Computation Of Taxable Income For Alabama Business - Privilege Tax (Bpt) Purposes - Alabama Department Of Revenue Page 3
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5Computation of Taxable Income for Alabama BPT Purposes - June 17, 2009
5. Internal Revenue Code § 707 allows a partnership to deduct as an ordinary and
necessary business expense certain guaranteed payments to partners, in computing
the partnership’s taxable income. But, the partner to whom the guaranteed
payment is made must report the guaranteed payment as income accordance with
Internal Revenue Code § 61, not Internal Revenue Code § 702. Therefore, for
Alabama business privilege tax purposes, if the guaranteed payment to partners is
properly allowed as a deduction in computing the partnership taxable income, no
adjustment of the taxable income amount is required.
6. A limited liability entity computes the taxable income amount for determining
the Alabama business privilege tax rate by following the four steps listed below.
Step Number One. Compute the total amount to be taken into account by its
owners pursuant to 26 U.S.C. §702 by computing the income (loss) effect of the
items listed in federal Form 1065, Schedule K, lines 1 through 13d, as follows:
2008 Form 1065 – Schedule K
Ordinary business income (loss)
Line 1,
Net rental
Line 2,
Other gross rental income
Line 3c,
Interest income
Line 5,
Dividends
Line 6a,
Royalties
Line 7,
Net short-term capital gain(loss)
Line 8,
Net long-term capital gain (loss)
Line 9a,
Net Section 1231 gain (loss)
Line 10,
Other income (loss)
Line 11,
Section 179 deduction
Line 12,
Contributions
Line 13a,
Investment interest expense
Line 13b,
IRC Section 59(e)(2) expenditures
Line 13c(2),
Other deductions
Line 13d, and
Total foreign taxes
Line 16l.
The total income (loss) effect of the items listed, above, equals the total amounts to
be taken into account by the partnership’s owners pursuant to 26 U.S.C. §702.
NOTE: If the limited liability entity does not have income subject to allocation for
the determination period and operates solely in the State of Alabama, then Steps
Number Two, Three and Four are not required. The taxable income for Alabama
business privilege tax purposes would have been fully computed in Step Number
One.
Page 3 of 5 Computation of Taxable Income for Alabama BPT Purposes
6/18/2009
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