GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1997

H	1 

HOUSE BILL 324

Short Title:  Corporate Income Tax Reports.	(Public)

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Sponsors: Representatives Gamble; and Luebke.

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Referred to:  Finance.

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February 26, 1997

A BILL TO BE ENTITLED
AN ACT TO REQUIRE CORPORATIONS TO REPORT INFORMATION RELATING TO CERTAIN INCOME TAX DEDUCTIONS.
The General Assembly of North Carolina enacts:
Section 1.  G.S. 105-130.16 reads as rewritten:
"§ 105-130.16. Returns.
(a)	Return Required. – Every corporation doing business in this State shall file with the Secretary an income tax return under affirmation, showing specifically the items of gross income, deductions, adjustments, and other calculations allowed or required by this Division, and any other information the Secretary requires for the purpose of making any computation required by this Division.
(b)	Additional Schedules. – If a financial institution excludes or deducts from income taxable under this Division for the taxable year more than two hundred fifty thousand dollars ($250,000) of interest expense allocable to interest income exempt from taxation under this Division, the institution shall file with the return a schedule itemizing specific issues with their interest income exempt from taxation under this Division and the amount of interest expense allocable to the income.  The allocable portion of interest expense is the portion for which deduction would be disallowed for federal tax purposes pursuant to section 265(b) of the Code if the interest income were earned on tax-exempt obligations as defined in section 265(b) of the Code.  The schedule shall include sufficient detail to disclose the nature and extent of the items and the methodology used in their calculation.  The schedule shall also include a calculation of what the institution's tax liability under this Division would have been if not for the exclusion or deduction of the expenses.
A corporation whose direct or indirect expenses related to dividends deducted under G.S. 105-130.7(4) for the taxable year exceed two hundred fifty thousand dollars ($250,000) shall file with the return a schedule itemizing the dividends deductible under G.S. 105-130.7(4) for the taxable year and the direct or indirect expenses related to the dividends.  The amount of direct or indirect expenses related to dividends deductible under G.S. 105-130.7(4) is presumed to be fifteen percent (15%) of the amount of the dividends, not to exceed the taxpayer's total expenses.  A taxpayer who itemizes related expenses less than the presumed amount must maintain and make available for inspection by the Secretary all records necessary to determine and verify the amount itemized.  The schedule required by this paragraph shall include sufficient detail to disclose the nature and extent of the items and the methodology used in their calculation.  The schedule shall also include a calculation of what the corporation's tax liability under this Division would have been if not for the deduction of the expenses.
(c)	Signing Officer – The return of a corporation shall be signed by its president, vice-president, treasurer, assistant treasurer, secretary, or assistant secretary. There shall be annexed to the return the affirmation of the officer signing the return, which shall be in the form prescribed in G.S. 105-130.17.
(d)	Determinations. – When the Secretary has reason to believe that any corporation so conducts its trade or business in such manner as to either directly or indirectly distort its true net income and the net income properly attributable to the State, whether by the arbitrary shifting of income, through price fixing, charges for service, or otherwise, whereby the net income is arbitrarily assigned to one or another unit in a group of taxpayers carrying on business under a substantially common control, the Secretary may require any information the Secretary considers necessary for the proper computation of the entire net income and the net income properly attributable to the State, and in determining this net income, the Secretary shall have regard to the fair profit which would normally arise from the conduct of the trade or business.
When any corporation liable to taxation under this Division conducts its business in such a manner as to either directly or indirectly benefit the members or stockholders thereof or any person interested in the business by selling its products or goods or commodities in which it deals at less than the fair price which might be obtained therefor, or when a corporation, a substantial portion of whose capital stock is owned either directly or indirectly by another corporation, acquires and disposes of the products of the corporation so owning a substantial portion of its stock in such a manner as to create a loss or improper net income for either of the corporations, or when a corporation, owning directly or indirectly a substantial portion of the stock of another corporation, acquires and disposes of the products of the corporation of which it so owns a substantial portion of the stock in such manner as to create a loss or improper net income for either of the corporations, the Secretary may determine the amount of taxable income of any of the corporations for the calendar or fiscal year, having due regard to the reasonable profits which, but for such arrangement or understanding, might or could have been obtained by the corporation or corporations liable to taxation under this Division from dealing in such products, goods, or commodities."
Section 2.  G.S. 105-256(a) is amended by adding a new subdivision to read:
"(6)	At least once a year, a compilation and summary of the information filed pursuant to G.S. 105-130.16(b).  The report shall show cumulative statistics as well as breakdowns by size of taxpayer and other factors in order to fully clarify the size and nature of each tax provision to which the report relates."
Section 3.  G.S. 105-236(10) reads as rewritten:
"(10)	Failure to File Informational Returns. – 
a.	For failure to file a partnership or a fiduciary informational return when the return is due to be filed, there shall be assessed as a tax against the delinquent five dollars ($5.00) per month or fraction thereof of the delinquency, this penalty, however, in the aggregate not to exceed twenty-five dollars ($25.00). When assessed against a fiduciary, the penalty shall be paid by the fiduciary and shall not be passed on to the trust or estate. No tax may be assessed against the delinquent when it is a partnership as defined under Section 6231(a)(1)(B) of the Code and no penalty could be assessed as provided by Rev. Proc. 84-35, except that for the purpose of Section 3.01 of that procedure ‘the Department of Revenue' is substituted for ‘the Internal Revenue Service'.
b.	For failure to file timely statements of payments to another person with respect to wages, dividends, rents, or interest paid to that person, there shall be assessed as a tax a penalty of one dollar ($1.00) for each statement not filed on time, the aggregate of the penalties for each tax year not to exceed one hundred dollars ($100.00), and in addition thereto, if the Secretary requests the payer to file the statements and sets a date by which the statements must be filed, and the payer fails to file the statements within this time, the amounts claimed on payer's income tax return as deductions for salaries and wages, or rents or interest shall be disallowed to the extent that the payer failed to comply with the Secretary's request with respect to the statements.
c.	For failure to file an informational return required by Article 36C or 36D of this Chapter by the date the return is due, there shall be assessed as a tax a penalty of fifty dollars ($50.00).
d.	For failure to file the informational schedule required by G.S. 105-130.16(b), there shall be assessed as a tax a penalty of five dollars ($5.00) per day of the delinquency."
Section 4.  This act is effective for taxable years beginning on or after January 1, 1997.