Philadelphia Ordinance Requires Reporting of Federal Tax Changes
Philadelphia City Council enacted Ordinance No. 210139-AA (the Ordinance; available here), effective immediately, requiring all Philadelphia taxpayers to report any changes to their federal taxable income to the Philadelphia Revenue Department (the Department).
The requirement to report federal changes applies whenever there is a “Final Determination” that results in a change to a taxpayer’s federal taxable income. A Final Determination includes (i) the final resolution of a federal tax audit, (ii) entering into a closing agreement with the IRS, and (iii) a final decision by a federal court.
Following a Final Determination, a taxpayer has 180 days to file a Report of Change, in a form to be developed by the Department. The Ordinance allows the Department to impose penalties, in amounts to be established by regulation, for the failure to timely file a required Report of Change.
Upon the filing of a Report of Change reporting an increase in taxable income, the Department will have the ability to assess additional tax, interest and/or penalties for the period at issue until the later of (i) the expiration of the otherwise applicable statute of limitations, or (ii) one year from the date the Report of Change is filed. If a taxpayer fails to timely file a Report of Change but the Department is notified of the change by another taxing authority, the Department can assess additional tax, interest and/or penalties for a period of one year following such notification.
If a taxpayer timely files the Report of Change reporting a decrease in taxable income, the taxpayer will be able request a refund or credit (presumably through the ordinary refund claim process), even if the statute of limitations for a refund or credit has expired.
In the case of both increases to tax liability and refunds/credits, if the applicable statute of limitations has expired, any adjustments to Philadelphia tax liability are limited to adjustments arising directly from the Final Determination reported on the Report of Change; the statute of limitations is not otherwise opened for either assessments or claims for refunds or credits.
The new requirement is applicable to all City taxpayers and therefore a Report of Change must be filed by individuals, entities that are corporations for City tax purposes, and entities that are partnerships for City tax purposes (including limited liability companies that are treated as partnerships). The Ordinance does not list the specific types of City taxes that are covered but, because the Final Determination must be based on federal taxable income, affected Philadelphia taxes include the Earnings Tax, School Income Tax, Business Income and Receipts Tax and Net Profits Tax.
Many states have similar reporting requirements regarding changes to federal income but all Philadelphia taxpayers should be aware of this new rule to avoid potential penalties.
Copyright © 2021 by Ballard Spahr LLP.
(No claim to original U.S. government material.)
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, including electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.
This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.