Pass-Through Entities Income Tax and Tax Credit on Certain S Corporations and Partnerships Amendment Act of 2025

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Chairman Phil Mendelson 2
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A BILL 8
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IN THE COUNCIL OF THE DISTRICT OF COLUMBIA 11
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To amend Chapter 18 of Title 47 of the District of Columbia Official Code to allow a pass-17
through entity to elect to be taxed at the entity level for income taxes on certain S 18
Corporations and Partnerships and to provide a tax credit for pass-through entities. 19
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BE IT ENACTED BY THE COUNCIL OF THE DISTRICT OF COLUMBIA, That this 21
act may be cited as the “Pass-Through Entities Income Tax and Tax Credit on Certain S 22
Corporations and Partnerships Amendment Act of 2025”. 23
Sec. 2. Chapter 18 of Title 47 of the District of Columbia Official Code is amended as 24
follows: 25
(a) The table of contents is amended by adding a subchapter VII-C to read as follows: 26
“Subchapter VII-C. Pass-Through Entities Tax on Certain S Corporations and 27
Partnerships. 28
“47-1807.71. Definitions. 29
“47-1807.72. Pass-Through Entities Tax on Certain S Corporations and Partnerships. 30
“47-1807.73. Applicability Date. 31
(b) A new subchapter VII-C is added to read as follows: 32
“47-1807.71. Definitions. 33

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“For the purposes of this subchapter, the term: 34
“(1) “Distributable cash flow” means taxable income reportable by a pass–35
through entity on its federal income tax return for the taxable year: 36
“(A) Adjusted, in the case of an entity using the accrual method of 37
accounting to report federal taxable income, to reflect the amount of taxable income that would 38
have been reported under the cash method of accounting; 39
“(B) Increased by the sum of: 40
“(i) Cash receipts for the taxable year that are not includable in the 41
gross income of the entity, including capital contributions and loan proceeds; 42
“(ii) Amounts allowable to the entity for the taxable year as 43
deductions for depreciation, amortization, and depletion; and 44
“(iii) The decrease, if any, in the entity’s liability reserve as of the 45
end of the taxable year; and 46
“(C) Decreased by the sum of: 47
“(i) Cash expenditures for the taxable year that are not deductible 48
in computing the taxable income of the entity, not including distributions to shareholders, 49
partners, or members; and 50
“(ii) The increase, if any, in the entity’s liability reserve as of the 51
end of the taxable year. 52
“(2) “Liability reserve” means accrued unpaid liabilities that are not deductible in 53
computing taxable income. 54
“(3) “Member” means: 55
“(A) A shareholder of an S corporation; 56

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“(B) A general or limited partner of a partnership, limited partnership, or 57
limited liability partnership; 58
“(C) A member of a limited liability company; or 59
“(D) A beneficiary of a business trust or statutory trust. 60
“(4) “Nonresident entity” means an entity that is not formed under the laws of the 61
District of Columbia and is not qualified by or registered with the Office of the Chief Financial 62
Officer created by § 1-204.24a to do business in the District of Columbia. 63
“(5) Nonresident taxable income” means that portion of the entire net income of 64
every nonresident which is subject to tax under §§ 47-1808.01 to 47-1808.06. 65
“(6) “Pass–through entity” means: 66
“(A) An S corporation; 67
“(B) A partnership; 68
“(C) A limited liability company that is not taxed as a corporation under 69
this title; or 70
“(D) A business trust or statutory trust that is not taxed as a corporation 71
under this title. 72
“(7) “Pass–through entity’s taxable income” means the portion of a pass–through 73
entity’s income under the federal Internal Revenue Code, calculated without regard to any 74
deduction for taxes based on net income that are imposed by any state or political subdivision of 75
a state, that is derived from or reasonably attributable to the trade or business of the pass–through 76
entity in the District of Columbia. 77
“47-1807.72. Pass-Through Entities Income Tax on Certain S Corporations and 78
Partnerships. 79

