701—50.9 (422) Examples for tax periods beginning prior to January 1, 2002.
Example 1.  The following example is based on the following facts. The taxpayers are a husband and wife who have two dependent children. Their income consists of husband’s wages of $50,000; rental loss ($5,000); wife’s S corporation income of $500,000; joint interest income of $35,000. They have Iowa itemized deductions of $20,000, and an out-of-state tax credit of $1,150 on the S corporation income. The actual cash distribution from the S corporation was $289,840, none of which has been previously taxed by Iowa. Federal income tax paid during the year totals $191,214. The S corporation is a value-added corporation which carries on business within and without Iowa with 10 percent of its sales in Iowa.
a. Computation of tax on a joint return basis.

Wages	$50,000	
S corporation income	500,000	
Interest	35,000	
Rent	(5,000)	
Total income	$580,000	
Less federal tax deduction	(191,214)	
Subtotal	$388,786	
Less itemized deductions	(20,000)	
Taxable income	$368,786	
Tax	$35,378	
Less personal credits husband & wife
& two dependents	(120)	
Subtotal	$35,258	
Less out-of-state tax credit	(1,150)	
Iowa individual tax	$34,108	
Computation of refund	
Total income	$580,000	
Less S corporation income	(500,000)	
Subtotal	$80,000	
Add the greater of cash distributions not previously
taxed, $289,840 less 50% federal taxes on
S corporation income of $82,420 = $207,420,
or income attributable to Iowa sources $50,000	207,420	
Income attributable to Iowa sources	$287,420	
Total income	$580,000	
Taxable percentage	49.5552%	
Iowa individual tax before credit	$35,258	
Credit percentage	50.4448%	
Subtotal	$17,786	
Less out-of-state tax credit	(1,150)	
S corporation tax credit	$16,636	
Amount of refund	$16,636	
Computation of 50 percent of federal income tax attributable to S corporation income: 50% × $191,214 × $500,000 / $580,000 = 50% × $164,840 = $82,420.
Computation of percent of income attributable to Iowa sources: 100 × $287,420 / $580,000 = 49.5552%.
Computation of percent income attributable to non-Iowa sources: 100 - 49.5552% = 50.4448%.
b. Computation on a separate filing on a combined return basis.

 	Spouse	Taxpayer	
Wages	$50,000	-0-	
S corporation income	-0-	$500,000	
Interest	17,500	17,500	
Rent	(5,000)	-0-	
Total income	$62,500	$517,500	
Less federal tax deduction	(20,613)	(170,601)	
Subtotal	$41,887	$346,899	
Less itemized deductions	(2,156)	(17,844)	
Taxable income	$39,731	$329,055	
Tax	$2,638	$31,410	
Less personal credits taxpayer & spouse &
two dependents	(100)	(20)	
Subtotal	$2,538	$31,390	
Less out-of-state tax credit	(-0-)	(1,150)	
Iowa individual tax	$2,538	$30,240	

Computation of refund	 	 	
Total income	 	$517,500	
Less S corporation income	 	(500,000)	
Subtotal	 	$17,500	
Add the greater of cash distributions not
previously taxed $289,840 less 50% of
federal taxes on S corporation income of
$82,420 = $207,420, or income attributable
to Iowa sources $50,000	 	207,420	
Income attributable to Iowa sources	 	$224,920	
Total income	 	$517,500	
Taxable percentage	 	43.4628%	
Iowa individual tax before credit	 	$31,390	
Credit percentage	 	56.5372%	
Subtotal	 	$17,747	
Less out-of-state tax credit	 	(1,150)	
S corporation tax credit	 	$16,597	
Amount of refund	 	$16,597	
Taxpayer’s computation of 50 percent of federal income tax attributable to S corporation income: 50% × $170,601 × $500,000 / $517,500 = 50% × $164,832 = $82,416.
Taxpayer’s computation of percent of income attributable to Iowa sources: 100 × $224,920 / $517,500 = 43.4628%.
Taxpayer’s computation of percent income attributable to non-Iowa sources: 100 - 43.4628% = 56.5372%.
Example 2.  The following example is based on the following facts. The taxpayers are a husband and wife who have three dependent children. Their income consists of husband’s wages of $100,000; wife’s wages of $30,000; husband’s S corporation income of $400,000; wife’s S corporation income of $200,000; joint interest income of $82,000; joint dividends of $5,000. They have Iowa itemized deductions of $40,000 and an out-of-state tax credit of $1,700 on the S corporation income. The actual cash distribution from the S corporation was $210,000, none of which has been previously taxed by Iowa. Federal income tax paid during the year totals $263,722. The S corporation is a value-added corporation which carries on business within and without Iowa with 60 percent of its sales in Iowa.
a. Computation of tax on a joint return basis.

