Instructions For Nj-1065 - Partnership Return And New Jersey Partnership Njk-1 (Page 2 of 17) in pdf

2______________________________________2013 Form 1065 ______________________________________

General Instructions

year. The entity must evaluate its situation on a yearly basis.

Partnership Defined

- For tax purposes “partnership”

The entity, not the partner, must make the determination.

means and shall include a syndicate, group, pool, joint venture

and any other unincorporated organization through or by

Investment Clubs –

are usually small groups of

means of which any business, financial operation or venture is

individuals who pool their money to invest in stock or other

carried on and which is not a corporation, trust or estate

securities.

The group usually operates informally with

within the meaning of the New Jersey Gross Income Tax Act.

members pledging to pay a regular amount into the club

Only entities that qualify for and elect to be treated as a

monthly.

Some clubs have a committee that gathers

partnership for Federal tax purposes (for example limited

information on securities, selects the most promising

liability companies and limited liability partnerships) shall be

securities, and recommends that the clubs invest in them.

treated as partnerships under the New Jersey Gross Income

Most clubs require all members to vote for or against all

Tax Act.

investments, sales trades, and the other transactions.

“Tiered” Partnerships

- are arrangements wherein

Investment clubs recognize as their main source of income

one partnership, the upper-tier or “parent” partnership, is a

interest, dividends, and gains on disposition of their stock and

member of, or holds an ownership interest in another

securities and usually meet hedge fund status. Investment

partnership (called the lower-tier, or “subsidiary” partnership).

clubs generally are not considered a business. An investment

Tiered partnerships must complete Schedule A, Form NJ-1065

club is required to file a New Jersey Partnership Form NJ-

before completing Lines 1 through 11 on the front of Form

1065 but is not entitled to deduct any expenses (unless it rises

NJ-1065.

to the level of being in business). The member or partner of

the investment club will report their share of the investment

Partner Defined

- “Partner” means any owner of a part-

club's income or loss as "distributive share of partnership

nership interest.

income".

Nonresident Noncorporate Partner –

means an

If an “investment club” meets the following criteria, it will be

individual, an estate or a trust subject to taxation pursuant to

exempt from the $150 per owner annual partnership filing fee

the “New Jersey Gross Income Tax Act” that is not a resident

and from the requirement that a partnership make payments on

taxpayer or a resident estate or trust under that act.

behalf of its nonresident owners. The “investment club” must

be an entity that is classified as a partnership for federal

Nonresident Corporate Partner

– means a partner

income tax purposes, all of the owners are individuals and all

that is not an individual, an estate or a trust subject to taxation

of the assets are securities, cash, or cash equivalents. The

pursuant to the “New Jersey Gross Income Tax Act” that is

market value of the total assets of which do not exceed, as

not a corporation exempt from tax pursuant to N.J.S.A.

measured on the last day of its privilege period, an amount

54:10A-3 and that does not maintain a regular place of

equal to the lesser of $326,400 or $45,700 per owner of the

business in this State other than a statutory office.

entity. The investment club is not required to register itself or

Qualified Investment Partnership

its membership interests with the federal Securities and

– means a

Exchange Commission.

partnership that has more than 10 members or partners with no

member or partner owning more than a 50% interest in the

Who Must File

entity and that derives at least 90% of its gross income from

Every partnership that has income or loss derived from

dividends, interest, payments with respect to securities loans,

sources in the State of New Jersey, or has a New Jersey

and gains from the sale or other disposition of stocks or

resident partner, must file Form NJ-1065. A partnership must

securities or foreign currencies or commodities or other

file even if its principal place of business is outside the State

similar income (including but not limited to gains from swaps,

of New Jersey.

Form NJ-1065 is no longer solely an

options, futures or forward contracts) derived with respect to

information return. A filing fee and tax may be imposed on

its business of investing or trading in those stocks, securities,

the partnership. Partners subject to the gross income tax still

currencies or commodities, but “investment partnership” shall

must report and pay tax on their share of partnership income

not include a “dealer in securities” within the meaning of

or loss.

section 1236 of the Federal Internal Revenue Code of 1986.

How to File

Hedge Fund Status

– is met for New Jersey tax

Electronic Filing Mandate

purposes if the investment entity's only activity is the

Beginning with tax year 2011, Partnerships subject to the

purchase, holding or sale of intangible personal property, such

provisions of the Corporation Business Tax Act (that is

as commodities or securities and such intangible personal

partnerships that remit tax based on any nonresident corporate

property is not held for sale to customers as defined at

and nonresident noncorporate partner’s allocable share of NJ

N.J.S.A. 54A:5-8c. A partnership that qualifies for hedge

partnership income) that utilize the services of a paid preparer

fund status in one year may not meet the requirements every

must file all their returns completed by that practitioner via

electronic means. Payments of the partnership liabilities along

Instructions For Nj-1065 - Partnership Return And New Jersey Partnership Njk-1 Page 2

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