Policy — Application of Various Provisions of the Federal Internal Revenue Code

# (1)

(1) Claim of right: See Chapter 1007, Oregon Laws 1999 for provisions allowing recovery of state tax paid on items of income that are repaid.

# (2)

(2) Installment sale reporting: A taxpayer may report a loss on the sale of an asset for federal purposes. The same sale can result in a gain at the Oregon level because of differences in the basis of the asset. The taxpayer cannot use the installment reporting method for federal purposes if the asset is sold at a loss for federal purposes. However, for Oregon tax purposes, the taxpayer may report the gain using the installment method. The difference between the loss claimed on the federal return and the Oregon gain will be an adjustment on the Oregon return.

# (3)

(3) Beneficiaries of a qualified Subchapter S trust. ORS 316.007 provides that Oregon law is made identical in effect to the provisions of federal law. Under IRC section 1361(d)(1)(B), a beneficiary of a qualified Subchapter S trust (QSST) is treated as the owner of that portion of the trust which consists of stock in an S corporation with respect to which the QSST election was made. For purposes of Chapter 316, the beneficiary of a qualified Subchapter S Trust (QSST) shall be treated as if the beneficiary were a shareholder of the S corporation whose stock is owned by the trust.

Example 1: Mr. Bishop is the trustee and sole income beneficiary of the Bishop Trust, a qualified Subchapter S trust. The trust owns 100 shares (15 percent) of the common stock of United Lumber, an S corporation. United paid income taxes during the current year to other states on income that was also taxable by Oregon. Mr. Bishop, as beneficiary of the QSST, is treated as the owner of the S corporation shares owned by the QSST. As such, Mr. Bishop is entitled to claim a credit for taxes paid by United to other states under ORS 316.082.

Example 2: Ms. Johnson is a beneficiary of a trust that owns shares of an S corporation. The S corporation is one of several partners that own and operate a waste co-generation plant. The facility placed into service equipment that qualifies for a business energy credit under ORS 315.354. As beneficiary of the QSST, Ms. Johnson is entitled to claim the portion of the credit attributable to S corporation shares owned by the trust.

[Publications: Publications referenced are available from the agency.]