Mar 09, 2022

Update on Electing Pass-Through Entities in Alabama

We have been closely following developments on Electing Pass-Through Entities in Alabama and providing updates to you as they become available. These updates have included direct communications to our clients who are filers of Alabama Form 65 or Alabama Form 20S, or these general communications to all clients and friends of BMSS that receive our Beyond the Bottom Line newsletters.

This update is intended to provide you with the latest information that we have on the filing of returns for pass-through entities making this election in Alabama. As of today, the approval and development process for tax forms between the Alabama Department of Revenue and the tax preparation software vendor used by BMSS is not complete for all relevant forms to be filed by an electing entity. As such, we are unable, at this time, to complete the preparation of Forms 65 and 20S for entities making the election. We, therefore, recommend that companies making the election defer the filing of their returns until our software vendor has received final approval for its forms for electing pass-through entities. We are anticipating that such forms will be approved in the next few weeks.

If you are an entity making an election to be an Electing Pass-through Entity in Alabama, one other reason to defer the filing of your return is possible relief being announced by the Alabama Department of Revenue (ADOR) regarding underpayment of estimated tax penalties. Entities making the election for 2021 that did not make required amounts of 2021 estimated tax payments for this new entity-level tax will be subject to underpayment of estimated tax penalties. Guidance on possible relief from penalties by the ADOR has been vague and would be considered on a case-by-case basis. Due to the significant confusion experienced by all parties administering this tax (taxpayers, professional tax advisers and preparers, and electing entities), business leaders and tax professional organizations are seeking more definitive guidance on penalty relief. When all forms that would allow us to file your return are available, we believe it is advisable to consider whether any penalty relief is likely to be forthcoming before calculating and paying an underpayment of estimated tax penalty. Payments made now may be difficult to recover if relief occurs later.

Even though the filing of your 2021 returns may be extended and deferred if you are making this election for 2021, the following should or must be done by March 15, 2022:

  • The election under the Alabama Electing Pass-through Entity statute must be made on your My Alabama Taxes (MAT) account by March 15, 2022 (see previous communications on this procedure or consult with your BMSS tax adviser);
  • Pay any expected 2021 entity level tax due by March 15, 2022 through your MAT account;

Also, if you will have an election in place for the 2022 year, please pay your first quarter estimated tax payment for 2022 entity level tax by April 15, 2022.

If you have any questions regarding this email, please contact your BMSS professional at (833) CPA-BMSS or visit our website for contact information.