Louisiana non-resident tax return

[debunkerhill]

My Wife is a shareholder of a Louisiana based S-Corp. According to the K-1, the Corp paid taxes on my Wife's behalf in the amount of $1351. In April we submitted a non-resident LA tax return including her distribution and tax paid on her behalf of the S-Corp income. Our tax owed was calculated by Turbotax (TT) to be only $249 therefore indicating that we should receive a refund of $1109. We have since received an audit report from LA disallowing the tax paid on her behalf as a tax credit and it also claims we owe an additional $249 plus an additional $10 in late fees. This does not seem right. Can anyone explain why are not eligible to receive a refund as calculated by TT?

There is discussion in the following FAQs:

www.revenue.louisiana.gov/sections/faq/default.aspx?type=GEN&cat=CORP

[mwcpa]

did she elect to have the corporation pay the tax on her belalf? If not it seems that you did not have 1249 withheld against her income earned in LA.... what was the profit from the K-1?

"Shareholders who are nonresidents of Louisiana may elect to file the individual nonresident and part-year resident return to report their portion of the income derived from the activities of the S corporation or to allow the corporation to pay the tax at the corporate income tax rate on their portion of the income. When electing the second method, the Subchapter S exclusion must not offset the net income to be reported on the corporation income and franchise taxes return. "

From LA instrucitons for corporate tax filings...

"Louisiana law does not recognize Subchapter S corporation status. An S corporation is required to file in the same manner as a C corporation. However, in certain instances, all or part of the corporation income can be excluded from Louisiana tax. For information on the S corporation exclusion of net income, refer to the instructions for Line 1B."

"LINE 1B – S CORPORATION EXCLUSION
R.S. 47:287.732(B) provides an exclusion to corporations classified as S corporations under federal law. The exclusion is determined by multiplying Louisiana net income by a ratio calculated by dividing the number of issued and outstanding shares of the S corporation’s capital stock owned by Louisiana residents on the last day of the S corporation’s taxable year by the total number of issued and outstanding shares of capital stock on the last day of the S corporation’s taxable year. This ratio is also applicable to a Louisiana net loss to exclude a percentage of the loss from carryback or carryforward treatment. For the purposes of this provision, Louisiana residents include resident estates and trusts and resident and nonresident individual shareholders who have filed a correct and complete Louisiana income tax return and paid the tax due."

[debunkerhill]

She did not elect to have taxes paid on her behalf and the two options were never offered . The second method was taken by the Corp. According to a message received from the auditors, the Corp pays taxes at normal LA Corp tax rates in a lump sum and there is no breakdown showing tax paid on behalf of individual shareholders even though her K-1 indicates otherwise. So in essence we should not have submitted a non-resident tax return and as stated on the K-1 it was not required. Still, I don't understand why an additional $249 plus fees has been imposed on us due to the audit.

[mwcpa]

"Still, I don't understand why an additional $249 plus fees has been imposed on us due to the audit. "

It was not an audit, even though it was called one.... you reported $X of LA sourced income and claimed a tax payment of $1,351. LA, properly, disallowed your claim of taxes paid on your behalf and they accepted the income reported as filed. You need to amend the LA tax filings to report NO LA sourced income (and probably amend your home state too).