LA Preparers - Credits for taxes paid in other states

[Cathy]

IN THE FYI DEPARTMENT:

 

Have to be careful of the new legislation and regulations regarding the tax credits we have been accustomed to.  Rev. Info Bulletin No. 15-018 is clear as mud, as well as RS 47:33 (AMENDED IN 2015) points out at the bottom of the law that the provision for a Louisiana taxpayer to be able to claim a credit of the income taxes paid to another state for income derived from property owned in that other state EXPIRED 7-1-2000.

 

Now here is the kicker:  Evidently the legislators didn't realize the above as R.S. 33 (4) now states:  The credit shall be allowed only if the other state provides a similar credit for Louisiana income taxes paid on income derived from property located in, or from services rendered in, or from business transacted in Louisiana.

 

OK....let's get this straight.  We can take a credit against Mississippi income tax (for instance) paid on services our clients renders (works) as long as Mississippi allows their residents not only to do the same about taxes on working in Louisiana, but , unlike Louisiana, Mississippi must also allow their residents to take a credit against Louisiana income taxes paid on income they earned from the property they own in Louisiana.  Remember, we stopped the credit for taxes paid to another State based on income they earned from the property they own in the other state on our residents' returns on July 1, 2000.

 

Thus, I suspect is the reason for the note at the bottom of R.S. 47:33 that is written in all caps which is very unusual.

 

Of course, there is the issue of allowing no more of the out-of-state income taxes paid as a credit if the other state's tax rate is higher than Louisiana's tax rate. That's a no brainer as I have often wondered why Louisiana let that happen year after year.

 

I will request a listing of the States that satisfy the new requirements of the tax credit for taxes paid to another state.  I reviewed California's instructions and they had two listings.  I feel we definitely need the confirmation that a particular state is ok inasfar as the credit is concerned as those out of state returns are a lot of work when we aren't sure whether the credit is gonna fly or not....I don't think Louisiana knows either, but someone needs to find out and I'd rather it be them than someone from another state giving us wrong information.

 

I'LL UPDATE WHEN I GET ANY INFORMATION....IF ANYONE FINDS OUT FIRST, PLEASE LET US KNOW BY UPDATING THIS THREAD

Thanks!

CATHY

 

 

 

 

 

 

[Cathy]

Mini Update:

I've emailed the Policy Division explaining my concern about the credit for taxes paid in other states and was told they respond within 3 days.  I expect to hear something soon as my email was sent Sunday evening.

In the interim, however, I reviewed RS 47:33 and feel more comfortable than before as the requirements stated in RS 47:33 (A) (4) has the word "or" between each requirement rather than the word "and" which makes a HUGE difference in the meaning of the law.  RS 47:33 (A) (4) reads the following:

          (4) The credit shall be allowed only if the other state provides a similar credit for Louisiana income taxes paid on income derived from property located in, OR from services rendered in, OR from business transacted in Louisiana.

NOTE:  I emphasized the word "OR" above by capitalizing and underscoring it myself.

From the little bit I have learned about laws is that there is a big difference, of course, in the meaning of "or" and "and" when used alone (rather than and/or).  I paniced as I initially read it to mean in order to take the credit on taxes paid to another state (such as from work performed in that other state), ALL of the requirements had to be met.  From reading it again, I now interpret it to mean that if a taxpayer takes a credit paid to another state from work performed in that state, then that other state must allow their residents to do the same when they (their residents) work in Louisiana.  The credit for taxes paid to another state based on income derived from property in that other state is a moot case as that part of the original act expired in the year of 2000.

 

My initial concern was based on the instructions for Schedule G - Nonrefundable Credits in regard to Credits for Taxes Paid to Other States.  After reviewing the instructions again, I'm not going to kick myself this time as the way the instructions are written, it can be taken to mean what I had originally thought.  Who knows how the LDR would have interpreted it in processing returns....

 

Again, I'll update when I hear directly from the Policy Division.  Hopefully, they will provide us with a list of those states that are approved for Louisiana taxpayers to receive the credit.  In a telephone conversation yesterday with a lady with the Policy Division, I was told no list exists. OK....so how do they know if they can accept the credits paid to another state on a Louisiana tax return???

 

 

 

Edited January 26, 2016 by Cathy
to change "existed" to "exists" last paragraph

[kcjenkins]

6 hours ago, Cathy said:

Again, I'll update when I hear directly from the Policy Division.  Hopefully, they will provide us with a list of those states that are approved for Louisiana taxpayers to receive the credit.  In a telephone conversation yesterday with a lady with the Policy Division, I was told no list exists.  OK....so how do they know if they can accept the credits paid to another state on a Louisiana tax return???

Don't you just love that?  It's so crazy that only a government employee could say it with a straight face.  Look forward to hearing what they say when they get back to you.

