Source: https://portal.ct.gov/DRS/Publications---Informational-Publications/2004/IP-200439-Q--A-on-Connecticut-Income-Tax-Changes-Affecting-PassThrough-Entities
Timestamp: 2018-12-19 11:13:07
Document Index: 467480892

Matched Legal Cases: ['§7704', '§12', '§54', '§12', '§1', '§12', 'art 1', '§12', '§12', '§1']

IP 200439 Q A on Connecticut Income Tax Changes Affecting PassThrough Entities
Current: IP 2004(39), Q & A on Connecticut Income Tax Changes Affecting Pass-Through Entities
IP 2004(39)
Q & A on Connecticut Income Tax Changes Affecting
Purpose: This Informational Publication is intended to answer frequently-asked questions concerning new legislation affecting each pass-through entity (PE) doing business in Connecticut or having income derived from or connected with sources within Connecticut.
Pass-through entity (PE) means a partnership or an S corporation as defined in this Informational Publication.
Partnership means and includes a general partnership, limited partnership, limited liability partnership, publicly traded partnership, limited liability company (LLC) treated as a partnership for federal income tax purposes, or other entity treated as a partnership for federal income tax purposes.
S corporation means a corporation which is an S corporation for federal income tax purposes.
Corporate member means each member which is a C corporation for federal income tax purposes, LLC that has elected to be taxed as a C corporation for federal income tax purposes, real estate investment trust, real estate mortgage investment conduit, regulated investment company, or organization exempt from federal income tax.
Publicly traded partnership means a partnership as defined in I.R.C §7704(b), that is treated as a partnership for federal income tax purposes and that has agreed to file Form CT-1065/CT-1120SI, Connecticut Composite Income Tax Return (New 12/04).
Effective Date: May 6, 2004, and applicable to taxable years of PE's beginning on or after January 1, 2004.
Statutory Authority: Conn. Gen. Stat. §§12-719(b) and (c) and 12-726, as amended by 2004 Conn. Pub. Acts 216, §§54 and 55.
1. What form is a PE required to file under the new legislation? For taxable years beginning on or after January 1, 2004, a PE is required to file Form CT-1065/CT-1120SI, where it:
Previously, partnerships filed Form CT-1065, Connecticut Partnership Income Tax Return, and S corporations filed Form CT-1120SI, Connecticut S Corporation Information and Composite Income Tax Return.
2. When is Form CT-1065/CT-1120SI due? Form CT-1065/CT-1120SI is due on or before the fifteenth day of the fourth month following the close of the PE’s taxable year (April 15 for a PE whose taxable year for federal income tax purposes is the calendar year). If the due date falls on a Saturday, Sunday, or legal holiday, the next business day is the due date.
3. Under what circumstances is a PE required to make a Connecticut composite income tax payment? A PE is required to make a Connecticut composite income tax payment on behalf of a member where:
An election to be included on a group return (Form CT-G, Connecticut Group Income Tax Return), has not been made by the member (see Question 15); and
In accordance with the above criteria, a PE may be required to make Connecticut composite income tax payments on behalf of all of its members, some of its members, or none of its members.
Previously, an S corporation was not required to make a composite Connecticut income tax payment on behalf of any nonresident shareholder who consented to file Form CT-1040NR/PY, Connecticut Nonresident or Part-Year Resident Income Tax Return, and to make his or her Connecticut income tax payment with such return. The nonresident shareholder demonstrated this consent by filing Form CT-1NA, Nonresident Income Tax Agreement, with the S corporation.
4. Under what circumstances is a PE not required to make a Connecticut composite income tax payment? A PE is not required to make a Connecticut composite income tax payment on behalf of a member who is a nonresident noncorporate member or a PE where:
An election to be included in a group return (Form CT-G) has been made by the member (see Question 15).
5. If a PE makes a Connecticut composite income tax payment on behalf of a member who is a nonresident individual, is the member required to file Form CT-1040NR/PY? The member is not required to file Form CT-1040NR/PY if the Connecticut composite income tax payment made by the PE on the member’s behalf (and any other Connecticut composite income tax payment made by any other PE on the member’s behalf) satisfies the member’s Connecticut income tax liability. However, if the Connecticut composite income tax payment made on the member’s behalf exceeds the member’s Connecticut income tax liability, such member may file Form CT-1040NR/PY to claim a refund of the overpayment. The member is required to file Form CT-1040NR/PY if the Connecticut composite income tax payment made by the PE on the member’s behalf (and any other Connecticut composite income tax payment made by any other PE on the member’s behalf) does not satisfy the member’s Connecticut income tax liability, or if the member has Connecticut source income other than from one or more PEs.
