Ala. Admin. Code r. 810-2-7-.06
Current through Register Vol. 43, No. 1, October 31, 2024
Section 810-2-7-.06 - Allocation Of The Capital Credit(1) Scope. This regulation applies to the written agreement between the Department and the Investing Company or Companies with respect to Qualifying Projects undertaken by partnerships, limited liability companies or other Joint Ventures and the method by which the Qualifying Project's Alabama taxable apportionable income or the Capital Credit (or item thereof) is allocated among the business entities investing in the Project.(2) Purpose. The purpose of this regulation is to provide the guidelines necessary to allocate the Project's Alabama taxable apportionable income or the Capital Credit (or item thereof) among the shareholders, partners, members, owners or beneficiaries of the Investing Company or Companies entitled to the Project's Alabama taxable apportionable income or the Capital Credit (or item thereof).(3) PROCEDURE. (a) Allocation of Capital Credit. The Capital Credit shall be allocated among the shareholders, partners, members, owners or beneficiaries of the Investing Company or Companies entitled to the Capital Credit based on their distributive share, whether or not distributed, of the Project's Alabama taxable apportionable income (or item thereof). 1. The Allocations of Capital Credit schedule contained in Form:INT, and Form:INT-2, shall serve as the written agreement between the Department and the Investing Company or Companies with respect to Qualifying Projects undertaken by partnerships, limited liability companies or other Joint Ventures and the method by which the Qualifying Project's Alabama taxable apportionable income or the Capital Credit (or item thereof) is allocated among the business entities investing in the Project. The most recent form filed by the Project shall be considered the current allocation to be used by the Project.(i) Any changes made to the Allocation of Capital Credit schedule after the filing of the Form:INT-2 by the Reporting Company shall be reported to the Department on the Form:INT-4.(b) Substantial Economic Effect. If the allocation of either the Project's Alabama taxable apportionable income or the Capital Credit (or item thereof) does not have substantial economic effect, then the Investing Company's distributive share of such income or credit (or item thereof) shall be determined in accordance with such Investing Company's interest in the Joint Venture taking into account all facts and circumstances. 1. Two-part analysis. The determination of whether an allocation of the Project's Alabama taxable apportionable income or the Capital Credit (or item thereof) to an Investing Company has substantial economic effect involves a two-part analysis that is made as of the end of the taxable year to which the allocation relates. (i) First, the allocation must have economic effect (within the meaning of paragraph (3)(b)2 of this section).(ii) Second, the economic effect of the allocation must be substantial (within the meaning of paragraph (3) (b)3 of this section).2. Economic effect. In order for an allocation to have economic effect, it must be consistent with the underlying economic arrangement of the Investing Companies. This means that in the event there is an economic benefit or economic burden that corresponds to an allocation, the Investing Company to whom the allocation is made must receive such economic benefit or bear such economic burden.3. Substantiality. The economic effect of an allocation (or allocations) is substantial if there is a reasonable possibility that the allocation (or allocations) will affect substantially the dollar amounts to be received by the Investing Companies from the Joint Venture, independent of tax consequences. Notwithstanding the preceding sentence, the economic effect of an allocation (or allocations) is not substantial if, at the time the allocation becomes part of the Joint Venture agreement,(i) the after-tax economic consequences of at least one Investing Company may, in present value terms, be enhanced compared to such consequences if the allocation (or allocations) were not contained in the Joint Venture agreement, and(ii) there is a strong likelihood that the after-tax economic consequences of no Investing Company will, in present value terms, be substantially diminished compared to such consequences if the allocation (or allocations) were not contained in the Joint Venture agreement. In deterring the after-tax economic benefit or detriment to a Investing Company, tax consequences that result from the interaction of the allocation with such Investing Company's tax attributes that are unrelated to the Joint Venture will be taken into account.
Author: Verlon Frost
Ala. Admin. Code r. 810-2-7-.06
New Rule: Filed November 9, 1995; effective December 14, 1995. Amended: Filed January 26, 1998; effective March 2, 1998.Statutory Authority:Code of Ala. 1975, §§ 40-2A-7(A)(5), 40-18-197, as amended.