January 14, 2019

State of Connecticut Pass-Through Entity Re-characterization

By Randy Harrison, Partner, Tax & Business Services

Related Services Tax & Business, Tax Return Compliance, State & Local Tax, Corporate Tax, Valuation, Forensic & Litigation Services, Valuation

State of Connecticut Pass-Through Entity Re-characterization Tax & Business

The State of Connecticut’s Department of Revenue Services (DRS) has issued notices informing many taxpayers that their elections to re-characterize personal estimated tax payments as payments against the pass-through entity tax for 2018 have been rejected. The notice is dated on or about January 4, 2019, and requests a response within 14 days.

BACKGROUND

In 2018, the State of Connecticut allowed recipients of income from pass-through entities (S corporations and partnerships, including LLCs) to elect to re-characterize personal estimated tax payments. This re-characterization allowed personal estimated tax payments to be applied against the new Connecticut Pass-Through Entity tax. The re-characterization was originally elected by preparing and submitting Form CT-1065/CT-1120SI RR and Form CT-1065/CT-1120SI RRS, due in December from Connecticut S corporations and their shareholders, or Connecticut partnerships/LLCs and their partners or members.

REJECTION NOTICES

If the original election omitted required information or if an item in the application does not correspond to the records of the DRS, a rejection notice was issued. The notice explains the reason for the rejection and how to respond. A properly corrected re-characterization form (CT-1065/CT-1120SI RR and Form CT-1065/CT-1120SI RRS) must be completed and returned to the DRS within 14 days of the date of the letter (in many cases, January 18, 2019) to resolve the cause for rejection. The form may be sent to the DRS via the fax number on the letter or may be mailed to:

State of Connecticut
Tax Corrections Examiner
Department of Revenue Services
450 Columbus Boulevard, Suite 1
Hartford, CT 06103-1837

If a response is not submitted to the DRS in a timely fashion, the election to re-characterize personal estimates against the pass-through entity tax will be rejected. This may result in additional income taxes required to be paid with the Connecticut income tax return of the S corporation or partnership.

If you have received a rejection notice, please respond to Connecticut timely or contact your Marcum tax advisor.

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Randy  Harrison

Randy Harrison

Partner

  • Tax & Business
  • New Haven, CT