Kentucky Administrative Regulations › Title 103 - FINANCE AND ADMINISTRATION CABINET - DEPARTMENT OF REVENUE › Chapter 16 - Income Tax; Corporations › Section 103 KAR 16:320 - Claim of right doctrine

Current through Register Vol. 51, No. 1, July 1, 2024
RELATES TO:
				KRS
				134.580,
				141.010,
				141.039,
				141.050,
				26
				U.S.C. 1341
NECESSITY, FUNCTION, AND CONFORMITY:
				KRS
				131.130(1) authorizes the
				department to promulgate administrative regulations to administer and enforce
				Kentucky's tax laws.
				KRS
				141.050(4) requires the
				department to promulgate administrative regulations to effectively carry out
				the provisions of KRS Chapter 141. Internal Revenue Code Section 1341,
				26
				U.S.C. 1341, provides for an adjustment to
				income tax where a taxpayer restores a substantial amount held under claim of
				right. This administrative regulation interprets the application of the claim
				of right doctrine for Kentucky corporation income tax purposes.
Section 1. Definition. "Internal Revenue
			 Code" is defined by
			 KRS
			 141.010(21).
Section 2. General. If a corporation has made
			 a claim of right adjustment in its federal tax return, a claim of right
			 adjustment may be made to the Kentucky corporation income tax return in
			 accordance with this section.
(1) If the year
			 the income or deduction was originally reported or deducted remains open under
			 the statutory period authorizing a refund of money paid into the State Treasury
			 under
			 KRS
			 134.580, the claim of right shall be made by
			 amending the corporation's tax return for the year the income or deduction was
			 reported.
(2) If the year the
			 income or deduction was originally reported or deducted is closed due to the
			 expiration of the statutory period authorizing a refund of money paid into the
			 State Treasury under
			 KRS
			 134.580, the claim of right shall be made in
			 the same taxable year as the credit or deduction was claimed for federal
			 purposes.
(a) The amount of the federal
			 adjustment shall be adjusted for differences between the Internal Revenue Code
			 and KRS Chapter 141.
(b) Example. A
			 corporation reported claim of right income in the amount of $1,000,000 in a
			 prior year closed under the statutory period authorizing a refund of money paid
			 into the State Treasury under
			 KRS
			 134.580, and apportioned twenty (20) percent
			 of its apportionable income to Kentucky, which resulted in additional Kentucky
			 income tax liability of $12,000. The adjustment to the corporation's tax
			 liability attributable to the claim of right shall not exceed $12,000 in the
			 taxable year in which the claim is allowed, regardless of whether the
			 corporation's apportionable income to Kentucky in the year in which the claim
			 is allowed exceeds twenty (20) percent of the corporation's total apportionable
			 income. This principle shall also apply if the tax rate in the year the
			 adjustment attributable to the claim of right differs from the year the income
			 was originally reported, or if no tax was paid as a result of prior reporting
			 of the income or deduction subject to a claim of right.