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Multistate Tax Alert: DC Office of Tax and Revenue Issues Second Notice of Proposed Rulemaking on Combined Reporting

Regulations to be finalized September 14, 2012


Effective September 14, 2011, the Fiscal Year 2012 Budget Support Act of 2011 (the “Act”) required combined reporting in the District of Columbia (“District”) for tax years beginning after December 31, 2010. On January 20, 2012, the District’s Office of Tax and Revenue (“OTR”) published in the D.C.Register  proposed regulations with respect to combined reporting. On August 31, 2012, the OTR issued a second notice amending the originally proposed regulations to address public comments gathered in 2012 (the “revised proposed regulations”). The revised proposed regulations include further clarification regarding the composition of the “combined group” for District franchise tax purposes, an affirmative statement that the District will follow the so-called “Joyce” rule for apportionment purposes, and guidance on the treatment of unincorporated businesses. Finally, three new regulation sections have been proposed since the original proposed regulations published in January: District of Columbia Municipal Regulation (“DCMR”) § 9-173 (Real Estate Investment Trusts); DCMR § 9-174 (Regulated Investment Companies); and DCMR § 9-175 (FAS 109 Deduction).

Comments on the revised proposed regulations are due no later than September 7, 2012. The regulations are expected to be finalized no later than September 14, 2012, one day prior to the extended due date for the 2011 income tax return for calendar-year tax filers (September 15, 2012). Thus. it is recommended that taxpayers required to file a combined franchise tax return for a unitary group consider the effect of the revised proposed regulations.

In the attached Tax Alert, we summarize certain highlights of the revised  proposed regulations, including the Joyce apportionment rule, the treatment of Qualified High Technology Companies, amendments to the definition of the “combined group,” inclusion of unincorporated businesses, and the ASC 740/FAS 109 deduction.