Alabama Department of Revenue Opens Window for Making Late Pass-Through Entity Election for 2021

By Ashley G. White, JD, CPA

As we have previously reported in our Beyond the Bottom Line newsletters, the Alabama Electing Pass-Through Entity Tax Act (Act 2021-1 and Act 2021-423) was passed last year and allows Alabama S-Corporations and Subchapter K entities (pass-through entities or PTEs) to elect to pay Alabama income taxes at the entity level. The election may be made for tax years beginning on or after January 1, 2021.  Elections can be made at any time during the tax year but no later than the 15th day of the third month following the close of the tax year for which the entity wishes to be taxed as an Electing PTE. Therefore, prior to the recent announcement from the Alabama Department of Revenue (ADOR), elections for calendar year 2021 were due no later than March 15, 2022, with no extension of time.

However, in a taxpayer-friendly move, the ADOR has announced an opportunity to make a late 2021 PTE election if certain conditions are met.  The purpose of this action is to help those taxpayers who showed an intention to make the election but failed to take the proper steps in the first year of this election.  The ADOR recognized that little guidance was provided prior to filing season as taxpayers ran into various issues, including setting up a My Alabama Taxes (MAT) account, as well as confusion over the need to make the election outside of the taxpayer’s Alabama tax return submission itself.

Specifically, taxpayers who missed the March 15 election deadline can now make the online PTE election in their MAT accounts between July 1 and August 15, 2022 IF they meet one of these conditions:

1. They timely filed the required PTE and member tax returns as though the election had been made;
2. They timely made an electing PTE extension payment; or
3. They made an entity-level tax payment prior to the due date of the return.

The ADOR has stated its intention to make the eligibility as inclusive as possible and indicated that “timely filed” in item #1 above does include returns that are filed by the extended due date.  As such, most returns that are still on extension can make the election during this July 1-August 15 window as long as the business and all related owner returns are filed by August 15. Penalties and interest will still apply to any late payments. The second and third items above that reference payments refer to the original due date since extensions generally do not extend the time for payment.

Contact your BMSS advisor as soon as possible if you have any questions about the applicability or advisability of this late election opportunity to your situation at (833) CPA-BMSS or visit our website for contact information.