Opinion ID: 2192493
Heading Depth: 1
Heading Rank: 5

Heading: necessity to claim percentage of deductions

Text: In its second assertion of error, the director contends the AHC committed error by failing to subtract a proportionate amount of the Taxpayers' personal deductions and exemptions from the S-corporation's income when determining Missouri taxable income. The director specifically disputes the AHC's reliance upon Taxpayers' form K-1 to determine their distributive share of deductions attributable to the S-corporation, as the deductions on the K-1 do not fully reflect the gain that Taxpayers may have received by virtue of their holdings in the corporation. For example, the director contends Taxpayers claimed sizable federal income tax deductions during the years in question, but that income does not appear on the K-1 since the S-corporation does not have taxable income. Thus, because some portion of Taxpayers' deductions on their personal income is derived from their investment in the S-corporation located in the enterprise zone, the tax benefits they derive from operating in the zone should be proportionally reduced by their deductions. This argument is without merit. The AHC determined the S-corporation is the taxpayer for purposes of determining EZM and EZC. [20] The legislature has provided only that such exemptions are determined by multiplying Missouri taxable income by the appropriate fraction. It made no mention of deductions, exemptions, or other income derived by its shareholders. To unnecessarily complicate the calculation of these benefits would be improper. Accordingly, the decision of the AHC on this point is affirmed. For the foregoing reasons, the decision of the AHC is reversed in part and affirmed in part. The case is remanded to the AHC for proceedings consistent with this opinion. All concur.