Related businesses would calculate D.C. taxable income as one group

Groups would combine income and use all members’ sales to calculate the share D.C. can tax. This covers groups with common owners, closely linked operations, and D.C. business activity. Transactions within the group would generally be removed from the combined income calculation.

Groups could choose to exclude some foreign income from their group return. The election would limit the members or portions of income included; it would not exclude all foreign income. Groups must choose this option on an original return filed on time. D.C.’s chief financial officer could override it for violations of these tax rules or when avoiding D.C. tax is a substantial goal of using an excluded business. The election would include consent to reasonable document production and depositions under D.C. law. For tax years beginning after December 31, 2025, the choice would bind the group for 10 years, including the year chosen, under agency rules.

D.C. could collect the full group tax debt from any included member. This would cover businesses included in the same group tax return. Businesses excluded from the water’s-edge group could still owe D.C. tax separately and would have to file and pay if subject to that tax. The act would apply to tax years beginning after December 31, 2025. It would take effect after mayoral approval or a Council veto override, a 30-day congressional review and publication in the D.C. Register.

A water’s-edge election would still include required U.S. and foreign income categories. These are examples of required inclusions in the limited foreign-reporting option, with the associated income-allocation factors. U.S.-formed members would be included, as would members whose average U.S. property, payroll and receipts factors are at least 20%. Specified controlled-foreign-company income would count, except items taxed abroad above 90% of the maximum federal corporate rate. Related income would count when more than 20% of a member’s income comes from intangible property or services deductible by other group members. A member doing business in a tax haven would have its entire income included, except where that activity falls entirely outside the laws and practices that make the jurisdiction a tax haven.

Groups could use capital and operating losses only under the stated carryover restrictions. These rules cover the combined group’s losses and qualifying losses of members joining or leaving it. Capital losses could not offset other income. Carryovers could offset group capital gains only within applicable federal limits. Unused operating losses would remain subject to District and federal restrictions. Losses brought into a group would have to be properly attributed and allocated or apportioned to D.C., and not already used to offset income. An unused allowable loss attributed to a departing member would be removed from the group’s carryover.