PURPOSE: Income Tax Release 73.11 is rewritten and renumbered in order to comply with the uniform procedures adopted by the secretary of state under section 536.023, RSMo. No changes in the substantive effect of the release have been made. This rule represents the response of the Department of Revenue to questions involving the Missouri income tax treatment of Missouri resident individual cash basis taxpayers for calendar year 1973 and following years.

1. (1) The following answers have been given by the income tax bureau in response to questions involving the 1973 Missouri income taxation of calendar year, cash basis Missouri resident individuals:

   1. (A) Mr. A is a retired employee of a state agency. The Missouri statute authorizing his governmental pension also provides that “any annuity, benefits. . . under this act are exempt from any tax by the State of Missouri.” Mr. A’s 1973 federal adjusted gross income (FAGI) includes his $2000 state retirement. Can he lower by $2000 his 1973 Missouri return? The answer to this question is yes. He has a negative modification to FAGI in determining Missouri adjusted gross income (MAGI). This only applies to a retired government employee whose benefits are expressly exempted by a specific section of the Revised Statutes of Missouri. Mr. A’s explanation attached to page 2 of his Missouri Form 40 should include the amount received, the name of the employer and either an exemption notice from the employer or a reference to the specific Missouri statutory section;
   2. (B) In 1973, B received a refund of his/her 1972 Missouri income tax. S/he included it in his/her 1973 FAGI because it was a tax that s/he previously deducted as a federal itemized deduction. Is the refund a negative modification to FAGI in determining MAGI? The answer to this question is no. No Missouri statute provides a negative modification or other special treatment for a Missouri income tax refund in determining MAGI (section 143.121, RSMo);
   3. (C) C deducted medical expenses as an itemized deduction on his/her 1972 federal return. In 1973, s/he received an insurance reimbursement. On his/her 1973 federal income tax return, s/he reported the recovery of the previously deducted expense as income. S/he was not eligible to deduct medical expenses on his/her 1972 Missouri income tax return. Is the medical expense reimbursement a negative modification to FAGI in determining MAGI? The answer to this question is no. No Missouri statute provides a negative modification or other special treatment for a medical insurance reimbursement in determining MAGI (section 143.121, RSMo);
   4. (D) In 1973, D paid the $200 balance on his/her 1972 federal income tax. Is it deductible on his/her 1973 Missouri return? The answer to this question is yes. The 1973 returns (Forms 40 and 40A) contain a line to claim this federal income tax payment for an old law year (Income Tax Release 73-1, March 1, 1973);
   5. (E) In 1973, E paid 1972 federal self-employment tax of $200. Is it deductible on the 1973 Missouri return? The answer to this question is no. Self-employment taxes for 1973 and later years (but not for 1972 and earlier years) are added to federal itemized deductions in determining Missouri itemized deductions. As discussed in subsection (1)(D) of this rule, a 1973 payment of federal income (but not self-employment) tax results in a 1973 deduction (sections 143.141(3)(c) and 143.171.2., RSMo);

   6. (F) In 1973, F paid the $200 balance on his/her 1972 federal return which reported both his/her federal income tax and his/her federal self-employment tax. Is it deductible on his/her 1973 Missouri return? In order to answer this question, it is necessary to allocate the 1972 and 1973 payments between income tax and self-employment tax. A taxpayer must allocate the 1973 payments consistent with his/her earlier 1972 allocation. The 1972 Missouri income tax return Form 28-10 indicated the 1972 federal payments allocated to income tax at lines 11, A and B on page 1 and indicated self-employment tax at line 4 on page 2. The allocation of the 1973 balance is determined by the 1972 return allocation.

      1. 1. Assume that F’s 1972 federal return

showed an income tax of $1250 and a self-employment tax of $350. The $1600 total was paid by $1400 estimated and withholding tax in 1972, leaving a $200 balance to be paid in 1973. Assume further that F on his/her 1972 Missouri return claimed a deduction for $1250 federal income tax on page 1 and $150 self-employment tax on page 2. The result is that his/her entire $200 balance paid in 1973 is self-employment tax and no part of it is deductible on his/her 1973 return;

1. (G) What special problems do I have as

the beneficiary of an estate or trust? The answer is that there are usually no problems. Your FAGI, your Missouri starting point already includes your share, if any, of the income and deductions of the estate or trust. Thus, your Missouri treatment is the same as 12 CSR 10-2

your federal. The only major exception is if the executor or trustee tells you that you have a fiduciary adjustment to add or subtract in determining your MAGI. If so, indicate your fiduciary adjustment on page 2 of your Missouri Form 40 with the explanation “fiduciary adjustment—(name of estate or trust).” Do this only if you are advised of a fiduciary adjustment by the executor or trustee. This will occur if the estate or trust has unusual items, such as federal or other non-Missouri governmental bond interest. Another exception is if your federal return includes a throwback distribution (section 143.121.4. and 3(d), RSMo);

1. (H) What special problems do I have as the partner of a partnership? The answer is that there are usually no problems. Your FAGI, your Missouri starting point, already includes your share, if any, of the income and deductions of the partnership. Thus, your Missouri treatment is the same as the federal. The only exception is if the partnership tells you that you have a partnership adjustment to add or subtract in determining your MAGI. If so, indicate your partnership adjustment on page 2 of your Missouri Form 40 with the explanation “partnership adjustment— (name of partnership).” Do this only if you are advised of a partnership adjustment by the partnership. This will occur if the partnership has unusual items, such as federal or other non-Missouri governmental bond interest (section 143.121.5., RSMo); and
2. (I) What special problems do I have as the shareholder of a subchapter S corporation (electing small business corporation) filing federal form 1120S? The answer is that there are no problems. Your FAGI, your Missouri starting point, already includes your share, if any, of the income and deductions of the subchapter S corporation. Thus, your Missouri treatment is always the same as your federal. AUTHORITY: section 143.961, RSMo 1986.* This rule was previously filed as Income Tax Release 73-11, Jan. 29, 1974, effective Feb. 8, 1974. *Original authority 1972.

Mobil Oil Corp. v. State Tax Commission of Missouri, 513 SW2d 319 (1974). In authorizing the prescription of rules relating to the administration of the income tax laws, former section 143.200, RSMo does not delegate to the director of revenue the power to promulgate rules of substantial law. The rules which the director of revenue is empowered by former section 143.200, RSMo to prescribe are limited to procedural rules useful in the administration and enforcement of the income tax laws. However, the statutory direction that the rules shall follow the federal rules as nearly as practicable does not require or authorize the director to ignore a specific, pertinent, applicable state statute and promulgate rules in conflict therewith (subject matter of section 143.200, RSMo now covered by section 143.961, RSMo Supp. 1973).