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member is an individual, estate, trust or general partnership,

Tax Treatment of an Individually Owned Single Member Limited

Liability Company and the Individual Owner

that is doing business in this state which includes but is not

limited to: (a) being organized under the laws of this state;

For taxable years beginning on or after January 1, 2007, a

(b) having a commercial domicile in this state; (c) owning

limited liability company that affords its single member,

or leasing property in this state; (d) having one or more

through function of the laws of this state or laws recognized

individuals performing services in this state; (e) maintaining an

by this state, protection from general liability for actions of the

interest in a pass–through entity doing business in this state;

entity is classified as a limited liability pass–through entity as

(f) deriving income from or attributable to sources within this

provided by KRS 141.010(28). Also, for taxable years beginning

state, including deriving income directly or indirectly from a

on or after January 1, 2007, an annual limited liability entity tax

trust doing business in this state, or deriving income directly

(LLET) shall be paid by every corporation and every limited

or indirectly from a single member limited liability company

liability pass–through entity doing business in Kentucky on all

that is doing business in this state and is disregarded as an

Kentucky gross receipts or Kentucky gross profits as provided by

entity separate from its single member for federal income tax

KRS 141.0401(2), unless specifically excluded. See LLET nonfiling

purposes; or (g) directing activities at Kentucky customers for

status codes on page 6 of these instructions.

the purpose of selling them goods or services. KRS 141.010(25),

KRS 141.0401, KRS 141.200 and KRS 141.206

A single member LLC whose single member is an individual shall

file a Kentucky Single Member LLC Individually Owned LLET

Disregarded Entities—A single member LLC owned by an

Return (Form 725). A single member LLC and any lower–tier

individual, estate, trust or general partnership is treated in the

single member LLC shall be treated as one entity in determining

same manner as it is treated for federal income tax purposes.

the limited liability tax. An individual who owns more than

Consequently, an individual, estate, trust or general partnership

one single member LLC can file Schedule CP, Kentucky Single

filing a Kentucky tax return will include the activity of any

Member LLC Individually Owned Composite Return Schedule,

single member LLC when filing the applicable Kentucky return.

rather than filing multiple forms (Form 725). See instructions

However, a single member LLC is classified as a limited liability

on page 8 regarding Schedule CP.

pass–through entity as provided by KRS 141.010(28) and is

subject to the limited liability entity tax as provided by KRS

A resident or nonresident individual single member shall be

141.0401(2). A single member LLC whose single member is

entitled to a nonrefundable LLET credit against income tax

an individual, estate, trust or general partnership must file a

imposed by KRS 141.020 (Kentucky individual income tax). The

Kentucky Single Member LLC Individually Owned LLET Return

nonrefundable LLET credit allowed a member shall be the LLET

(Form 725) to report and pay any LLET that is due.

for the current year after the subtraction of any credits identified

in KRS 141.0205 and reduced by $175. The credit allowed a

Pass–through Entity—A single member LLC owned by

member shall be applied to the income tax assessed on income

an individual, estate, trust or general partnership that is

from the single member LLC. Any remaining credit from the

doing business in Kentucky solely as a partner or member

single member LLC shall be disallowed. KRS 141.0401(3)

in a pass–through entity will file Form 725 pursuant to the

provisions of KRS 141.010, 141.0401 and 141.206. (See Schedule

GENERAL INFORMATION

A—Apportionment and Allocations Instructions and Schedule

A–C—Apportionment and Allocation—Continuation Sheet).

Internal Revenue Code Reference Date—Effective for taxable

years beginning after December 31, 2006, Kentucky Revised

Nonresident Withholding (Form 740NP–WH)

Statute (KRS) 141.010(3) was amended to define “Internal

Revenue Code” (IRC) for Kentucky income tax purposes to

Withholding

mean the IRC in effect on December 31, 2006, exclusive of

any amendments made subsequent to that date, other than

An S corporation or partnership partner, member or shareholder

amendments that extend provisions in effect on December

is a pass–through entity not subject to withholding.

31, 2006, that would otherwise terminate and as modified

by KRS 141.0101, except that for property placed in service

KRS 141.206(5) provides that for taxable years beginning on or

after September 10, 2001, only the depreciation and expense

after January 1, 2007, every pass–through entity required to file a

deductions allowed under Sections 168 and 179 of the Internal

return under KRS 141.206(2), except publicly traded partnerships

Revenue Code in effect on December 31, 2001, exclusive of any

as defined in KRS 141.0401(6)(r), shall withhold Kentucky

amendments made subsequent to that date. KRS 141.010(3)

income tax on the distributive share, whether distributed or

undistributed, of each nonresident individual (includes an estate

Kentucky Tax Registration Application—Prior to doing

or trust partner, member or shareholder) partner, member or

business in Kentucky, each single member LLC should

shareholder, or each C–corporation partner or member that is

complete a Kentucky Tax Registration Application, Revenue

doing business in Kentucky only through its ownership interest

Form 10A100. The application is available at Kentucky Taxpayer

in a pass–through entity. Withholding shall be at the maximum

Service Centers (see page 14), from the Taxpayer Registration

rate as provided in KRS 141.020 or KRS 141.040.

Section, Department of Revenue, Frankfort, KY 40620, or at

(click on Business). The application may

be faxed to (502) 227–0772.

Withholding shall not be required if: (a) the partner, member

or shareholder is exempt from withholding as provided by

Who Must File—NOTE: The limitations imposed and protections

KRS 141.206(7)(a); (b) the partner or member is exempt from

provided by the United States Constitution or Pub. L. No. 86–272

Kentucky income tax as provided by KRS 141.040(1); (c) the

do not apply to the limited liability entity tax imposed by KRS

pass-through entity is a qualified investment partnership as

141.0401. A Kentucky Single Member LLC Individually Owned

provided by KRS 141.206(15), and the partner, member or

LLET Return (Form 725) must be filed by every single member

shareholder is an individual; or (d) the partner or member is a

limited liability company (single member LLC) whose single

pass-through entity.

Instructions For Form 725 (State Form 41a725(I)) - Kentucky Single Member Llc Individually Owned Llet Return - 2012 Page 3

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