A.
General. R.S. 47:293(9)(a)(xvii) and
(10) provide a deduction for resident
individuals and nonresident individuals ("taxpayers"), respectively, for net
capital gains resulting from the sale or exchange of an equity interest in, or
from the sale or exchange of substantially all of the assets of a non-publicly
traded corporation, partnership, limited liability company, or other business
organization ("business") commercially domiciled in Louisiana.
B. Definitions
Capital Gains from the Sale or Exchange of the Assets
of a Business-capital gains from sales and exchanges that are reported
on Federal Form 4797-Sales of Business Property, the gains from which are
reportable on Schedule D of Federal Form 1040.
Commercial Domicile-the principal place from
which the business is directed or managed.
Controlled Entities-with respect to a
business or taxpayer
a. a corporation
in which more than 50 percent of the value of the outstanding stock is owned
(directly or indirectly) by or for the taxpayer or business,
b. a partnership in which more than 50
percent of the capital interest or profits interest is owned (directly or
indirectly) by or for the taxpayer or business, and
c. any entity which is a related person to
the taxpayer or business pursuant to paragraph (3), (10), (11), or (12) of
26 U.S.C §
267(b).
Equity Interest-an ownership interest in a
business that is not publicly traded, such as stock in a corporation, a
partnership interest in a partnership, or a membership interest in a limited
liability company.
Net Assets-the total value of gross assets
after deducting liabilities reportable or would be reportable on the Federal
Form 1120, Schedule L if the form was required to be filed at time of sale as
total assets at the end of the year.
Net Capital Gains-the amount reported as
capital gains on the Federal Form 1040.
Gross Assets-the total value of assets
reportable or would be reportable on the Federal Form 1120, Schedule L if the
form was required to be filed at time of sale as total assets at the end of the
year without regard to location of the assets and excluding any negative values
reported on Lines 1-13.
Related Party-
a. a business or taxpayer and all entities
which are controlled entities with respect to such business or
taxpayer;
b. a business or taxpayer
and any trust in which such business or taxpayer (or his spouse) is a
beneficiary, unless such beneficiary's interest in the trust is five percent or
less of the value of the trust property; and
c. except in the case of a sale or exchange
in satisfaction of a pecuniary bequest, a taxpayer who is an executor of an
estate and a beneficiary of such estate.
Sale or Exchange of an Equity Interest-a
sale or exchange of an equity interest that is reportable on Schedule D of
Federal Form 1040-Capital Gains and Losses.
Sale or Exchange of Substantially all of the Assets
of a Business-a sale or exchange of assets that leaves the entity
unable to carry-on its business. A sale or exchange of assets is presumed to be
a sale or exchange of substantially all of the assets of the business if the
selling business transfers at least 90 percent of the fair market value of the
net assets and at least 70 percent of the fair market value of the gross assets
that it held immediately before the transfer.
C. Documentation Requirements
1. Taxpayers claiming the deduction shall
submit the following documentation at the time of filing their Louisiana
individual income tax return claiming the deduction:
a. a completed Louisiana Form R-6180, Net
Capital Gains Deduction Worksheet;
b. documentary evidence of the date the
taxpayer acquired an equity interest in the business, such as articles of
incorporation or organization, acts of sale or exchange, or donative
instruments;
c. a copy of the
taxpayer's federal Schedule K-1, if applicable, from the entity from which the
gain was derived; and
d. a complete
copy of the taxpayer's Federal Form 1040 filed with the IRS for the period in
which the gain was recognized, including the Schedule D and any corresponding
schedules and forms.
2.
In addition to the documentation required by Paragraph 1 above, when the
capital gain for which a deduction is being claimed is greater than $250,000,
taxpayers shall also submit the following at the time of filing their Louisiana
individual income tax return claiming the deduction:
a. copies of the last two returns on which
the income from the business was reported. If the gain is derived from a
partnership, provide Form IT-565, Louisiana Partnership Return of Income, for
the last two years.
b. If the gain
is derived from a pass-through entity, provide detailed information on the
pass-through structure, such as a complete organizational chart showing each
tier between the taxpayer and the entity from which the gain is
derived.
c. If the gain is from the
sale of assets, the taxpayer shall also provide the following:
i. a depreciation schedule or fixed asset
schedule showing a calculation of gross to net asset values; and
ii. an allocation of purchase price among
assets as required by IRC Section 1060, and generally reportable on IRS Form
8594.
D. Eligibility Restrictions
1. Net capital gains resulting from the sale
or exchange of real property or other immovable assets may qualify for the
deduction if more than 50 percent of the real property or other immovable
assets are located within Louisiana, provided however, that the income from the
related business was subject to Louisiana income tax prior to the sale or
exchange.
2. Net capital gains
resulting from the sale or exchange of tangible movable assets may qualify for
the deduction if during the three years immediately preceding the sale or
exchange, the tangible movable assets are located within Louisiana for at least
50 percent of the time in which the assets are in service, provided however,
that the income from the related business was subject to Louisiana income tax
prior to the sale or exchange. "In service" shall have the same meaning as it
does for the purposes of calculating depreciation.
3. Net capital gains from the sale or
exchange of an equity interest or from the sale or exchange of substantially
all assets shall not qualify for the deduction if the transaction transfers
ownership of the interest or assets to a related party.
E. The accrual of refund interest shall be
suspended during any period of time that a delay in allowance or approval of
the deduction is attributable to the taxpayer's failure to provide information
or documentation required herein.
Notes
La. Admin.
Code tit. 61, §
I-1312
Promulgated by the Department of Revenue, Tax
Policy and Planning Division,
LR
50, exp. 6/29/2024(Emergency), Promulgated by the
Department of Revenue, Tax Policy and Planning Division,
LR
501673 (11/1/2024).
AUTHORITY
NOTE: Promulgated in accordance with
R.S.
47:293(9)(a)(xvii) and (10),
47:293.2 and
47:1511.
