On May 6, 2021, the City of Philadelphia passed Bill No. 210139-AA, an ordinance requiring all Philadelphia taxpayers to report changes to their federal taxable income to the Philadelphia Revenue Department. This new ordinance, which was signed by the Mayor on May 19, 2021, is effective immediately.
What does Philadelphia consider a change to federal taxable income?
Bill No. 210139-AA applies to taxpayers with an adjustment to their federal taxable income from an initial filing that has been resolved with a Final Determination. Final Determination is defined in the ordinance in three sub-groups:
- The final resolution of a federal tax audit;
- Entering into a closing agreement with the IRS; and
- A final decision by a federal court.
If any of these situations occur, a taxpayer is required to report the changes to the Philadelphia Revenue Department.
Though not addressed in this ordinance, taxpayers who voluntarily file amended federal tax returns, should strongly consider filing corresponding state and local amended returns, where appropriate.
How and when do taxpayers report changes to the Philadelphia Department of Revenue?
A taxpayer has 180 days to file a Report of Change after a Final Determination occurs. Failure to do so can result in fines and penalties, which will be clarified in future regulations. Philadelphia has not yet issued an official Report of Change form. We assume this will be forthcoming.
What happens after a Report of Change is filed?
If a Final Determination results in net Philadelphia tax due, the taxpayer(s) must pay the tax due. If the taxpayers’ liability decreases, they can request a refund or credit. The statute of limitations for the City to assess tax or penalty is the later of the expiration of the applicable statute of limitations or one year after the Report of Change is filed. The ordinance does not address the need to file amended returns, however it makes sense to assume an amended return will be needed to properly calculate any tax or refund due. We expect the Philadelphia Department of Revenue will release regulations to address this ordinance.
Philadelphia’s new ordinance aligns with many states.
Philadelphia’s new ordinance corresponds with the requirements of many states, including Pennsylvania, New Jersey, and New York. All Philadelphia taxpayers, both individuals and entities, should make themselves aware of this new ordinance and the potential effects it may have on their filing requirements. If you have any questions about your state and local taxing authority reporting requirements following a change to your federal taxable income, call on our State and Local Tax experts.