Form 41a720-S57 - Schedule Fon-Sp - Tax Computation Schedule - 2016 Page 2
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41A720-S57 (10-16)
INSTRUCTIONS – SCHEDULE FON-SP
Commonwealth of Kentucky
DEPARTMENT OF REVENUE
PURPOSE OF SCHEDULE—This schedule is used by a pass-
separate accounting method reflecting the entire operation,
through entity which has a farm operation networking project
and the net income, Kentucky gross receipts and Kentucky
(FON) approved by the Cabinet for Economic Development
gross profits shall be determined by apportioning the net
as provided by KRS 141.410 to 141.414, to determine the
income, Kentucky gross receipts and Kentucky gross profits
credit allowed against the Kentucky income tax and LLET
of the entire operation to the farming operation networking
attributable to the project in accordance with KRS 141.412.
project by a formula approved by the Department of
The annual tax credit shall be available for the first five (5)
Revenue. A copy of the letter from the Department of
years that the farming operation is involved in the networking
Revenue approving the percentage must be attached to
project. The annual tax credit shall be equal to the approved
the schedule.
costs incurred by the qualified farming operation during the
Alternative Methods—In accordance with KRS 141.414(6),
tax year and shall not exceed the income, Kentucky gross
if the approved company can show that the nature of the
profits or Kentucky gross receipts, as the case may be, of
operations and activities of the approved company are
the qualified farming operation generated by or arising
such that it is not practical to use a separate accounting
out of the qualified farming operation’s participation in a
method to determine the net income, Kentucky gross receipts
networking project.
and Kentucky gross profits from the operation at which the
KRS 141.414(3) provides that the net income subject to tax
economic development project is located, the approved
and the tax credit determined under KRS 141.414(2) shall
company shall use an alternative method approved by
be excluded in determining each partner’s, member’s,
the Department of Revenue. A copy of the letter from the
shareholder’s or beneficiary’s distributive share of net income
Department of Revenue approving the alternative method
or credit of the pass-through entity or trust.
must be attached to this schedule.
Pass-through entities should first complete Form 720S, 765
Separate Accounting—If the farming operation networking
or 765-GP to determine net income (loss), deductions, etc.,
project is a separate operation, net income shall reflect
from the entire operations of the pass-through entity. The
only the gross income, deductions, expenses, gains and
pass-through entity should then complete Schedule FON-
losses allowed under this chapter directly attributable to
SP to determine the FON tax credit, if any, from the FON
the operation and overhead expenses apportioned to the
project. A pass-through entity is subject to tax as provided
operation; and Kentucky gross receipts or Kentucky gross
by KRS 141.020 and KRS 141.0401 on the net income and
profits shall reflect only Kentucky gross receipts or Kentucky
the Kentucky gross receipts or Kentucky gross profits from
gross profits directly attributable to the operation.
the project and the FON credit is applied against the tax of
the FON project. Consequently, the pass-through entity must
If the farming operation networking project is an expansion
use Form 720S(K), Form 765(K) or Form 765-GP(K) in lieu of
to a previously existing operation, net income of the entire
Schedule K (Form 720S), Schedule K (Form 765) or Schedule
operation shall reflect only the gross income, deductions,
K (Form 765-GP) in order to exclude the net income from the
expenses, gains and losses allowed under this chapter
FON project from the partners, members or shareholders’
directly attributable to the operation and overhead expenses
distributive share income, and Schedule LLET(K) in lieu of
apportioned to the operation; and Kentucky gross receipts
Schedule LLET in order to exclude the Kentucky gross receipts
and Kentucky gross profits shall reflect only Kentucky gross
or the Kentucky gross profits of the FON project from the
receipts and Kentucky gross profits directly attributable to
LLET at the entity level.
the operation. Net income, Kentucky gross receipts and
Kentucky gross profits of the entire operation attributable
Multiple Projects—A pass-through entity with multiple
to the economic development project shall be determined
farming operation networking projects must complete an
by apportioning the net income, Kentucky gross receipts
applicable Schedule FON-SP to determine the credit and net
and Kentucky gross profits by a formula approved by the
tax liability, if any, for each project.
Department of Revenue.
Line 1—If the pass-through entity’s only operation is the FON
Line 2—Enter the net operating loss from the FON project, if
project, the amount entered on Line 1 is the net income (loss)
any, being carried forward from previous years.
from Form 720S, 765 or 765-GP . If the pass-through entity
has operations other than the FON project, a schedule must
Note: Just as the income from a FON project does not flow
be attached reflecting the computation of the net income
through to partners, members or shareholders, neither do the
(loss) from the FON project in accordance with the following
losses. The project’s net operating loss from prior years must
instructions, and such amount entered on Line 1.
be subtracted from the project income before calculating
the FON credit.
Separate Operation—In accordance with KRS 141.414(4),
if the project is a separate operation, net income, Kentucky
General Partnership—Lines 5 and 6 of this schedule shall
gross receipts, and Kentucky gross profits attributable to
not be completed by a general partnership as a general
the project shall be determined by a separate accounting
partnership is not subject to LLET.
method.
Line 5—Using Schedule LLET, create a new Schedule LLET to
Expansion of Existing Operation—In accordance with KRS
compute the LLET of the FON project using only the Kentucky
141.414(5), if the FON project is an expansion to a previously
gross receipts and Kentucky gross profits of the project. Enter
existing operation, the net income, Kentucky gross receipts
“FON” at the top center of the Schedule LLET and attach it
and Kentucky gross profits shall be determined under a
to the tax return.
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