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

Location: WEBINAR


William Brown, a tax attorney at BrownWinick, will be part of a panel for a Strafford Publications WEBINAR that will provide an advanced-level look at the specific issues facing tax advisers to pass-through entities regarding composite returns and withholding requirements for pass-through entities that have nonresident shareholders.  This will be a 1.5 hour WEBINAR on Tuesday, May 1, 2018.

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. Advisers must consider whether to file a composite return, and filing composites may not be the best option for some pass-throughs.

While states differ in terms of their regimes for collecting tax from nonresident shareholders of pass-through entities, there are common themes. Most states have some sort of mandatory withholding scheme; however, some states provide the option to elect out of mandatory withholding, generally through filing composite tax returns.

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

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

The experienced panel offers a comprehensive view of states’ approaches to taxing corporations on multistate partnership income.