New Jersey Administrative Code › Title 18 - TREASURY - TAXATION › Chapter 7 - CORPORATION BUSINESS TAX ACT › Subchapter 11 - RETURNS › Section 18:7-11.16 - Return to be filed by an S Corporation

Current through Register Vol. 56, No. 14, July 15, 2024
(a) Except as may be
				provided otherwise by this section, an S corporation, that is, one which has made an
				election under section 1361 et seq., of the Internal Revenue Code of 1954, as
				amended and supplemented, must complete its New Jersey corporation business tax
				return on its own separate basis as though no election had been made under the
				Federal statute.
(b) Except as may be
				provided otherwise by this section, in preparing its corporation business tax return
				the taxpayer cannot assume that ordinary income or loss (Federal taxable income) is
				equal to Federal taxable income before net operating loss deduction and special
				deductions for New Jersey corporation business tax purposes, when the taxpayer has
				elected Federal S corporation treatment. Certain amounts not necessarily limited to
				I.R.C. § 179 expenses and Form 1120-S dividends that qualify for the dividend
				exclusion are not included as part of the S corporation's ordinary income (loss)
				computation, but rather are passed directly through to the shareholder on the
				Federal Form K-1 Schedule. For corporation business tax purposes these amounts are
				included in the computation of entire net income, as if the corporation were a C
				corporation and no Federal S corporation election were made.
Example 1: S Corporation has 1985 taxable income for Federal tax
				  purposes of $ 100,000. However, not included in computation of such amount is a $
				  5,000 I.R.C. § 179 expense and $ 10,000 of S Corporation dividends received
				  from a different corporation that qualify for the Federal dividend exclusion.
				  Barring any other difference between Federal taxable income and New Jersey taxable
				  income per Schedule A, Form CBT-100, New Jersey taxable income before net operating
				  loss deduction (NOL) and special deductions is computed as such:
$ 100,000
Federal Taxable Income
(5,000)
I.R.C. § 179 Expense
10,000
Qualifying S Corporation Dividends
$ 105,000
New Jersey Taxable Income Before NOL and Special Deductions
Example 2: S Corporation is liquidating under I.R.C. § 337.
				  When disposing of its real property during the 12 month distribution period, the
				  corporation recaptures for Federal tax purposes $ 5,000 of I.R.C. § 291
				  expenses which an S Corporation does not include as part of Federal taxable income
				  if it were an S Corporation for the three preceding years before the I.R.C. §
				  337 election and the I.R.C. § 1363(b) election. Since the S Corporation is
				  treated as a C Corporation for State tax purposes, the I.R.C. § 291 recapture
				  is part of taxable income before net operating loss and special deductions on
				  Schedule A, Form CBT-100.
(c)
				With respect to tax years beginning after July 7, 1993, S corporation status may be
				elected for New Jersey purposes by the shareholders of a Federal S corporation. The
				filing of an election Form CBT-2553 with the Division of Taxation to be recognized
				as a New Jersey S corporation is required. A New Jersey S corporation is entitled to
				pay its tax at a preferential rate as provided in
				N.J.S.A.
				54:10A-5(c)(2) and (3) and to
				report and pay its tax liability on Form CBT-100S.