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Tax Law

D.C. Struggles to Implement Combined Reporting Continue

On September 19, 2012, the District of Columbia Council approved an emergency bill amending the District's combined reporting provisions applicable for the 2011 tax year. Should the bill be approved by the Mayor, the emergency legislation will be in effect for no more than 90 days, after which temporary legislation is expected to become effective until the Council enacts permanent legislation to address the issues. Many of the changes set forth in this emergency bill would codify guidance promulgated in the final combined reporting regulations issued on September 14, 2012.

This emergency legislation contains several significant changes, including:

  1. Revocation of the taxpayer election to file a consolidated return for tax years beginning after December 31, 2010;
  2. Disallowance of net operating loss carrybacks;
  3. Guidance for treatment of unincorporated businesses, partnerships and S corporations;
  4. Clarification that the taxpayer's worldwide election does not automatically renew; and
  5. Removal of Subpart F income from calculation of water's edge unitary group.

Given the peculiar and cumbersome legislative making process in the District of Columbia, taxpayers should keep a close eye on further developments to insure that they stay on top of the latest developments. Enacted as a piece of emergency legislation, the current bill provides a temporary approach to avoid the cumbersome process and short-term (no longer than 90 days) guidance to taxpayers. While emergency legislation allows the District of Columbia Council to immediately address an issue, it creates a unique potential problem because of the short 90-day window, which is generally not enough time for the Council to enact permanent legislation through the normal legislative enactment process. Taxpayers should be alert for the enactment of such temporary legislation, which would presumably extend such rules to provide some ongoing certainty and guidance for taxpayers until permanent rules are in place.

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