DRS: SN 92(5), Clarification of Certain Income Tax Schedules for Nonresident Partners or S Corporation Shareholders

 

STATE OF CONNECTICUT
DEPARTMENT OF REVENUE SERVICES

450 Columbus Blvd
Hartford CT 06103
 
 
 
 
 
 

 
 

SN 92(5)

Clarification of Certain Income Tax Schedules for Nonresident Partners or S Corporation Shareholders


PURPOSE: This Special Notice clarifies how Form CT-1065, Schedule K-1(NR), and Form CT-1120SI, Schedule K-1 (NR) are to be completed.


EFFECTIVE DATE: Applicable to taxable years beginning on or after January 1, 1991.


BACKGROUND: Questions have arisen as to whether it is permissible to net different characters of income, e.g., to offset interest income with passive losses, in the calculations on Form CT-1065, Schedule K-1 (NR) and Form CT-1120SI, Schedule K-1 (NR). Under 1991 Conn. Pub. Acts 3, 62(b) (3) (June Spec. Sess.) and Temporary Income Tax Rule 62 (b) -6, such netting is not permissible. The following changes are intended to ensure that such netting does not occur.

Form CT-1065, Schedule K-1 (NR)

The following modifications must be made to Form CT-1065, Schedule K-1 (NR):

The following lines should be disregarded and no entries made thereon: Lines 8, 10, 15 and 20.

Reporting amounts from Form CT-1065, Schedule K-1 (NR) to Form CT-1040NR/PY, Schedule 1

For purposes of determining the amounts to be carried forward from Form CT-1065, Schedule K-1 (NR) to Form CT-1040NR/PY, Schedule 1, the following calculations should be made:

Form CT-1065, Schedule K-1 (NR), Line 14, Column 1 should be reported on Form CT-1040NR/PY, Schedule 1, Line 32.

Form CT-1065, Schedule K-1 (NR), Line 19, Column 1 should be reported on Form CT-1040NR/PY, Schedule 1, Line 42.

Reporting amounts from Form CT-1065, Schedule K-1 (NR) to Form CT-1040NR/PY, Schedule CT-SI

The amounts from CT-1065, Schedule K-1 (NR), Column 2, should be reported on the appropriate lines of Form CT-1040NR/PY, Schedule CT-SI. Any other forms or schedules necessary for purposes of calculating the amounts to be entered on Form CT-1040NR/PY, Schedule CT-SI should also be utilized by the taxpayer, e.g. passive activity loss limitations should be calculated on federal Form 8582 as if the Connecticut sourced passive items of income and loss were the only passive items included in the return. (However, this form does not need to be included with the CT-1040NR/PY.)

Form CT-1065, Schedule E, Column F (Composite Return)

The amount that should be entered on Form CT-1065, Schedule E, Column F is determined as follows:

Net the amounts from Form CT-1065, Schedule K-1 (NR), Lines 1 through 9, Column 2. (NOTE: THE FEDERAL RULES REGARDING RESTRICTIONS ON NETTING ONLY SIMILAR CHARACTERS OF INCOME APPLY.)

Add thereto the amount entered on Form CT-1065, Schedule K-1 (NR), Line 14, Column 2.

Subtract therefrom the amount entered on Form CT-1065, Schedule K-1 (NR), Line 19, Column 2.

Form CT-1120SI, Schedule K-1 (NR)

The following modifications must be made to the Form CT-1120SI, Schedule K-1 (NR):

The following lines should be disregarded and no entries made thereon: Lines 11, 20, 21 and 23.

Divide the existing column for Lines 1 through 19 (disregarding Line 11) into two columns: Column A, on the left, and Column B, on the right.

Enter in Column A the federal amounts which are required to be entered pursuant to the current instruction to Form CT-1120SI, Schedule K-1 (NR).

Enter in Column B the amount of the federal entries in Column A which is apportioned to Connecticut. In other words, each Column B amounts should equal the Column A amount multiplied by the Connecticut apportionment fraction on Line 22.

Reporting amounts from Form CT-1120SI, Schedule K-1 (NR), to Form CT-1040NR/PY, Schedule 1

Form CT-1120SI, Schedule K-1 (NR), Line 15, Column A should be reported on Form CT-1040NR/PY, Schedule 1, Line 32.

Form CT-1120SI, Schedule K-1 (NR), Line 19, Column A should be reported on Form CT-1040NR/PY, Schedule 1, Line 42.

Reporting amounts from Form CT-1120SI, Schedule K-1 (NR), to Form CT-1040NR/PY, Schedule CT-SI

The amounts from Form CT-1120SI, Schedule K-1 (NR), Column B. should be reported on the appropriate lines of Form CT-1040NR/PY, Schedule CT-SI. Any other forms or schedules necessary for purposes of calculating the amounts to be entered on Form CT-1040NR/PY, Schedule CT-SI should also be utilized by the taxpayer, e.g. passive activity loss limitations should be calculated on federal Form 8582 as if the Connecticut sourced passive items of income and loss were the only passive items included in the return. (However, this form does not need to be included with the CT-1040NR/PY.)

Form CT-1120SI, Schedule B, Column F (Composite Return)

The amount that should be entered on Form CT-1120SI, Schedule B, Column F is the sum of:

The net of the amounts from Form CT-1120SI, Schedule K-1 (NR), Lines 1 through 10, Column B. (NOTE: THE FEDERAL RULES REGARDING RESTRICTIONS ON NETTING ONLY SIMILAR CHARACTERS OF INCOME APPLY.)

Add thereto the amount entered on Form CT-1120SI, Schedule K-1 (NR), Line 15, Column B.

Subtract therefrom the amount entered on Form CT-1120SI, Schedule K-1 (NR), Line 19, Column B.

NOTE: If a nonresident partner (or S corporation shareholder) has any of the following adjustments to Connecticut adjusted gross income, he or she must list them on a separate schedule and attach such schedule to the Form CT-1065, Schedule K-1 (NR) or Form CT-1120SI, Schedule K-1 (NR), as the case may be. The separate schedule should list two columns: Column A, reflecting federal amounts, and Column B, reflecting the amounts from Column A sourced to Connecticut. The Column B adjustments should be reported on the Form CT-1040NR/PY, Schedule CT-SI, Part 2. The adjustments are:

1. IRA deduction
2. Self-employed health insurance deduction
3. Keogh retirement plan and self-employed (SEP) deduction
4. Penalty on early withdrawal of savings
5. Other deductions (other than itemized deductions) that are appropriate in determining partnership or S corporation income to be reported on the federal Form 1040, Schedule E.


EFFECT ON OTHER DOCUMENTS: The 1991 Form CT-1065, Schedule K-1 (NR) and the 1991 Form CT-1120SI, Schedule K-1 (NR) are modified in part and superseded in part. These returns must be completed, and previously filed returns must be amended, in accordance with this Special Notice. Where appropriate, extensions should be filed.


PLEASE NOTE THE FOLLOWING NEW INFORMATION ABOUT DRS.

FOR FURTHER INFORMATION: To order forms and publications or for further information, call the Department of Revenue Services at 860-297-5962 (Hartford area or out-of-state) or 1-800-382-9463 (in-state). Forms and publications may be ordered through voice-mail 24-hours a day by choosing Option 3 on your touch tone telephone.

Electronic Delivery Options: You can also obtain tax forms and publications 24-hours a day from our Web home page at http://www.ct.gov/drs. Telecommunications Device for the Deaf (TDD/TT) users only call 860-297-4911 during business hours.


SN 92(5)
Income Tax
Issued 3/24/92