How could a South Carolina C corporation report an IRS federal income-tax adjustment under Revenue Procedure 16-1?

Plain-English summary

SC Revenue Procedure #16-1 gave C corporations two ways to report taxable-income changes made by the IRS: file an amended South Carolina corporate return, Form SC 1120, or use the Department's optional streamlined reporting format. Either method could produce additional South Carolina tax or a refund.

South Carolina law required written notice of every IRS taxable-income change within 180 days after the federal final determination. The procedure says the federal assessment date is the final-determination date for this purpose.

The two reporting methods

Amended Form SC 1120

The general method was to file an amended South Carolina corporate income-tax return reporting the federal adjustment and resulting state changes.

Optional streamlined schedule

Instead of Form SC 1120, a C corporation could submit the Department's sample schedule or a taxpayer-created spreadsheet containing every item in that format. The submission had to include:

• The taxpayer's identifying information and federal assessment date.
• The last-reported, IRS-adjustment, and South Carolina-amended amounts for federal taxable income, state additions and subtractions, apportionment, net operating losses, tax, and credits.
• The name, title, address, email, phone number, and date for an authorized representative.
• A copy of the federal final determination.

The Department treated the streamlined submission as an amended return for Title 12 purposes. It could be used only for changes resulting from an IRS federal income-tax adjustment. Any other correction still required an amended Form SC 1120.

Consolidated South Carolina groups

South Carolina did not adopt the federal consolidated-return rules cited in the procedure. Its combined corporate return treated each affiliated member as a separate taxpayer, calculated each member's income or loss and apportionment separately, and then combined the results. A group using the streamlined method therefore had to show the federal adjustments for each member of the South Carolina consolidated group.

Limitation periods described in the source

The procedure states the general rules then in effect: Department assessments ordinarily had a 36-month limit measured from the later of filing or the due date, while refund claims generally had to be filed within three years after filing or two years after payment, whichever was later. Section 12-54-85(D) supplied exceptions for IRS adjustments and resulting overpayments. The 180-day written-notice rule remained central to reporting the federal change.

What this means for you

C corporations receiving a federal adjustment

Calendar the federal assessment date immediately and submit either the amended SC 1120 or a complete streamlined schedule within the statutory reporting period. Attach the final federal determination and distinguish IRS-caused changes from any other amendment.

Consolidated-return groups

Reconcile the adjustment member by member. A single federal consolidated adjustment cannot be dropped into the South Carolina combined return without the separate-member calculations required by the procedure.

Common questions

Q: When did the 180-day period begin?

A: On the federal assessment date, which the procedure identifies as the IRS final-determination date.

Q: Was the streamlined schedule optional?

A: Yes. The corporation could instead file an amended Form SC 1120.

Q: Could the schedule include non-IRS corrections?

A: No. Other adjustments required an amended SC 1120.

Q: What had to be attached?

A: A copy of the federal final determination, along with the complete reporting information and authorized-representative details.

Citations and references

• S.C. Code Ann. § 12-54-85 — assessment, refund, and federal-adjustment time limits
• S.C. Code Ann. § 12-6-50 — federal provisions not adopted by South Carolina
• S.C. Code Ann. § 12-6-5020 — South Carolina consolidated returns
• SC Revenue Procedure 13-1 — refund-limit guidance referenced by the source

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: RP16-1.pdf

Original ruling text

STATE OF SOUTH CAROLINA

DEPARTMENT OF REVENUE
300A Outlet Pointe Blvd., Columbia, South Carolina 29210 P.O. Box 12265, Columbia, South Carolina 29211

SC REVENUE PROCEDURE #16-1

SUBJECT:

C Corporations – Reporting Federal Income Tax Adjustments Made by the Internal Revenue Service (Income Tax)

EFFECTIVE DATE:

Applies to C corporation federal income tax adjustments reported to the Department on or after November 1, 2016.

SUPERSEDES:

All previous documents and any oral directives in conflict herewith.

REFERENCES:

S.C. Code Ann. Section 12-54-85 (2014)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (2014)
SC Revenue Procedure #09-3

SCOPE:

A Revenue Procedure is a statement which provides information of a procedural nature. It is valid and remains in effect until superseded or modified by a change in the statute or regulations or a subsequent court decision, Revenue Procedure or Revenue Ruling.

Overview
South Carolina Code Section 12-54-85 provides the time limitations in which a tax may be assessed by the Department or a claim for refund may be made by a taxpayer. The general rules in Code Section 12-54-85(A) and (F) provide that taxes must be determined and assessed within 36 months from the date the return or document was filed or due to be filed, whichever is later and that claims for refund must be filed within three years from the time the return was filed, or two years from the date the tax was paid, whichever is later. 1 Code Section 12-54-85(D) provides an exception to these general time limitations for assessment of taxes resulting from adjustments of the Internal Revenue Service and for claims for refund resulting from an overpayment due to changes in taxable income made by the Internal Revenue Service.