6. How are Connecticut composite income tax payments calculated? The Connecticut composite income tax payment for a member for whom a payment must be made is calculated by multiplying the member’s share of the PE’s separately and nonseparately computed income derived from or connected with Connecticut sources by 5% (.05). The PE must calculate the Connecticut composite income tax payment based only on the member’s share of the PE’s income derived from or connected with Connecticut sources (and not on the member’s share of the PE’s income or losses derived from or connected with non-Connecticut sources). The PE may not take into account a member’s income or losses from sources other than the PE. The member, if filing Form CT-1040NR/PY (see Question 5), shall take into account all of his or her income or losses derived from or connected with Connecticut sources, and may claim a refund of any overpayment of Connecticut income tax.
7. When is a PE required to make estimated Connecticut composite income tax payments for a member? Beginning with estimated Connecticut composite income tax payments due on or after June 15, 2004, a PE is required to make estimated Connecticut composite income tax payments for a member where:
The member’s Connecticut income tax liability on the member’s share of the PE’s income derived from or connected with Connecticut sources is expected to equal or exceed $1,000. Therefore, estimated Connecticut composite income tax payments will be required if a member’s share of the PE’s income derived from or connected with Connecticut sources is expected to equal or exceed $20,000.
In accordance with the above criteria, a PE may be required to make estimated Connecticut composite income tax payments on behalf of all of its members, some of its members, or none of its members.
8. How are estimated Connecticut composite income tax payments calculated? Estimated Connecticut composite income tax payments for a member for whom an estimated payment must be made are calculated as follows:
For a PE whose taxable year for federal income tax purposes is other than the calendar year and whose first payment for the 2004 taxable year is required to be paid on or after June 15, 2004, such payment is required to be made on or before the fifteenth day of the fourth month of the PE’s taxable year.
9. What are the “safe harbor” provisions for a PE making estimated Connecticut composite income tax payments? Estimated Connecticut composite income tax payments for a member for whom estimated composite income tax payments must be made (see Question 7) are to be made in accordance with Conn. Gen. Stat. §12-722. The required annual payment for the taxable year beginning on or after January 1, 2004, and prior to January 1, 2005, is 90% of the tax shown for the member on the 2004 Form CT-1065/CT-1120SI.
Each required installment is 25% of the required annual payment. In the case of any required installment, if the member establishes, in accordance with 26 C.F.R. §1.6654-2(d)(2), that the annualized income installment is less than 25% of the required annual payment, the amount of the required installment is the annualized income installment, as described in Conn. Gen. Stat. §12-722(d)(2).
10. If a PE is required to make estimated Connecticut composite income tax payments but the estimated tax payments, if any, made by the PE fail to meet the “safe harbor” provisions, is there any circumstance in which the PE will not be subject to an addition to tax for failing to make the required estimated tax payments? (The following answer applies for taxable years beginning on or after January 1, 2004, and before January 1, 2008.) A PE whose estimated tax payments, if any, fail to meet the “safe harbor” provisions for a taxable year (see Question 9) will not be subject to an addition to tax for the taxable year if, during the taxable year, the PE did not make an actual payment in cash or other property to any member in respect of such member’s share, or otherwise make available to the member such payment so that it may be drawn upon by the member at any time at the member’s election. However, in such a circumstance, the PE will still be required to make a Connecticut composite income tax payment for the taxable year on behalf of its members upon filing its Form CT-1065/CT-1120SI for the taxable year (or its Form CT-1065/CT-1120SI EXT, if the PE has timely requested an extension of time to file Form CT-1065/CT-1120SI).