Wages	$130,000	
S corporation income	600,000	
Interest	82,000	
Dividends	5,000	
Total income	$817,000	
Less federal tax deduction	(263,722)	
Subtotal	$553,278	
Less itemized deductions	_ (40,000)	
Taxable income	$513,278	
Tax	$49,796	
Less personal credits husband & wife
& three dependents	(160)	
Subtotal	$49,636	
Less out-of-state tax credit	(1,700)	
Iowa individual tax	$47,936	
Computation of refund	 	
Total income	$817,000	
Less S corporation income	(600,000)	
Subtotal	$217,000	
Add the greater of cash distributions not
previously taxed $210,000 less 50% federal
taxes on S corporation income of $96,838 =
$126,043, or income attributable to Iowa
sources $360,000	360,000	
Income attributable to Iowa sources	$577,000	
Total income	$817,000	
Taxable percentage	70.6243%	
Iowa individual tax before credit	$49,636	
Credit percentage	29.3757%	
Subtotal	$14,581	
Less out-of-state tax credit	(1,700)	
S corporation tax credit	$12,881	
Amount of refund	$12,881	
Computation of 50 percent of federal income tax attributable to S corporation income not to exceed cash distribution not previously taxed: 50% × $263,722 × $600,000 / $817,000 = 50% × $193,676 = $96,838.
Computation of percent of income attributable to Iowa sources: 100 × $577,000 / $817,000 = 70.6243%.
Computation of percent income attributable to non-Iowa sources: 100 - 70.6243% = 29.3757%.
b. Computation on a separate filing on a combined return basis.

 	Spouse	Taxpayer	
Wages	$30,000	$100,000	
S corporation income	200,000	400,000	
Interest	41,000	41,000	
Dividends	2,500	2,500	
Total income	$273,500	$543,500	
Less federal tax deduction	(88,294)	(175,428)	
Subtotal	$185,206	$368,072	
Less itemized deductions	(13,392)	(26,608)	
Taxable income	$171,814	$341,464	
Tax	$15,718	$32,649	
Less personal credits taxpayer & spouse
& three dependents	(60)	(100)	
Subtotal	$15,658	$32,549	
Less out-of-state tax credit	(567)	(1,133)	
Iowa individual tax	$15,091	$31,416	
Computation of refund	 	 	
Total income	$273,500	$543,500	
Less S corporation income	(200,000)	(400,000)	
Subtotal	$73,500	$143,500	
Add the greater of cash distributions not
previously taxed, $210,000 less 50% of
federal taxes on S corporation income of
$96,838 = $126,043, or income attributable
to Iowa sources, $360,000. Attributable
66.6667% to husband and 33.3333% to wife	120,000	240,000	
Income attributable to Iowa sources	$193,500	$383,500	
Total income	$273,500	$543,500	
Taxable percentage	70.7495%	70.5612%	
Iowa individual tax before out-of-state tax credit	$15,658	$32,549	
Credit percentage	29.2505%	29.4388%	
Subtotal	$4,580	$9,582	
Less out-of-state tax credit	(567)	(1,133)	
S corporation tax credit	$4,013	$8,449	
Amount of refund	$4,013	$8,449	
Computation of 50 percent of federal income tax attributable to S corporation income not to exceed cash distribution not previously taxed:
Husband: 50% × $175,428 × $400,000 / $543,500 = 50% × $129,109 = $64,555.
Wife: 50% × $88,294 × $200,000 / $273,500 = 50% × $64,566 = $32,283.
Husband’s computation of percent of income attributable to Iowa sources: 100 × $383,500 / $543,500 = 70.5612%.
Husband’s computation of percent income attributable to non-Iowa sources: 100 - 70.5612% = 29.4388%.
Wife’s computation of percent of income attributable to Iowa sources: 100 × $193,500 / $273,500 = 70.7495%.
Wife’s computation of percent of income attributable to non-Iowa sources: 100 - 70.7495% = 29.2505%.
This rule is intended to implement Iowa Code section 422.5, subsection 1, paragraph “j.”