMPLE: An S corporation earned income of $20,000 in 2002,
				  income of $30,000 in 2003 and income of $40,000 in 2004. The S corporation made
				  no distributions during 2002 and 2003 and made distributions of $75,000 during
				  2004. The distributions will come first from the $40,000 income earned in 2004.
				  The excess distributions of $35,000 will come first from the $30,000 income
				  earned during 2003, and the remaining $5,000 will come from the income earned
				  during 2002.
This rule is intended to implement Iowa Code section
				  422.8, subsection
				  2.