If I am a New Hampshire resident who is a member of a limited liability company with non-transferable shares, how does the passage of Special Session House Bill 1 affect me?
Special Session House Bill 1, passed by the Legislature and signed by the Governor on June 10, 2010, repeals the changes to the I&D Tax (Chapter 144, Laws of 2009), which made distributions from limited liability companies, partnerships and associations with non-transferable shares subject to the I&D Tax. As enacted, Special Session House Bill 1 did not apply the repeal of Chapter 144, Laws of 2009 retroactively for the 2009 taxable period. The repeal of Chapter 144, Laws of 2009 is applicable to taxable periods ending on or after December 31, 2010. Therefore, as a member of a limited liability company with non-transferable shares, if you received taxable distributions during the 2009 taxable period you are still liable for I&D Tax. Additionally, as a member of a limited liability company with non-transferable shares, if you filed under extension for the 2009 taxable period, you are still required to file the return and pay I&D Tax with respect to taxable distributions made during the 2009 taxable period.
For taxable periods ending on or after December 31, 2010, however, as a member of a limited liability company with non-transferable shares, if you receive distributions during those taxable periods, you will not be required to file or pay I&D Tax with respect to those distributions.
If I am a member of a limited liability company (or a partner in a partnership or association) with non-transferable shares, will I be charged underpayment of estimate penalties for I&D Tax for the 2009 taxable period even though I could not have known that distributions made in the first half of the 2009 taxable period would be subject to the I&D Tax?
If you file a Form 2210/2220, Exceptions and Penalty for the Underpayment of Estimated Tax, with an annualized statement showing when the distribution(s) were made, you may qualify for an exception to the penalty. Furthermore, if you made timely estimate payments each quarter equal to one fourth of the prior year's tax liability, no penalty will be imposed.
For the 2009 taxable period, are distributions attributable to reasonable compensation as an owner, partner or member, allowed as a deduction to gross business profits under RSA 77-A:4, III, subject to the I&D Tax?
No. The term "accumulated profits" is defined by rule to exclude amounts deducted for personal services of owners to the extent the deduction would be allowable under the Business Profits Tax, RSA 77-A:4, III.
Any distributions to an owner who provides personal services to the entity will be charged against the compensation deduction attributable to that owner first.
To the extent that the reasonable compensation attributable to that owner is not distributed in a given year, it may be carried forward. No I&D Tax liability will attach to distributions to a service provider until compensation attributable to that owner is exhausted. The intent is to identify investment income, not reasonable compensation. Payment for services is not a taxable event; return on investment is.
In what order will the sequence of distributions be applied?
Rev 903.06 states that distributions are considered to come first from compensation, followed by current year profits, accumulated profits, and, return of capital.