(a)
General. If the amount
of taxable income, as returned by a taxpayer to the Federal government, is
finally changed or corrected by the Commissioner of the Internal Revenue or by
another agency or court of the United States, the taxpayer, within 30 days
after the receipt of the final change or correction, shall make a report of
change, under oath or affirmation, to the Department showing the finally
changed or corrected taxable income, upon which tax is required to be paid to
the United States. See section 406 of the TRC (72 P. S. §
7406). A change or correction of taxable
income includes an increase or decrease in Federal taxable income before net
operating loss deduction and special deductions.
(b)
What is required to be filed with
the Department. The following are required to be filed with the
Department:
(1) A Report of Change as
prescribed by the Department.
(2)
Where a Federal audit has been conducted a copy of the summary of the Federal
agent's report, commonly referred to as an "RAR."
(3) The Department may require the taxpayer
to submit additional information or proof as it deems necessary.
(c)
When a Report of
Change is required to be filed. A Report of Change is required to be
filed with the Department within 30 days of receipt of the final change or
correction in taxable income as returned to the Federal Government. A Report of
Change is required to be filed whether the Federal taxable income has been
increased or decreased. See section 406(a) of the TRC.
(d)
When a change or correction in
Federal taxable income is final and received. A change or correction
will be final and received as follows:
(1) A
change or correction which increases the taxable income as returned to the
Federal Government is final when a Federal Notice and Demand for Payment is
issued to the taxpayer. Such a change or correction is received by the taxpayer
on the date the taxpayer receives the Federal Notice and Demand for Payment.
Example 1. Taxpayer files a 2003
Report with the Department in conformity with its Federal Return as filed in
2003. In 2004 the Internal Revenue Service audits the taxpayer's Return which
results in an increase of the taxpayer's Federal taxable income. Taxpayer does
not contest this change. Thirty days after receipt of a Federal Notice and
Demand for Payment, the taxpayer is required to file a Report of Change with
the Department.
Example 2. Taxpayer files a 2003
Report with the Department in conformity with its Federal Return as filed in
2003. In 2004 the Internal Revenue Service audits the taxpayer's Return which
results in an increase of taxpayer's Federal taxable income. Taxpayer contests
this change and files a petition in the United States Tax Court. The United
States Tax Court upholds the Internal Revenue Service's action. Taxpayer does
not appeal the United States Tax Court's decision. Thirty days after receipt of
a Federal Notice and Demand for Payment, the taxpayer is required to file a
Report of Change with the Department.
Example 3. Taxpayer files a 2003
report with the Department in conformity with its Federal return as filed in
2003. In 2004 the Internal Revenue Service audits the taxpayer's return which
results in an increase of the taxpayer's Federal taxable income. Taxpayer
contests this change and pursues all administrative and judicial remedies
available without paying the contested amount of tax. The United States Supreme
Court upholds the Internal Revenue Service's action. Thirty days after receipt
of a Federal Notice and Demand for Payment, the taxpayer is required to file a
Report of Change with the Department.
(2) A change or correction which decreases
the taxable income as returned to the Federal Government is "final" when the
taxpayer receives a refund or credit. The change or correction is received by
the taxpayer on the date the taxpayer receives the refund or credit.
(3) A change or correction which does not
increase or decrease the taxpayer's Federal tax is final when the taxpayer
receives a notice from the IRS that its return will be adjusted in accordance
with the examination report. The change or correction is "received" by the
taxpayer on the date the taxpayer receives notice from the IRS that its return
will be adjusted in accordance with the examination report.
Example. Taxpayer files a 2003 report
with the Department in conformity with its Federal return as filed in 2003. In
2005 the Internal Revenue Service audits taxpayer's Federal return. The audit
does not result in an increase in the Federal tax, but a change in the
Commonwealth taxable income does occur due to the Federal action. Taxpayer is
required to file a Report of Change within 30 days of notification by the
Internal Revenue Service of its action.
(e)
More than one change or
correction in Federal taxable income for a particular tax year. A
taxpayer is required to file a Report of Change for each change or correction
by the Commissioner of Internal Revenue or by any other agency or court of the
United States in the taxpayer's taxable income as reported to the Federal
Government.
Example. As a result of a Federal
audit of its 2003 Federal return, the taxpayer's Federal taxable income has
been increased and the taxpayer has paid the Federal government additional tax.