11. If a member made a Connecticut income tax payment (including estimated Connecticut income tax payments) for a taxable year, may the PE net that payment against the Connecticut composite income tax payment (including estimated Connecticut composite income tax payments) required to be made on behalf of the member for that taxable year and pay only the difference to DRS? (The following answer applies for taxable years beginning on or after January 1, 2004, and before January 1, 2008.). Yes. However, if the total of any Connecticut income tax payments (including estimated Connecticut income tax payments) made by the member and any Connecticut composite income tax payments (including estimated Connecticut composite income tax payments) made by the PE on behalf of the member is less than the member’s Connecticut income tax liability, DRS may collect the tax, penalty, and interest from either the PE or the member. The PE may, at its own risk, rely or act on a statement by a member that Connecticut income tax payments (including estimated Connecticut income tax payments) have been made by the member but is otherwise required to make Connecticut income tax payments (including estimated Connecticut income tax payments) on behalf of the member, notwithstanding any instructions to the contrary by the member. In completing Schedule CT K-1 for the member, the PE will report on Schedule CT K-1, Part III, Line 1, only the Connecticut composite income tax payments made by the PE on behalf of the member, where the payments are submitted with Form CT-1065/CT-1120SI ES, Form CT-1065/CT-1120SI EXT, and Form CT-1065/CT-1120SI.
12. Is a PE subject to interest and penalty for late payment of the Connecticut composite income tax? Yes, subject to the circumstances described in Questions 10 and 11. If a Connecticut composite income tax payment reported for a member on Form CT-1065/CT-1120SI is not timely paid, interest will be assessed at 1% (.01) per month or fraction of a month until the tax is paid in full. The penalty for paying all or a portion of the tax late is 10% (.10) of the tax paid late. The late payment penalty may be avoided if the PE:
Files Form CT-1065/CT-1120SI EXT, Application for Extension of Time to File Connecticut Composite Income Tax Return, on or before the original due date of the return;
13. What information is a PE required to furnish to its members? A PE must furnish Schedule CT K-1, Member’s Share of Certain Connecticut Items, to each member who is a noncorporate member (whether resident or nonresident) or a PE. Part I of Schedule CT K-1 will be required to be completed by the PE for each member who is a noncorporate member or a PE. Part II of Schedule CT K-1 will be required to be completed by the PE for each member who is a nonresident noncorporate member or a PE. Part III of Schedule CT K-1 will be required to be completed by the PE for each member on whose behalf Connecticut composite income tax payments, including estimated Connecticut composite income tax payments, were made by the PE. Specifically, Connecticut composite income tax payments made by the PE on behalf of a member, where the payments are submitted with Form CT-1065/CT-1120SI ES, Form CT-1065/CT-1120SI EXT, and Form CT-1065/CT-1120SI, are to be reported on Schedule CT K-1, Part III, Line 1. On the other hand, Connecticut income tax payments made by the PE on behalf of a member, where the payments are submitted with Form CT-G ES, Form CT-G EXT, or Form CT-G, are not to be reported on Schedule CT K-1, Line III, Part 1.
The PE is required to furnish Schedule CT K-1 to members who are noncorporate members or PEs on or before the fifteenth day of the fourth month following the close of the PE’s taxable year (April 15 if the PE’s taxable year for federal income tax purposes is the calendar year). If the PE has requested an extension of time to file Form CT-1065/CT-1120SI by timely filing Form CT-1065/CT-1120SI EXT, the deadline for furnishing Schedule CT K-1 to members is automatically extended to the fifteenth day of the tenth month following the close of the taxable year (October 15 if the PE’s taxable year for federal income tax purposes is the calendar year). The PE is required to maintain a copy of each Schedule CT K-1 that it furnishes, and to provide a copy to DRS, upon request.
The PE is not required to furnish Schedule CT K-1 to members which are corporate members.
14. Will any overpayment of a member’s income tax be refunded or credited to the PE? No. Any overpayment of a noncorporate member will be refunded or credited only to the member, and not to the PE. If the PE is a subsidiary PE because it has a member that is itself a PE (parent PE), any overpayment of the parent PE will be refunded or credited only to noncorporate members of the parent PE, and not to the subsidiary PE or the parent PE.
A nonresident noncorporate member will file Form CT-1040NR/PY (if a nonresident or part-year individual) or Form CT-1041 (if a nonresident trust or estate or a part-year resident trust) to have the overpayment refunded or credited.
If an amended Form CT-1065/CT-1120SI is filed to have an overpayment of Connecticut income tax refunded or credited, the overpayment will be refunded or credited to members. However, the amended Form CT-1065/1120SI and the amended returns of members (or, if the members did not file original tax returns, the original tax returns of members) must be filed before the Connecticut statute of limitations expires.
