Or. Admin. R. 150-314-0495 - Corporation Tax Credits — Converting a C Corporation to an S Corporation

150-314-0495
Corporation Tax Credits — Converting a C Corporation to an S Corporation

Tax credits carried forward from a tax year of C corporation status are only available to offset corporate tax liabilities when S corporation status is elected. They are not available for pass through to S corporation shareholders. In addition, Oregon corporate taxes attributable to an S corporation’s built-in gains or C corporation taxes following termination of S corporation status can be offset by such carryover credits. S corporation taxes attributable to excess net passive investment income cannot be offset by carryover credits.

Example: Corporation Z is a C corporation in 1988 with a $6,000 tax liability. Corporation Z qualifies for a $7,000 tax credit for investment in a dependent care facility. The $1,000 unused tax credit is carried forward to 1989. Corporation Z elects to be an S corporation in 1989 and has a corporate tax liability of $5,000 from built-in gains. Corporation Z shall offset its tax with the $1,000 credit carry forward. The credit carry forward is not available for pass through to the shareholders.