[Cathy]

Me too, KC....I found her answer about "no list" to be right on par with our State government in particular.....on one hand Louisiana's tax practitioners constantly get bad publicity for a small handful of crooks and on the other hand we are constantly reminded of the inefficiency of the DOR with issues such as the credit on taxes paid to other states.  I asked another question that got the same type of answer that should have surprised me, but it didn't....regarding the "fraud" cases in which are given so much publicity where one or two tax preparers get busted for such things as indicating on many of their taxpayers returns that bogus "businesses" existed with huge losses which enabled millions of dollars in fraudulent refunds.  I have seen this happen all too often when a client leaves my business and goes to "John Doe" because "John Does gets back huge refunds for his clients, and everybody at work goes to John Doe".  And I'm not talking about ignorant people by any means. My question was what happens to the taxpayers who receive the fraudulent refunds...."NOTHING"...."we are working hard to build fraud cases on those tax preparers who prepares the returns".  Ok....so what have you got....10 at the most tax preparers per year who serve a few years and the taxpayers finding another firm to get their huge refunds continued.  As long as nothing happens to said taxpayers, fraud such as this will grow in leaps and bounds each year!  

Hopefully, I'll get a response on the tax credits by tomorrow as the "72 hour" response time has already turned into 96 hours!  

 

[kcjenkins]

Certainly when the tp signed the return with a Sch C and they knew they had no business, they should be prosecuted.  Perhaps LA assumes that the feds will go after the tp and then they can get them without having to make the case themselves?  Since the IRS notifies states when they find tax owed after an audit, and the states then assume the same changes. 

[Cathy]

On 1/31/2016 at 6:08 PM, kcjenkins said:

Certainly when the tp signed the return with a Sch C and they knew they had no business, they should be prosecuted.  Perhaps LA assumes that the feds will go after the tp and then they can get them without having to make the case themselves?  Since the IRS notifies states when they find tax owed after an audit, and the states then assume the same changes. 

The State of Louisiana is very unique (to say the least), and for our state government to "assume" anything is over-taxing (pardon the pun) it's capabilities and purpose (as they seem to think).   Several years ago, our immediate area had another such fraudulent tax preparer who prepared many returns for area non-employed residents who all happened to "own barber shops"....mega illegal refunds from what was announced in the media.  That case was brought against the preparer by the Feds.  Same situation with the "poor misinformed taxpayers" (I'm assuming) who signed those fraudulent returns....nothing....yada...nada...zilch....zero made public (or otherwise) about any action taken against those participating in the scam.  And living in a small area, certainly somebody would have heard something.  I guess that's why others in our area felt comfortable to continue to use the preparer located in the "big city" who was recently exposed also for his many, many clients having Sch C's....this time, however, all of those businesses lost money which helped immensely with the amount of refunds because his clients had high paying jobs with mega withholding.  I would imagine that this type of fraud, if not already, will soon surpass the EIC fraud, especially if participants from either side gets a free ride.

[Cathy]

FINAL UPDATE ON CREDIT PAID TO OTHER STATES:

After not hearing from the LDR Policy Division regarding my correspondence to them on Jan. 24th...it was to have taken 72 hours, I called today and was told my response would not be sent to me until 4 to 6 weeks.  I talked with a rep. in the Policy Division and got absolutely nowhere.  Her supervisor is to call me back within 2 to 48 hours.  I'm not holding my breath.

I was told by the rep. that it was the practitioner's responsibility to contact each state to see if that state was an eligible state for Louisiana's residents to be able to take the credit against income taxes paid to that state (even with the confusion of the law itself).

After further researching the 2015 Act No. 109, I do feel more comfortable in what I have decided to personally do to protect my client's interest the best way that I can.  At the moment, I have three out of state issues and have gone to each state and printed their instructions and forms to be used by their residents for the credit paid to other states.  I will keep that information as proof in addition to what I discovered when researching Act No. 109.

When Act No. 109 was originally introduced (House Bill No. 402) a new section:    R.S. 47:33 (A) (4) read:

       (4) The credit shall be allowed only if the other state provides a similar credit for Louisiana income taxes paid on income derived from property located in Louisiana.

            

The "Digest" prepared by the House Legislature Services and presented to lawmakers on the same instrument as the author of the original bill (on the same pages as the original bill but not an official part of the law) stated that:

Present law authorizes an individual income tax credit in an amount equal to income taxes which were paid for the same taxable period to another state on income which is subject to La. tax.

Proposed law retains present law and adds the following requirement for eligibility for the tax credit:

(1)  The credit is allowed if the other state provides a similar credit for La. income taxes paid on income derived from property located in La.

THEN, AMENDMENT NO. 1 and AMENDMENT NO. 2 WAS INTRODUCED.  Basically, Amendment 1 amended #4 above by adding a comma after "located in" and inserting "or" from services rendered in, "or" from business transacted in Louisiana.

The key word in the above amendment was the word OR!

What is "comical" to me is that the "Resume Digest" of ACT 109 (the last summary of the bill to tell legislators what they will be voting on) states that the wordage has commas without the word "OR", and has in the sentence the word "AND" which makes all of the issues necessary to be true in order to claim the credit.

HOWEVER, FINAL BILL, ACT NO. 109 (OF THE 2015 REGULAR SESSION) HAS THE "OR" BETWEEN EACH REQUIREMENT AND NO "AND" IN R.S. 47:33(A)(4);     therefore, that is the reasoning behind my conclusion I have drawn.  It appears there was a screw up in the final bill in the way it was presented to legislators and the way the bill was written for the last time and voted on and made official......but that's their problem....not mine.  That's my conclusion...take it with a grain of salt.

Edited February 2, 2016 by Cathy
Clean up spacing of type