In: Accounting
Excess net passive income is a corporate-level tax on the passive income earned by an S corporation.
If a corporation has always been an S corporation, the excess net passive income tax does not apply.
Excess net passive income tax applies to an S corporation only if:
1. The corporation has accumulated earnings and profits at the close of its tax year.
2. The corporation has passive investment income for the tax year in excess of 25% of gross receipts.
3. The corporation has excess net passive income.
The tax on excess net passive income(ENPI) is calculated as follows:
ENPI= NPI × [PII - (0.25× GR)] ÷ PII
NPI = Net Passive Income is passive investment income, reduced by directly- connected deductions.
PII = Passive investment income includes gross receipts derived from royalties, rents, dividends, interest, and annuities.
GR = Gross receipts includes amount received for sale of property, investment, and gains(but not losses) from sale of securities irrespective of date sold.