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41A720-S18 (10-11)

INSTRUCTIONS –SCHEDULE KREDA-SP

Commonwealth of Kentucky

DEPARTMENT OF REVENUE

PURPOSE OF SCHEDULE—This schedule is used by a

such that it is not practical to use a separate accounting

pass-through entity which has entered into a tax incentive

method to determine the net income, Kentucky gross receipts

agreement for a Kentucky Rural Economic Development Act

and Kentucky gross profits from the facility at which the

(KREDA) project that received preliminary or final approval

economic development project is located, the approved

under KRS Chapter 154.22 on or before June 26, 2009, to

company shall use an alternative method approved by

determine the credit allowed against the Kentucky income

the Department of Revenue. A copy of the letter from the

tax and LLET attributable to the project in accordance with

Department of Revenue approving the alternative method

KRS 141.347.

must be attached to this schedule.

Pass-through entities should first complete Form 720S, 765

Separate Accounting—If the economic development project

or 765-GP to determine net income (loss), deductions, etc.,

is a totally separate facility, net income shall reflect only

from the entire operations of the pass-through entity. The

the gross income, deductions, expenses, gains and losses

pass-through entity should then complete Schedule KREDA-

allowed under this chapter directly attributable to the

SP to determine the KREDA tax credit and the tax due, if any,

facility and overhead expenses apportioned to the facility;

from the KREDA project. A pass-through entity is subject to

and Kentucky gross receipts or Kentucky gross profits shall

tax as provided by KRS 141.020 and KRS 141.0401 on the net

reflect only Kentucky gross receipts or Kentucky gross profits

income and the Kentucky gross receipts or Kentucky gross

directly attributable to the facility.

profits from the project and the KREDA credit is applied

against the tax of the KREDA project. Consequently, the

If the economic development project is an expansion to a

pass-through entity must use Form 720S(K), Form 765(K) or

previously existing facility, net income of the entire facility

Form 765-GP(K) in lieu of Schedule K (Form 720S), Schedule

shall reflect only the gross income, deductions, expenses,

K (Form 765) or Schedule K (Form 765-GP) in order to exclude

gains and losses allowed under this chapter directly

the net income from the KREDA project from the partners,

attributable to the facility and overhead expenses apportioned

members or shareholders’ distributive share income, and

to the facility; and Kentucky gross receipts and Kentucky

Schedule LLET(K) in lieu of Schedule LLET in order to exclude

gross profits shall reflect only Kentucky gross receipts and

the Kentucky gross receipts or the Kentucky gross profits of

Kentucky gross profits directly attributable to the facility. Net

the KREDA project from the LLET at the entity level.

income, Kentucky gross receipts and Kentucky gross profits

of the entire facility attributable to the economic development

Multiple Projects—A pass-through entity with multiple

project shall be determined by apportioning the net income,

economic development projects must complete an applicable

Kentucky gross receipts and Kentucky gross profits by a

schedule (Schedule KREDA-SP , Schedule KIDA-SP , Schedule

formula approved by the Department of Revenue.

KEOZ-SP , Schedule KJRA-SP , Schedule KIRA-SP , Schedule

KJDA-SP , Schedule KBI-SP , Schedule KRA-SP or Schedule

Line 2—Enter the net operating loss from the KREDA project,

IEIA-SP) to determine the credit and net tax liability, if any,

if any, being carried forward from previous years.

for each project.

Note: Just as the income from a KREDA project does not

Line 1—If the pass-through entity’s only operation is the

flow through to partners, members or shareholders, neither

KREDA project, the amount entered on Line 1 is the net

do the losses. The project’s net operating loss from prior

income (loss) from Form 720S, 765 or 765-GP . If the pass-

years must be subtracted from the project income before

through entity has operations other than the KREDA project,

calculating the KREDA credit.

a schedule must be attached reflecting the computation of

the net income (loss) from the KREDA project in accordance

General Partnership—Lines 5 and 6 of this schedule shall

with the following instructions, and such amount entered

not be completed by a general partnership as a general

on Line 1.

partnership is not subject to LLET.

Separate Facility—In accordance with KRS 141.347(6), if the

Line 5—Using Schedule LLET, create a new Schedule LLET

project is a totally separate facility, net income, Kentucky

to compute the LLET of the KREDA project using only the

gross receipts, and Kentucky gross profits attributable to

Kentucky gross receipts and Kentucky gross profits of the

the project shall be determined by a separate accounting

project. Enter “KREDA” at the top center of the Schedule

method.

LLET and attach it to the tax return.

Expansion of Existing Facility—In accordance with KRS

Line 9—In lieu of the tax credit, the approved company

141.347(7), if the KREDA project is an expansion to a

may elect, on an annual basis, to apply as an estimated tax

previously existing facility, the net income, Kentucky gross

payment an amount equal to the allowable tax credit. Any

receipts and Kentucky gross profits shall be determined under

estimated tax payment shall be in satisfaction of the tax

a separate accounting method reflecting the entire facility,

liability of the partners, members or shareholders of the pass-

and the net income, Kentucky gross receipts and Kentucky

through entity, and shall be paid on behalf of the partners,

gross profits shall be determined by apportioning the net

members or shareholders. Enter an amount on either (a) or

income, Kentucky gross receipts and Kentucky gross profits

(b), but in no case shall there be an entry on both (a) and

of the entire facility to the economic development project by

(b). In accordance with KRS 141.347(5), this estimated tax

a formula approved by the Department of Revenue. A copy

payment is excluded in determining each partner, member

of the letter from the Department of Revenue approving the

or shareholder’s distributive share income or credit from a

percentage must be attached to the schedule.

pass-through entity. Accordingly, the partners, members or

Alternative Methods—In accordance with KRS 141.347(8),

shareholders are not entitled to claim any portion of this

if the approved company can show that the nature of the

estimated tax payment against their Kentucky income tax

liability.

operations and activities of the approved company are

Schedule Kreda-Sp (Form 41a720-S18) - Tax Computation Schedule (For A Kreda Project Of A Pass-Through Entity) Page 2

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