††††† 103 KAR 15:100. Nonrefundable and refundable corporation income tax credits.

 

††††† RELATES TO: KRS 141.010, 141.020, 141.0205, 141.040, 141.420

††††† STATUTORY AUTHORITY: KRS 131.130(1), 141.018, 141.050(4)

††††† NECESSITY, FUNCTION, AND CONFORMITY: KRS 141.050(4) requires the Department of Revenue to promulgate administrative regulations and prescribe the forms and reports necessary to the proper administration of any and all provisions of KRS Chapter 141. KRS 141.018 requires the department to promulgate administrative regulations necessary to explain or implement 2005 Ky. Acts ch. 168 relative to the imposition of the tax assessed under this chapter on individuals, the passed-through income of entities taxable under KRS 141.040, and any related item of income, deduction, or credit. This administrative regulation explains the pass-through of income, credit, and the limitation for claiming credit for tax paid under KRS 141.040.

 

††††† Section 1. Definitions. (1) "Lower-tier PTE corporation" means a member of a PTE corporation that is itself a PTE corporation.

††††† (2) "PTE corporation" means any corporation identified in KRS 141.010(24)(b) to (h).

††††† (3) "Nonrefundable credit" means the corporation income tax credit permitted by KRS 141.420(3)(a).

††††† (4) "Refundable credit" means the corporation income tax credit permitted by KRS 141.420(3)(c).

 

††††† Section 2. Income. Net income, gain, loss or deduction distributed to partners, members, or shareholders shall be the federal amount adjusted for differences required by KRS 141.010(3), (10) and (11) and shall include income received by the distributing PTE corporation from a lower-tier PTE corporation. Taxes paid under KRS 141.040 shall not reduce net distributive share income.

 

††††† Section 3. Individual Credit. (1) For an individual partner, member or shareholder, refundable and nonrefundable credits shall be distributed in accordance with distributions of income or loss.

††††† (2) For tax periods beginning after December 31, 2004, and before January 1, 2007, the total amount of refundable and nonrefundable credit distributed from a PTE corporation shall equal the tax due from the corporation prior to the application of any credits taken by the corporation and reduced by the required minimum tax imposed by KRS 141.040(6).

††††† (3) A PTE corporation shall compute the amount of refundable and nonrefundable credit and provide to its partners, members or shareholders the amount of income apportioned to Kentucky and taxed under KRS 141.040, the amount of refundable credit, and the amount of nonrefundable credit for purposes of computing the nonrefundable credit limitation.

††††† (4) A lower-tier PTE corporation shall, in addition to the information in subsection (3) of this section, provide to its individual partners, members or shareholders the amount of income apportioned to Kentucky and taxed under KRS 141.040, the amount of refundable credit, and the amount of nonrefundable credit it receives from another PTE corporation for purposes of computing the nonrefundable credit limitation.

 

††††† Section 4. Nonrefundable Credit Limitation. (1) An individual taxpayer shall compute the limitation in KRS 141.420 (3) (d) for each PTE corporation from which the taxpayer receives income. Distributive share income received indirectly from a lower-tier PTE corporation shall be treated as received from a separate entity for purposes of computing the limitation.

††††† (2) To compute the limitation, an individual shall for each PTE corporation:

††††† (a) Compute tax on the individualís Kentucky taxable income using the tax rates in KRS 141.020;

††††† (b) Compute tax on the individualís Kentucky taxable income minus the amount of income taxed on the PTE corporationís return using the tax rates in KRS 141.020;

††††† (c) Subtract the tax computed in paragraph (b) of this subsection from tax computed in paragraph (a) of this subsection. This shall be the tax savings if income attributable to doing business in this state by the PTE corporation is ignored;

††††† (d) Identify the amount of nonrefundable corporation tax credit reported by the PTE corporation; and

††††† (e) Select as the nonrefundable credit the lesser of paragraph (c) or (d) of this subsection.

††††† (3) Unused credit shall not carry forward.

 

††††† Section 5. Estates, Trusts, or General Partnerships. (1) Estates, trusts, or general partnerships shall be treated as individuals for purposes of distributions from a PTE corporation.

††††† (2) Credits accruing to a partner, shareholder, or member that is an estate or a trust shall be:

††††† (a) Used to reduce tax owed by the estate or trust on income received from a PTE corporation subject to the limitation in Section 3(2) of this administrative regulation; or

††††† (b) Distributed to the beneficiaries if the income received from a PTE corporation is distributed.

††††† (3) Estates, trusts, or general partnerships shall provide to their beneficiaries or partners the amount of income apportioned to Kentucky and taxed under KRS 141.040, the amount of refundable credit, and the amount of nonrefundable credit it receives from a PTE corporation for purposes of computing the nonrefundable credit limitation.

 

††††† Section 6. Corporations. A corporation which is itself a partner or member in a PTE corporation is not entitled to claim the refundable or nonrefundable credit. (32 Ky.R. 1816; 33 Ky.R. 58; eff. 8-7-2006.)