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Montana Administrative Register Notice 42-2-789 No. 2   01/31/2008    
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BEFORE THE DEPARTMENT OF REVENUE

OF THE STATE OF MONTANA

 

In the matter of the adoption of New Rule I (42.15.206), amendment of ARM 42.15.108, 42.15.205, 42.15.314, 42.15.315, 42.15.316, 42.15.319, 42.15.321, 42.15.322, 42.15.524, 42.15.525, and repeal of ARM 42.15.406 relating to individual income taxes
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NOTICE OF ADOPTION, AMENDMENT, AND REPEAL

 TO: All Concerned Persons

 

1. On November 21, 2007, the department published MAR Notice No. 42-2-789 regarding the proposed adoption, amendment, and repeal of the above-stated rules at page 1905 of the 2007 Montana Administrative Register, issue no. 22.

 

2. A public hearing was held on December 14, 2007, to consider the proposed adoption, amendment, and repeal. No one appeared at the hearing to testify and no written comments were received.

 

3. For further clarification, the department believes it is necessary to amend the proposed language of New Rule I (42.15.206) to add an example relating to a capital loss. The additional language illustrates that a filer who has already reported a loss in an earlier year on their federal return but could not claim it on their state return for that year because of the prior law, can now report the loss on the state return to the extent allowed joint filers under the federal calculations. It also clarifies that the state return will ultimately show the net amount and it will be attributed to one or both spouses depending on the ownership of the underlying asset. The amended language that reflects this concept is as follows, stricken matter interlined, new matter underlined:

 

NEW RULE I (42.15.206) ADDITIONS AND SUBTRACTIONS FOR MARRIED TAXPAYERS FILING SEPARATE RETURNS (1) remains the same.

(2) The following items are exceptions to (1) as provided for in 15-30-111, MCA:

(a) Married taxpayers filing a joint federal return allowed a capital loss deduction under section 1211 of the Internal Revenue Code, 26 U.S.C. 1211, and who file separate Montana returns may claim the same amount of capital loss deduction allowed on the federal return. If the allowable capital loss is clearly attributable to one spouse, the loss must be shown on that spouse's return. If the loss is not clearly attributable to one spouse, the loss must be split equally between each return. Under no circumstances can the total capital loss claimed exceed the amount allowed for taxpayers filing a joint federal return. The aggregate loss of spouses attributable to a capital loss can never exceed the amount of losses allowable for federal income tax purposes to spouses filing a joint federal income tax return for that loss. For example, spouse A has a $5,000 current year capital gain and spouse B has a $9,000 capital loss carried over from prior years for state purposes but which had been absorbed on their federal return in a prior year. If the spouses file in Montana as "married filing separately," spouse A should report the $5,000 capital gain on the appropriate line of the "Federal Income" portion of the return and report $5,000 as a "Capital Loss Adjustment" on Schedule II, Montana Subtractions from Federal Adjusted Gross Income. Spouse B should report $3,000 on the same line on Schedule II since the capital loss is attributable to them. Spouse B will then have a remaining capital loss carryover of $1,000 ($9,000 current capital loss less $8,000 used).

(b) Married taxpayers filing a joint federal return allowed passive and rental income losses are not required to recompute allowable losses according to the federal rules for married taxpayers filing separately under section 469 of the Internal Revenue Code, 26 U.S.C. 469. If the allowable loss is clearly attributable to one spouse, the loss must be shown on that spouse's return. If the loss is not clearly attributable to one spouse, the loss must be split equally between each return. Under no circumstances can the total passive and rental income losses claimed exceed the amount allowed for taxpayers filing a joint federal return. The aggregate losses of spouses attributable to a passive loss or rental loss can never exceed the amount of losses allowable for federal income tax purposes to spouses filing a joint federal income tax return for that loss.

(c) through (e) remain the same.

 

AUTH: 15-30-305, MCA

IMP: 15-30-111, MCA

 

4. Therefore, the department adopts New Rule I (42.15.206) with the amendments listed above, amends ARM 42.15.108, 42.15.205, 42.15.314, 42.15.315, 42.15.316, 42.15.319, 42.15.321, 42.15.322, 42.15.524, and 42.15.525, and repeals ARM 42.15.406 as proposed.

 

5. An electronic copy of this Adoption Notice is available through the department's site on the World Wide Web at www.mt.gov/revenue, under "for your reference"; "DOR administrative rules"; and "upcoming events and proposed rule changes." The department strives to make the electronic copy of this Adoption Notice conform to the official version of the Notice, as printed in the Montana Administrative Register, but advises all concerned persons that in the event of a discrepancy between the official printed text of the Notice and the electronic version of the Notice, only the official printed text will be considered. In addition, although the department strives to keep its web site accessible at all times, concerned persons should be aware that the web site may be unavailable during some periods, due to system maintenance or technical problems.

 

/s/ Cleo Anderson                   /s/ Dan R. Bucks

CLEO ANDERSON                DAN R. BUCKS

Rule Reviewer                        Director of Revenue

 

Certified to Secretary of State January 22, 2008

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