Since the taxpayer's Commonwealth taxable income also increased for 2003,
taxpayer has filed a Report of Change with the Department. Thereafter, in a
separate and subsequent court action the taxpayer contests the change in its
Federal taxable income for 2003 and receives a refund from the Federal
Government. Since its Commonwealth taxable income for 2003 has been decreased
by this separate and subsequent action, the taxpayer is required to file a
second Report of Change with the Department.
(f)
Penalties for failure to file a
Report of Change. Where there has been a final change or correction in
the amount of taxable income, as returned by the taxpayer to the Federal
government, which results in an increase in the taxable income, the taxpayer is
required to file a Report of Change with the Department within 30 days after
receipt of the final change or correction. If the taxpayer fails to file a
Report of Change within the 30-day period, there shall be added to the tax a
penalty of $5.00 for every day during which the taxpayer is in default, but the
Department may abate a penalty in whole or in part. See section 406(a) of the
TRC.
(g)
Report of Change
required to report Federal change or correction.
(1)
Corporate Net Income Tax settled
prior to January 1, 2008. When a Federal change or correction in
taxable income as reported to the Federal government occurs within 1 year of
the date of settlement and, therefore, a Commonwealth amended report could be
timely filed as provided in §
153.64 (relating to amended
report), the taxpayer nevertheless is required to file a Report of Change.
Filing an amended report will not satisfy the requirement of filing a Report of
Change.
Example. Taxpayer files a Federal
Return on March 15, 2003. Based upon that return, the taxpayer files its
Commonwealth Report on April 15, 2003. In August of 2003, the IRS discovers an
error in the taxpayer's return. Taxpayer shall file a Report of Change even
though the final change or correction was received within the period in which
the taxpayer could file an amended report. An amended report will not satisfy
the requirement of filing a Report of Change.
(2)
Corporate Net Income Tax not
settled prior to January 1, 2008. When a change or correction in
taxable income as reported to the Federal government occurs, the taxpayer is
required to file a Report of Change regardless of whether or not an amended
report could have been timely filed as provided in §
151.14 (relating to amended
report). This requirement applies to changes or corrections initiated by either
the taxpayer or the Federal government. Filing an amended report will not
satisfy the requirement of filing a Report of Change.
Example. Taxpayer files a Federal
Return on March 15, 2007. Based upon that return, the taxpayer files its
Commonwealth Report on April 15, 2007. In August of 2008, the IRS conducts an
audit and notifies taxpayer that its Federal taxable income is different than
the reported figure. Taxpayer shall file a Report of Change even though the
final change or correction was received within the period in which the taxpayer
could file an amended report. An amended report will not satisfy the
requirement of a Report of Change.
(h)
Changes initiated by the
taxpayer.
(1) A Report of Change
shall be filed, and additional tax due paid, within 30 days of the date the
amended Federal return is filed, or would have been filed in the case of a
corporation participating in the filing of a consolidated Federal
return.
(2) The taxpayer shall
provide a copy of the amended Federal Income Tax return if the Report of Change
is filed due to a change in Federal taxable income based on the filing of an
amended Federal Income Tax return. In addition, the Department may also require
proof of acceptance of the amended Federal Income Tax return. Examples of proof
of acceptance by the Federal government include the following:
(i) Copy of the IRS refund check.
(ii) IRS statement of adjustment to your
account.
(iii) IRS account
transcript.
(iv) Other
documentation at the discretion of the Department.
(3) Amended Federal Income Tax returns
include any document allowed or authorized by the IRS for a taxpayer to adjust
the taxpayer's Federal taxable income.
Example 1. Taxpayer files a Federal
Return on March 15, 2007. Based upon that return, the taxpayer files its
Commonwealth Report on April 15, 2007. In August of 2008, the taxpayer
discovers taxable income was underreported and files an amended Federal Income
Tax return. Taxpayer shall file a Report of Change even though the final change
or correction was received within the period in which the taxpayer could file
an amended report. An amended report will not satisfy the requirement of a
Report of Change.
Example 2. Taxpayer files a Federal
Return on March 15, 2007. Based upon that return, the taxpayer files its
Commonwealth Report on April 15, 2007. In March 2009, when filing the Federal
Income Tax return for 2008, the taxpayer files Federal Form 1139, Corporation
Application for Tentative Refund, adjusting 2006 Federal taxable income for a
capital loss carryback for 2008. Taxpayer shall file a Report of Change even
though the final change or correction was received within the period in which
the taxpayer could file an amended report. An amended report will not satisfy
the requirement of a Report of Change.