1

See SC Revenue Procedure #13-1 for additional guidance on the time limitations for refund claims. 1

Code Section 12-54-85(D)(2) provides for the reporting of changes in taxable income made by the Internal Revenue Service, and reads: A person, including a pass-through entity, who conducts a trade or business, other than a trade or business of being an employee, shall notify the department in writing of all changes in taxable income reported to the Internal Revenue Service when the taxable income is changed by the Internal Revenue Service. Notification to the department must be made before one hundred eighty days after a final determination of a tax adjustment is made by the Internal Revenue Service. Code Section 12-54-85(D)(4) provides the date the Internal Revenue Service makes a final determination of a tax adjustment is the federal assessment date. The purpose of this advisory opinion is to provide a streamlined, alternative reporting process for C corporations to notify the Department of federal tax adjustments under Code Section 12-54-85. Procedure for C Corporations Reporting Changes in Taxable Income Resulting from Federal Income Tax Adjustments Made by the Internal Revenue Service General Method – Amended Return. Generally, a C corporation reports corrections or changes to a previously filed South Carolina income tax return, including changes resulting from federal tax adjustments made by the Internal Revenue Service, by filing an amended South Carolina corporate income tax return (Form SC 1120). The adjustments reported may result in additional South Carolina tax due or a South Carolina refund. Optional Method – Streamlined Format. In lieu of filing an amended corporate return (Form SC 1120), the Department will allow C corporations to report changes in taxable income resulting from federal tax adjustments made by the Internal Revenue Service by using a streamlined reporting method. An approved sample reporting format is attached. 2 A copy of the federal final determination must be attached to the C corporation’s submission. A taxpayer-created spreadsheet is acceptable, provided that all information on the approved sample reporting format is reflected. The streamlined format must provide the name and contact information of an authorized representative of the C corporation. For purposes of Title 12, the Department will treat the streamlined reporting method as the filing of an amended return by the C corporation. Note: The streamlined format may only be used to report changes resulting from federal income tax adjustments made by the Internal Revenue Service. Other adjustments must be reported by filing an amended corporate return (Form SC 1120).

2

This format is based on a model provided in a policy statement issued by the Tax Executives Institute recommending the streamlining and uniform reporting of federal income tax changes to state tax authorities. 2

“Consolidated” (Combined) Returns. South Carolina has not adopted the federal consolidation rules in Internal Revenue Code Sections 1501 through 1505. 3 South Carolina’s “consolidated” return treats each member of an affiliated group as a separate taxpayer. This approach requires the computation of the separate net income or loss of each member with the application of separate apportionment ratios for each. The separate South Carolina income or loss of each member is added together to arrive at combined, “consolidated,” net income upon which the tax is computed. 4 A South Carolina “consolidated” group using the optional method to report its federal tax adjustments made by the Internal Revenue Service must show the adjustments for each member of the South Carolina consolidated group. Submission of Optional Method. A taxpayer using the optional method may send the adjustments to the Department by email or mail to the following address: E-mail address: [email protected] Mailing address: South Carolina Department of Revenue Attn: Foreign Audit PO Box 125 Columbia, SC 29214 Questions For questions concerning the optional method for C corporations reporting changes in taxable income resulting from federal income tax adjustments, please contact the Department’s Foreign Audit Division via email at [email protected] or by calling 803-898-5619.

SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Rick Reames
Rick Reames, Director
December 8
, 2016
Columbia, South Carolina

3

See Code Section 12-6-50 for Internal Revenue Code sections specifically not adopted by South Carolina. 4 Code Section 12-6-5020 provides the rules for filing a South Carolina “consolidated” return. 3

SAMPLE
Optional Method for C Corporation
Reporting Federal Income Tax Adjustments 5
Name of Taxpayer:
____
FEIN:
___
SC Corporate File No.: __
Fed. Assessment Date: _____
For Income Tax Period Ended xx/xx/xx
Last Reported on
Form SC 1120
Federal Taxable Income of filing Entity
for SC Purposes

SC Amended

0

0

0

Total Additions:

0
0
0
0
0
0
0
0

0
0
0
0
0
0
0
0

0
0
0
0
0
0
0
0

Subtractions:
Foreign Dividends
Subpart F Income
Foreign Dividend Gross-Up
Foreign Source Income
Depreciation
US Treasury Interest
State and Local Tax Refunds
Other (List)
Total Subtractions:

0
0
0
0
0
0
0
0
0

0
0
0
0
0
0
0
0
0

0
0
0
0
0
0
0
0
0

Modified Federal Taxable Income
Net Nonbusiness Income/(Loss) – Total
Apportionable Income
Apportionment Factor

0
0
0
%

0

0
0
0
%

Additions:
Federal NOL Deduction
State and Local Interest
Depreciation
State and Local Taxes
Foreign Taxes
Related Party Expenses
Other (List)

5

SC Changes
Resulting from
IRS Adjustment

See Code Section 12-54-85 and SC Revenue Procedure #16-1. 4

0
%

State Apportioned Income
Net Nonbusiness Income/(Loss) – State

0
0

0

0
0

Total Income Before NOL
State NOL Deduction (enter as positive)

0
0

0

0
0

State Income Subject to Tax

0

0

0

State Tax Rate

%

%

%

State Tax Before Credits
Minimum Tax (if applicable)

0
0

0
0

State Tax
State Credits (enter as positive)

0
0

0
0

Income Tax After Credits

0

0

Additional Tax Due/(Refund)

0

Please print or type the name of an authorized representative, which will be considered a signature for this amended return, and other contact information as requested below. Authorized Representative: Name: ____ Title:

__________

Address: ____
Email:

__________

Phone: ____
Date:

__________

5