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“(a)(1) Subject to paragraph (2) of this subsection, in addition to any other tax imposed 80
under this title, a tax is imposed on each pass–through entity. 81
“(2) Each pass–through entity: 82
“(A) Shall pay the tax imposed under paragraph (1) of this subsection with 83
respect to the distributive shares or pro rata shares of the nonresident and nonresident entity 84
members of the pass–through entity; or 85
“(B) May elect to pay the tax imposed under paragraph (1) of this 86
subsection with respect to the distributive shares or pro rata shares of all members of the pass–87
through entity. 88
“(b)(1) With respect to a pass–through entity that pays the tax imposed under subsection 89
(a)(1) of this section in accordance with subsection (a)(2)(A) of this section, the tax shall be 90
treated as a tax imposed on the nonresident or nonresident entity members that is paid on behalf 91
of the nonresidents or nonresident entities by the pass–through entity. 92
“(2) The Mayor shall provide by regulation for the treatment of the tax imposed 93
under subsection (a) of this section that is paid on behalf of a nonresident entity member that is 94
itself a pass–through entity. 95
“(3) With respect to a pass-through entity that pays the tax imposed under 96
subsection (a)(1) of this section in accordance with subsection (a)(2)(B) of this section, the tax 97
shall be treated as a tax imposed on the pass-through entity itself. 98
“(c)(1) With respect to a pass-through entity that pays the tax imposed under subsection 99
(a)(1) of this section in accordance with subsection (a)(2)(A) of this section, the tax imposed is 100
the sum of: 101

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“(A) A rate equal to the sum of the rate of the tax imposed under the top 102
marginal District of Columbia tax rate for individuals under § 47-1806.03 applied to the sum of 103
each nonresident individual member’s distributive share or pro rata share of the pass-through 104
entity’s nonresident taxable income; and 105
“(B) The rate of the tax for a corporation under § 47-1807.02 applied to 106
the sum of each nonresident entity member’s distributive share or pro rata share of the pass-107
through entity’s nonresident taxable income. 108
“(2) With respect to a pass-through entity that pays the tax imposed under 109
subsection (a)(1) of this section in accordance with subsection (a)(2)(B) of this section, the tax 110
imposed is the sum of: 111
“(A) A rate equal to the sum of the rate of the tax imposed under the top 112
marginal District of Columbia tax rate for individuals under § 47-1806.03 applied to the sum of 113
each individual member’s distributive share or pro rata share of the pass-through entity’s taxable 114
income; and 115
“(B) The rate of the tax for a corporation under § 47-1807.02 applied to 116
the sum of each entity member’s distributive share or pro rata share of the pass-through entity’s 117
taxable income. 118
“(3) The tax required to be paid for any taxable year by a pass-through entity may 119
not exceed: 120
“(A) With respect to a pass-through entity that pays the tax imposed under 121
subsection (a)(1) of this section in accordance with subsection (a)(2)(A) of this section, the sum 122
of all of the nonresident and nonresident entity members’ shares of the pass-through entity’s 123
distributable cash flow; and 124

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“(B) With respect to a pass-through entity that pays the tax imposed under 125
subsection (a)(1) of this section in accordance with subsection (a)(2)(B) of this section, the sum 126
of all of the members’ shares of the pass-through entity’s distributable cash flow. 127
“(d) In accordance with § 47-1806.04, each member may claim a credit against the tax 128
imposed on the member for the member’s proportionate share of the tax paid by the pass-through 129
entity under subsection (a) of this section. 130
“(e)(1)(A) The tax imposed under subsection (a)(1) of this section that is paid in 131
accordance with subsection (a)(2)(A) of this section and for which no election is made under 132
subsection (a)(2)(B) of this section does not apply with respect to the distributive share or pro 133
rata share of a member that is itself a pass-through entity formed under the laws of the District of 134
Columbia or qualified by or registered with the with the Office of the Chief Financial Officer 135
created by § 1-204.24a to do business in the District of Columbia. 136
“(B) A member of a pass-through entity that is itself a pass-through entity 137
as described in subparagraph (A) of this paragraph shall itself comply with the provisions of this 138
section. 139
“(2) The tax imposed under subsection (a)(1) of this section that is paid in 140
accordance with subsection (a)(2)(A) of this section and for which no election is made under 141
subsection (a)(2)(B) of this section does not apply with respect to the direct or indirect 142
distributive share or pro rata share of a member that is: 143
“(A) A real estate investment trust as defined in § 856 of the Internal 144
Revenue Code; or 145
“(B) An entity that is exempt from taxation under with § 501 of the 146
Internal Revenue Code. 147

