S Corporations in Colorado: Recent Cases and Legislation
| Publication year | 1985 |
| Pages | 1412 |
1985, August, Pg. 1412. S Corporations in Colorado: Recent Cases and Legislation
In selecting the form of entity in which to conduct business, it is essential to consider the federal income tax treatment of the entity and its owners. State income tax treatment normally receives less attention, especially in states such as Colorado where most income tax consequences are based on the federal income tax treatment of the same items.(fn1) However, recent developments in Colorado income tax treatment of S corporations(fn2) and their shareholders point out the importance of reviewing state tax law.
S corporations, like partnerships and some other entities, are "pass-through" entities for federal income tax purposes. The income, deduction, loss and credit of such an entity are recognized by the owners (e.g., partners and shareholders). Except in certain circumstances, an S corporation is not subject to federal taxation, and all items of income, deduction, gain, loss and credit are passed through to the shareholders and reported by them.(fn3)
The treatment of S corporations for state income tax purposes varies drastically from state to state.(fn4) The Colorado Income Tax Act of 1964(fn5) provides that S corporations are not subject to Colorado income tax.(fn6) An S corporation is required to file a state income tax return which lists the names, addresses and social security numbers of all shareholders, as well as their percentage of stock ownership, ordinary income, other income and share of modification and credit.(fn7)
A full- or part-year resident of Colorado computes tax liability by starting with federal adjusted gross income(fn8) and making certain modifications specified in the Act.(fn9) These include the Colorado itemized deductions which are based in large part on the federal itemized deductions.(fn10) Thus, without special provisions, the shareholder will recognize the same items derived from the S corporation for both federal and state tax purposes.
A nonresident's Colorado income tax liability is determined by taking into account only that portion of the nonresident's federal adjusted gross income that is derived from sources specified in CRS § 39-22-115(2). Among the sources to be considered are: partnerships; estates and trusts; ownership of any interest in real or personal property; businesses, trades, professions or occupations; and income from intangible personal property, including annuities, dividends, interest and gains from the disposition of intangible personal property.(fn11)
No specific reference is made to S corporations or their shareholders. While provisions of the Act deal with specific computations necessary to...
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