15. Under what circumstances may a PE file a Form CT-G? A PE with two or more qualified electing nonresident members may file Form CT-G on behalf of its qualified electing nonresident members. (See Question 16) Previously, Form CT-G could be filed only by a PE with 10 or more qualified electing nonresident members.
16. Who is a qualified electing nonresident member for purposes of filing Form CT-G? A qualified electing nonresident member is one who meets all of the following conditions:
The member was a nonresident individual for the entire taxable year;
The member did not maintain a permanent place of abode in Connecticut at any time during the taxable year;
The member (or his or her spouse, if a joint federal income tax return is or will be filed) did not have any income derived from or connected with Connecticut sources other than from one or more PEs;
The member waives the right to claim any Connecticut personal exemption under Conn. Gen. Stat. §12-702 and any Connecticut personal credit under Conn. Gen. Stat. §12-703;
The member does not have a Connecticut alternative minimum tax liability for the taxable year;
The member has the same taxable year as the other qualified electing nonresident individuals; and
The member elects to be included in Form CT-G, by completing and delivering Form CT-2NA, Connecticut Nonresident Income Tax Agreement/Election to be Included in a Group Return, to the PE prior to the filing of Form CT-G by the PE.
The filing of Form CT-G will be treated in the same manner as the filing of separate returns and will satisfy the filing requirements otherwise separately imposed under Connecticut law on each qualified electing nonresident individual in the group. Qualified electing nonresident individuals who are included in Form(s) CT-G are not required (and are generally not permitted) to file Form CT-1040NR/PY. DRS retains the right to require the filing of a Form CT-1040NR/PY by any of the qualified electing nonresident individuals. A nonresident individual may not revoke an election to be included in a group return, or elect to be included in a group return, after the fifteenth day of the fourth month following the close of the entity’s taxable year.
17. When is Form CT-G due? Form CT-G is due on or before the fifteenth day of the fourth month following the close of the taxable year of the qualified electing nonresident individual(April 15 for individuals whose taxable year for federal income tax purposes is the calendar year). If the due date falls on a Saturday, Sunday, or legal holiday, the next business day is the due date.
18. Are estimated Connecticut group income tax payments required for members included in Form CT-G? Yes. Estimated Connecticut group income tax payments are required for a member included in Form CT-G if the member’s Connecticut income tax liability on the member’s share of the PE’s income derived from or connected with Connecticut sources is expected to equal or exceed $1,000. For each installment, the PE must aggregate the estimated Connecticut group income tax payments made on behalf of nonresident members and file one Form CT-G ES, Estimated Connecticut Group Income Tax Payment.
19. How does the new legislation affect publicly traded partnerships? A publicly traded partnership is required to report the name, address, social security number, or federal employer identification number to DRS for each unitholder whose distributive share of partnership income derived from or connected with Connecticut sources exceeds $500. A publicly traded partnership will fulfill this requirement by filing Form CT-1065/CT-1120SI, and completing Parts II, III, IV, V and VI thereof. In completing those parts, the partnership will only report for those unitholders whose distributive share of the partnership’s income derived from or connected with Connecticut sources exceeds $500. The partnership will also furnish a Schedule CT K-1 to each such unitholder (see Question 13). Note: A publicly traded partnership is not required to make composite income tax payments, including estimated composite income tax payments, on behalf of its unitholders.
20. How does the new legislation affect an investing partnership? An investing partnership is not subject to the requirements of the new legislation. However, an investing partnership that does not make the election (under 26 C.F.R. §1.761-2) not to be treated as a partnership for federal income tax purposes, and that is treated as a partnership subject to Subchapter K of Chapter 1 of the Internal Revenue Code, is subject to the requirements of the new legislation.
21. How does the new legislation affect a partnership deemed, pursuant to Conn. Gen. Stat. 12-711(f), not to be carrying on a trade or business in Connecticut? Such a partnership is not subject to the requirements of the new legislation.
22. How does the new legislation affect single member LLCs (SMLLCs)?
SMLLC owned by a corporation. An SMLLC that, for federal income tax purposes, is disregarded as an entity separate from the corporation which is its owner is treated as a C corporation for purposes of the new legislation. Therefore, if the SMLLC is a member of a PE, the PE is not required to make Connecticut composite income tax payments for the SMLLC. Also, if the SMLLC is not a PE, it is not required to make Connecticut composite income tax payments for its owner.
