ORS 314.140: Adjustment of returns of related taxpayers after reallocation of income or deduction on federal return.

(1) Whenever there has been an adjustment of federal income tax liability involving a reallocation of any item of income or deduction between related taxpayers, and when such adjustment results in the assessment of a tax deficiency or the issuance of a refund check or both, then for Oregon income tax purposes, whether or not the Department of Revenue effects a similar reallocation of income or deduction for the same tax year, said federal tax deficiency and additions thereto shall be deducted (to the extent otherwise provided by law) by the taxpayer paying the same, and said federal tax refund, including interest thereon, shall be returned (to the extent otherwise required by law) by the taxpayer receiving the same. (2) If, however, the related taxpayers involved (or their authorized representatives) so elect in accordance with subsection (3), then the refund of one, with interest thereon, shall be treated as a reduction of the deficiency of the other, including additions thereto, so that only the net amount of deficiency shall be deducted or the net amount of refund shall be returned, as the case may be. (3) An election under subsection (2) shall be in writing, signed by each related taxpayer or authorized representative, and filed with the department prior to the expiration of the applicable period of limitation with respect to the adjustment of the last open state return of either related taxpayer affected by the federal tax deficiency or refund. Such election shall constitute a waiver of any statute of limitations to permit the adjustment of all returns of the related taxpayers for the purpose only of effecting a reallocation of income or deductions similar to that made by the federal tax authorities and to adjust the federal income tax deductions resulting therefrom. [1953 c.702 §4] PASS-THROUGH ALTERNATIVE BUSINESS INCOME TAX Sec. 1. Sections 2 to 6 of this 2021 Act are added to and made a part of ORS chapter 314. [2021 c.589 §1] Sec. 2. As used in sections 2 to 6 of this 2021 Act: (1) “Distributive proceeds” means the net income, dividends, royalties, interest, rents, guaranteed payments and gains of a pass-through entity, derived from or connected with sources within this state. (2) “Member” means a shareholder of an S corporation, a partner in a general, limited or limited liability partnership or a member of a limited liability company. (3) “Partnership” means a syndicate, group, pool, joint venture or other unincorporated organization, through or by means of which any business, financial operation or venture is carried on in this state. (4) “Pass-through entity” means a partnership or S corporation or a limited liability company electing to be treated as a partnership or S corporation. (5) “Share of distributive proceeds” means the portion of distributive proceeds attributable to a member of a pass-through entity in a tax year. [2021 c.589 §2] Sec. 3. (1) A pass-through entity may elect to be liable for and pay a pass-through business alternative income tax if all members of the pass-through entity are: (a) Individuals subject to the personal income tax imposed under ORS chapter 316; or (b) Entities that are pass-through entities owned entirely by individuals subject to the personal income tax imposed under ORS chapter 316. (2) The election to pay the pass-through business alternative income tax is available if consent is given by all members of the electing pass-through entity who are members at the time the election is filed or is made by any officer, manager or member of the electing pass-through entity who is authorized, under law or the entity’s organizational documents, to make the election and who represents to having such authorization under penalties of perjury. The election shall be made annually on or before the due date, including extensions, of the pass-through entity’s return, in the form and manner prescribed by the Department of Revenue. The election may not be made retroactively. The members of a pass-through entity may revoke an election under this section for a tax year only on or before the due date of the pass-through entity’s return for that tax year, and only if the revocation is agreed to by all members who are members at the time of the revocation. (3)(a) In determining the sum of distributive proceeds and computing the tax under this section, a member of a pass-through entity shall add back any amount of Oregon tax imposed under this chapter [ORS chapter 314] and deducted by the pass-through entity at the entity