Form 41a765(I) - Kentucky Partnership Income And Llet Return Instructions

Tax Treatment of a Partnership (Afforded Limited Liability

16) or from the Taxpayer Registration Section, Department of

Protection) and Partners or Members

Revenue, Frankfort, KY 40620 or at (click on

Business). The application may be faxed to (502) 227–0772.

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

partnership that affords any of its partners or members, through

Who Must File—NOTE: The limitations imposed and protections

function of the laws of this state or laws recognized by this

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

state, protection from general liability for actions of the entity

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

is classified as limited liability pass–through entity as provided

141.0401. A Kentucky Partnership Income and LLET Return, Form

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

765, must be filed by every partnership: (a) being organized

January 1, 2007, an annual limited liability entity tax (LLET)

under the laws of this state; (b) having a commercial domicile in

shall be paid by every corporation and every limited liability

this state; (c) owning or leasing property in this state; (d) having

pass–through entity doing business in Kentucky on all Kentucky

one or more individuals performing services in this state; (e)

gross receipts or Kentucky gross profits as provided by KRS

maintaining an interest in a pass–through entity doing business

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

in this state; (f) deriving income from or attributable to sources

status codes on page 7 of these instructions.

within this state, including deriving income directly or indirectly

from a trust doing business in this state, or deriving income

In determining tax as provided by KRS Chapter 141, a resident

directly or indirectly from a single member limited liability

individual, estate or trust that is a partner or member of a

company that is doing business in this state and is disregarded

partnership classified as a limited liability pass–through

as an entity separate from its single member for federal income

entity shall take into account the partner’s or member’s total

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

distributive share of the partnership’s items of income, loss

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

and deduction. In determining tax as provided by KRS Chapter

KRS 141.040, KRS 141.0401 and KRS 141.206

141, a nonresident individual, estate or trust that is a partner

or member of a partnership shall take into account: (1) if the

Disregarded Entities—A limited liability company (LLC) is treated

partnership is doing business only in this state, the partner’s

for Kentucky income tax purposes in the same manner as it is

or member’s total distributive share of the partnership’s items

treated for federal income tax purposes. Therefore, a single

of income, loss and deduction; or (2) if the partnership is doing

member LLC that is disregarded for federal income tax purposes

business both within and without this state, the partner’s or

shall be included in the return filed by its single member (owner).

member’s total distributive share of the partnership’s items of

KRS 141.010(25) and 103 KAR 16:300

income, loss and deduction multiplied by the apportionment

fraction as provided by KRS 141.206(12). KRS 141.206(8)and

Pass-through Entities—A pass–through entity doing business

(9)

in Kentucky solely as a partner in a pass–through entity will file

Form 765 pursuant to the provisions of KRS 141.010, 141.120

In determining tax as provided by KRS Chapter 141, a corporation

and 141.206. (See Schedule A—Apportionment and Allocation

that is a partner or member of a partnership shall take into

Instructions and Schedule A–C—Apportionment and Allocation-

account its total distributive share of the partnership’s items of

Continuation Sheet).

income, loss and deduction. KRS 141.206(10)

Nonresident Withholding (Form 740NP-WH)

A corporation that owns an interest in a partnership classified as

a limited liability pass–through entity or that owns an interest in a

Withholding

general partnership organized or formed as a general partnership

after January 1, 2006, shall include the proportionate share of

A partner or member that is an S corporation or partnership is

the sales, property and payroll of the partnership classified as

not subject to withholding. S corporations and partnerships are

a limited liability pass–through entity or general partnership in

pass-through entities as provided by KRS 141.010(26).

computing its own apportionment factor. KRS 141.206(10)

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

The LLET credit allowed partners or members of a partnership

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

classified as a limited liability pass–through entity shall be the

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

partners’ or members’ proportionate share of the LLET for the

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

current year after the subtraction of any credits identified in KRS

income tax on the distributive share, whether distributed or

141.0205 and reduced by $175. The credit allowed partners or

undistributed, of each nonresident individual (includes an estate

members shall be applied to the income tax assessed on income

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

from the partnership. Any remaining credit from the partnership

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

shall be disallowed. KRS 141.0401(3)

doing business in Kentucky only through its ownership interest

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

GENERAL INFORMATION

rate as provided in KRS 141.020 or KRS 141.040.

Internal Revenue Code Reference Date—Effective for taxable

Withholding shall not be required if: (a) the pass–through entity

years beginning after December 31, 2006, Kentucky Revised

demonstrates to the department that a partner, member or

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

shareholder has filed an appropriate tax return for the prior year

Code” (IRC) for Kentucky income tax purposes to mean the IRC

with the department by attaching to the Kentucky Form 40A201,

in effect on December 31, 2006, exclusive of any amendments

740NP–WH, Kentucky Nonresident Income Tax Withholding on

made subsequent to that date, other than amendments that

Distributive Share Income Report and Composite Income Tax

extend provisions in effect on December 31, 2006, that would

Return, a statement that the partner, member or shareholder is

otherwise terminate and as modified by KRS 141.0101, except

exempt from withholding as provided by KRS 141.206(7), and

that for property placed in service after September 10, 2001, only

providing each partner’s, member’s or shareholder’s name,

the depreciation and expense deductions allowed under Sections

address, federal identification number, Kentucky Corporation/

168 and 179 of the Internal Revenue Code in effect on December

LLET Account Number, if applicable, and net distributive income;

31, 2001, exclusive of any amendments made subsequent to that

(b) the nonresident partner or member is exempt from Kentucky

date. KRS 141.010(3)

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

Kentucky Tax Registration Application—Prior to doing business

member or shareholder is a nonresident individual and the pass–

in Kentucky, each partnership should complete a Kentucky Tax

through entity is a qualified investment pass–through entity as

Registration Application, Revenue Form 10A100. The application

provided by KRS 141.206(15)(a); or (d) the partner or member is

is available at Kentucky Taxpayer Service Centers (see page

a pass–through entity as provided by KRS 141.010(26).

Form 41a765(I) - Kentucky Partnership Income And Llet Return Instructions - 2011 Page 4

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