Reminder: Approaching Deadline for Elections to Elect into New York State and New York City Pass-Through Entity Taxes for 2024

This alert is a reminder of the approaching deadlines and action items regarding the New York State Pass-Through Entity Tax (the “NYS PTET”) and the New York City Pass-Through Entity Tax (the “NYC PTET”).

Deadline: March 15, 2024

The deadline to elect into the NYS PTET and the NYC PTET for 2024 is March 15, 2024. The elections are made on an annual basis, so an entity that made an election for 2023 must also make an election for 2024 (if it wants to elect into these taxes for 2024) and any elections made for 2024 will only apply to 2024. Elections may only be made online and must be made by authorized persons (not tax advisors). (Conversely, if you have already made an election for 2024 and have now determined that you do not wish to so elect, you can opt out by March 15, 2024.) Note, there has been some push to have legislation enacted which would extend the March 15th election deadline to September 15th, but nothing has been enacted yet.

The deadline to file tax returns for the 2023 NYS PTET and NYC PTET (or to file extensions for 2023) is also March 15, 2024. Any liability for 2023 NYS PTET and NYC PTET should be paid by such date as well.

Estimated payments for first quarter 2024 NYS PTET and NYC PTET are also due by March 15, 2024.

Other Action Items to Note

An NYS PTET election and an NYC PTET election for 2024 may only be made by entities that are in existence on March 15, 2024. If you anticipate needing an entity after March 15, 2024, and would the entity to elect into the NYS PTET and NYC PTET, you should consider forming the entity and making the election prior to March 15, 2024, since otherwise the elections will not be able to be made for 2024.

Because electing entities may encounter technical difficulties making the NYS PTET and NYC PTET elections or payments, we advise that you act now rather than wait until March 15, 2024. Forms and instructions are available on the website of the New York State Department of Taxation and Finance.

Other Issues 

The IRS has not issued guidance on pass-through entity taxes since it issued Notice 2020-75 in 2020. There are still a number of open issues regarding pass-through entity taxes (“PTETs”), including their deductibility for federal tax purposes and how they should be reported on federal income tax returns. Most tax return preparers seem to agree that the NYS PTET and the NYC PTET (and other PTETs) are deductible “above the line,” without regard to whether the pass-through entity is engaged in a trade or business (e.g., a fund that is an “investor” for tax purposes may deduct the NYS PTET and NYC PTET as business expenses). Tax return preparers generally have included PTETs on Line 13 of Schedule K-1.

Many states have enacted pass-through entity taxes and each state’s PTET has its own nuances and complexities. Therefore, each applicable state’s PTET needs to be reviewed. There are many issues to consider regarding pass-through entity taxes, including the analysis of whether and to what extent electing into a tax is beneficial to a particular entity and its owners, how to prepare and file pass-through entity tax returns, and whether and how operating agreements and other organizational documents should be drafted or amended for an entity electing to pay such taxes. Notably, some interesting issues have arisen where one or more grantor trusts are owners of a potential PTET entity.

If you have any questions regarding the NYS PTET or the NYC PTET or other pass-through entity taxes, please contact your primary Kleinberg Kaplan attorney or a member of our Tax Practice.