SMLLC owned by an individual. An SMLLC that, for federal income tax purposes, is disregarded as an entity separate from the individual who is its owner is treated as an individual for purposes of the new legislation. Therefore, if the SMLLC is a member of a PE, the PE is required to make Connecticut composite income tax payments for the SMLLC, if the criteria of Question 3 are met. Also, if the SMLLC is not a PE, it is not required to make Connecticut composite income tax payments for its owner.
23. Does the new legislation require a subsidiary PE to make a Connecticut composite income tax payment on behalf of a member that is itself a PE (“parent PE”)? Yes. A subsidiary PE is required to make a Connecticut composite income tax payment on behalf of a parent PE where the parent PE’s share of the subsidiary PE’s income derived from or connected with Connecticut sources is $1,000 or more. The subsidiary PE is also required to make estimated Connecticut composite income tax payments on behalf of the parent PE where the parent PE’s share of the subsidiary PE’s income derived from or connected with Connecticut sources is expected to equal or exceed $20,000.
Example 2: The facts are the same as in Example 1 except for the following: P’s share of S’s income derived from or connected with Connecticut sources is expected to equal or exceed $20,000, and the members of P are four individuals, each with a 25% share of P’s income. Three of the individuals (A, B, and C) are resident individuals, and one (D) is a nonresident individual. P provides sufficient evidence of this to S. S is not required to make a Connecticut composite income tax payment on behalf of P to the extent of A, B, or C’s share of P’s income. S is required to make a Connecticut composite income tax payment on behalf of P, but only to the extent of D’s share of P’s income, and must report such payment made on behalf of P on the Schedule CT K-1 issued by S to P. P is required to make a Connecticut composite income tax payment on behalf of D, but may take into account any Connecticut composite income tax payment made by S on behalf of P (see Question 24). P must report the payment made on behalf of D (after taking into account the payment made by S on behalf of D) on the Schedule CT K-1 issued by P to D. Neither S nor P is required to make estimated Connecticut composite income tax payments unless D’s share of P’s income is expected to equal or exceed $20,000.
24. In making Connecticut composite income tax payments on behalf of its members, may a parent PE take into account Connecticut composite income tax payments made by a subsidiary PE on behalf of the parent PE? Yes. A parent PE may take into account Connecticut composite income tax payments made by a subsidiary PE on behalf of the parent PE.
25. In completing Form CT-1065/CT-1120SI, Part I, Schedule B, should a PE include a member who is a nonresident noncorporate member or a PE if the member’s income derived from or connected with Connecticut sources is less than $1,000? A PE should not include on Form CT-1065/CT-1120SI, Part I, Schedule B, any member who is a nonresident noncorporate member or a PE if:
the member’s income derived from or connected with Connecticut sources is less than $1,000 and
However, a PE must include on Form CT-1065/CT-1120SI, Part I, Schedule B, any member on whose behalf a Connecticut composite income tax payment (including estimated Connecticut composite income tax payments), was made even if the payments were not required to be made, such as:
A member whose share of the PE’s income derived from or connected with Connecticut sources is less than $1,000 (including a member whose share of the PE’s losses or deductions derived from or connected with Connecticut sources exceeds the member’s share of the PE’s gains or income derived from or connected with Connecticut sources). When completing Part I, Schedule B, a PE should make no entries in Columns B and C for such member, but should make entries in the other columns. For information on the procedure for a nonresident member to obtain a refund of Connecticut composite income tax (including estimated Connecticut composite income tax) paid on their behalf, see Questions 5 and 14.
A member who is other than a nonresident noncorporate member or a PE. When completing Part I, Schedule B, a PE should make no entries in Columns B and C for such member, but should make entries in the other columns.
See the DRS Web site for revised instructions for Form CT-1065/CT-1120SI, Part I, Schedule B.
Effect on Other Documents: Informational Publication 2004(12), Q & A on Connecticut Income Tax Changes Affecting Partnerships and Limited Liability Companies (LLCs) With Nonresident Partners or Members, and Informational Publication 2004(13), Q & A on Connecticut Income Tax Changes Affecting S Corporations With Nonresident Shareholders, are modified and superseded and may not be relied upon on or after the date of issuance of this Informational Publication.
Q & A on Connecticut Income Tax Changes Affecting Pass-through Entities
Issued: 2/9/2005