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“(f) The Mayor may promulgate rules for: 148
“(1) The filing of composite returns by a pass-through entity on behalf of its 149
nonresident and nonresident entity members; and 150
“(2) Application of or exemption from the tax imposed under subsection (a) of 151
this section for a pass-through entity: 152
“(A) That files a composite return on behalf of nonresident and 153
nonresident entity members; or 154
“(B) The entity members of which are tax exempt. 155
“(g)(1) Subject to paragraph (2) of this subsection, if a partnership fails to pay the tax 156
when due, the tax may be collected from the partners under the law applicable to debts of the 157
partnership, with the partnership and partners having rights of contribution against any partner on 158
whose behalf the tax is paid. 159
“(2) Unless it is established by the Mayor that the partner participated in a pattern 160
of distributions to one or more partners with the intention of defeating the partnership liability 161
for the tax imposed under subsection (a) of this section, any partner otherwise liable under 162
paragraph (1) of this subsection shall be liable for the tax imposed on the partnership only to the 163
extent of distributions from the partnership to that partner after the tax was due to be paid by the 164
partnership. 165
“(h) Except as provided in § 47-1806.04, nothing in this section limits or affects in any 166
way the liability of an individual nonresident member or a nonresident entity member for the tax 167
imposed on the individual nonresident or nonresident entity under § 47-1807.72. 168
“(i) The tax imposed under subsection (a)(1) of this section that is paid in accordance 169
with subsection (a)(2)(B) of this section and for which no election is made under subsetion 170

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(a)(2)(B) of this section does not apply to a publicly traded pass-through entity that has agreed to 171
file with the Mayor an annual information return reporting the name, address, taxpayer 172
identification number, and other information requested by the Mayor of each nonresident or 173
nonresident entity member whose distributive share or pro rata share of the pass-through entity’s 174
nonresident taxable income for the taxable year exceeds $500. 175
“47-1807.73. Applicability date. 176
“Sections 47-1807.71 through 47-1807.73 shall apply for the income tax years beginning 177
after December 31, 2023.”. 178
(c) Section 47-1806.04 is amended by adding a new subsection (h) to read as follows: 179
“(h) A member of a pass–through entity, as defined in § 47-1807.71(6), may claim a 180
credit against the income tax for a taxable year in the amount of tax paid by a pass–through 181
entity under § 47-1807.72 that is attributable to the member’s share of the pass–through entity’s 182
taxable income, as defined in § 47-1807.71(7). 183
Sec. 3. Fiscal impact statement. 184
The Council adopts the fiscal impact statement of the Budget Director as the fiscal impact 185
statement required by section 4a of the General Legislative Procedures Act of 1975, approved 186
October 16, 2006 (120 Stat. 2038; D.C. Official Code § 1-301.47a). 187
Sec. 4. Effective date. 188
This act shall take effect following approval by the Mayor (or in the event of veto by the 189
Mayor, action by the Council to override the veto) and a 30-day period of congressional review 190
as provided in section 602(c)(1) of the District of Columbia Home Rule Act, approved December 191
24, 1973 (87 Stat. 813; D.C. Official Code § 1-206.02(c)(1)). 192