level for federal income tax purposes under section 164 of the Internal Revenue Code. (b) Any amount that is added back under this subsection and that meets the conditions for the use of elective rates under ORS 316.043 may be treated as qualifying income under ORS 316.043, in a proportion determined by the department by rule. (4) Each pass-through entity that makes an election for a tax year pursuant to this section shall annually report to each of its members, for the tax year, the member’s share of distributive proceeds and share of tax paid under this section and eligible for the credit allowed under section 8, chapter 589, Oregon Laws 2021. (5) The tax imposed on a pass-through entity pursuant to this section shall be determined with respect to the sum of each member’s share of distributive proceeds attributable to the pass-through entity for the tax year. (6) The rate of the tax imposed by and computed under this section is: (a) Nine percent of the first $250,000, or fraction thereof, of the sum of distributive proceeds; and (b) Nine and nine-tenths percent of any amount of distributive proceeds in excess of $250,000. (7) The amount of pass-through business alternative income tax due from a pass-through entity in a tax year shall be exclusive of any amount of tax due and paid by the pass-through entity under this chapter, except as otherwise provided in sections 2 to 6, chapter 589, Oregon Laws 2021. (8) Pass-through entities that have made an election under this section shall file an entity tax return. The return shall be accompanied by payment and shall be due on the date applicable to returns due under ORS chapter 316, as provided in ORS 314.385. [2021 c.589 §3; 2022 c.82 §3] Sec. 3a. The Department of Revenue may develop and implement a system providing for the filing by electronic means of returns required under section 3 of this 2021 Act. [2021 c.589 §3a] Sec. 4. Except as otherwise provided in sections 2 to 6 of this 2021 Act or where the context requires otherwise, the provisions of ORS chapters 305 and 314 as to the audit and examination of returns, periods of limitation, determinations of and notices of deficiencies, assessments, collections, liens, delinquencies, claims for refund and refunds, conferences, appeals to the Oregon Tax Court, stays of collection pending appeal, confidentiality of returns and the related penalties, and the related procedures, apply to the determinations of taxes, penalties and interest under sections 2 to 6 of this 2021 Act. [2021 c.589 §4] Sec. 5. (1) The Department of Revenue shall administer and enforce sections 2 to 6, chapter 589, Oregon Laws 2021. (2)(a) The department shall require that taxpayers make estimated payments. (b) If a pass-through entity or its members have made sufficient estimated payments, the department shall by rule provide relief from penalty for any party that did not make estimated payments. (3) The department may adopt or establish rules and procedures that the department considers necessary or appropriate for the implementation, administration and enforcement of sections 2 to 6, chapter 589, Oregon Laws 2021, and that are consistent with sections 2 to 6, chapter 589, Oregon Laws 2021. [2021 c.589 §5; 2022 c.82 §4] Sec. 6. The net revenue from the tax imposed by sections 2 to 6 of this 2021 Act, after deducting refunds, shall be paid over to the State Treasurer and held in the General Fund as miscellaneous receipts available generally to meet any expense or obligation of the State of Oregon lawfully incurred. [2021 c.589 §6] Sec. 10. Sections 3 and 8, chapter 589, Oregon Laws 2021, apply to tax years beginning on or after January 1, 2022, and before January 1, 2026. [2021 c.589 §10; 2023 c.399 §1] Sec. 11. Sections 3 and 8 of this 2021 Act are repealed. [2021 c.589 §11] Sec. 12. The repeal of sections 3 and 8, chapter 589, Oregon Laws 2021, by section 11, chapter 589, Oregon Laws 2021, applies to any tax year that begins on or after January 1, 2022, and before January 1, 2026, and to which section 164(b)(6) of the Internal Revenue Code is not applicable. [2021 c.589 §12; 2023 c.399 §2] Sec. 13. The repeal of sections 3 and 8 of this 2021 Act by section 11 of this 2021 Act becomes operative on the date on which section 164(b)(6) of the Internal Revenue Code is repealed. [2021 c.589 §13] Sec. 16. (2) The amendments to sections 3 and 5, chapter 589, Oregon Laws 2021, by sections 3 and 4, chapter 82, Oregon Laws 2022, apply to tax years beginning on or after January 1, 2022, and before January 1, 2026, and to estimated payments due on and after June 15, 2022. [2022 c.82 §16(2); 2024 c.52 §5(2)]