DRS: IP 2004(39), Q & A on Connecticut Income Tax Changes Affecting Pass-Through Entities

 

STATE OF CONNECTICUT
DEPARTMENT OF REVENUE SERVICES

450 Columbus Blvd
Hartford CT 06103
 
 
 
 
 
 

 
 
 
This Informational Publication has been modified and superseded by
 
IP 2004(39)
 
Q & A on Connecticut Income Tax Changes Affecting
Pass-Through Entities
 

Purpose: This Informational Publication is intended to answer frequently-asked questions concerning new legislation affecting each pass-through entity (PE) doing business in Connecticut or having income derived from or connected with sources within Connecticut.


Definitions: 

Pass-through entity (PE) means a partnership or an S corporation as defined in this Informational Publication.

Partnership means and includes a general partnership, limited partnership, limited liability partnership, publicly traded partnership, limited liability company (LLC) treated as a partnership for federal income tax purposes, or other entity treated as a partnership for federal income tax purposes.

S corporation means a corporation which is an S corporation for federal income tax purposes.

Member means and includes a partner of a partnership, a member of a LLC treated as a partnership for federal income tax purposes, or a shareholder of an S corporation.

Memberís share means a partnerís distributive share of partnership income, gain, loss, or deduction; a memberís distributive share of LLC income, gain, loss, or deduction; or a shareholderís pro rata share of S corporation income, gain, loss, or deduction.

Noncorporate member means each member that is a resident individual, resident trust, resident estate, nonresident individual, nonresident trust, nonresident estate, part-year resident individual, part-year resident trust, or PE.

Nonresident noncorporate member means each noncorporate member who is a nonresident individual, nonresident trust, nonresident estate, part-year resident individual, or part-year resident trust.

Resident noncorporate member means each noncorporate member who is a resident individual, resident trust, or resident estate.

Corporate member means each member which is a C corporation for federal income tax purposes, LLC that has elected to be taxed as a C corporation for federal income tax purposes, real estate investment trust, real estate mortgage investment conduit, regulated investment company, or organization exempt from federal income tax.

Publicly traded partnership means a partnership as defined in I.R.C ß7704(b), that is treated as a partnership for federal income tax purposes and that has agreed to file Form CT-1065/CT-1120SI, Connecticut Composite Income Tax Return (New 12/04).

Investing partnership means a partnership that elects (under 26 C.F.R. ß1.761-2) not to be treated as a partnership for federal income tax purposes and thus is not subject to Subchapter K of Chapter 1 of the Internal Revenue Code.

Parent pass-through entity (parent PE) is a PE that is a member of another PE.  A parent PE is referred to in Conn. Gen. Stat. ß12-719(b)(3)(C) as a ďlower-tier pass-through entity.Ē A PE may be both a parent PE (with respect to one or more PEs) and a subsidiary PE (with respect to one or more PEs).

Subsidiary pass-through entity (subsidiary PE) is a PE that has at least one member that is itself a PE.  A subsidiary PE is referred to in Conn. Gen. Stat. ß12-719(b)(3)(C) as an ďupper-tier pass-through entity.Ē A PE may be both a subsidiary PE (with respect to one or more PEs) and a parent PE (with respect to one or more PEs).


Effective Date:  May 6, 2004, and applicable to taxable years of PE's beginning on or after January 1, 2004.


Statutory Authority: Conn. Gen. Stat. ßß12-719(b) and (c) and 12-726, as amended by 2004 Conn. Pub. Acts 216, ßß54 and 55.


1. What form is a PE required to file under the new legislation? For taxable years beginning on or after January 1, 2004, a PE is required to file Form CT-1065/CT-1120SI, where it:

  • Is required to file federal Form 1065, U.S. Return of Partnership Income, or federal Form 1120S, U.S. Income Tax Return for an S Corporation; and
  • Has any income, gain, loss, or deduction derived from or connected with sources within Connecticut.

Previously, partnerships filed Form CT-1065, Connecticut Partnership Income Tax Return, and S corporations filed Form CT-1120SI, Connecticut S Corporation Information and Composite Income Tax Return.


2. When is Form CT-1065/CT-1120SI due?  Form CT-1065/CT-1120SI is due on or before the fifteenth day of the fourth month following the close of the PEís taxable year (April 15 for a PE whose taxable year for federal income tax purposes is the calendar year).  If the due date falls on a Saturday, Sunday, or legal holiday, the next business day is the due date.


3. Under what circumstances is a PE required to make a Connecticut composite income tax payment? A PE is required to make a Connecticut composite income tax payment on behalf of a member where:

  • The memberís share of the PEís income derived from or connected with Connecticut sources is $1,000 or more;
  • An election to be included on a group return (Form CT-G, Connecticut Group Income Tax Return), has not been made by the member (see Question 15); and
  • The member is a nonresident noncorporate member or a PE. 

In accordance with the above criteria, a PE may be required to make Connecticut composite income tax payments on behalf of all of its members, some of its members, or none of its members.

Previously, an S corporation was not required to make a composite Connecticut income tax payment on behalf of any nonresident shareholder who consented to file Form CT-1040NR/PY, Connecticut Nonresident or Part-Year Resident Income Tax Return, and to make his or her Connecticut income tax payment with such return. The nonresident shareholder demonstrated this consent by filing Form CT-1NA, Nonresident Income Tax Agreement, with the S corporation.


4. Under what circumstances is a PE not required to make a Connecticut composite income tax payment? A PE is not required to make a Connecticut composite income tax payment on behalf of a member who is a nonresident noncorporate member or a PE where:

  • The memberís share of the PEís income derived from or connected with Connecticut sources is less than $1,000; or
  • An election to be included in a group return (Form CT-G) has been made by the member (see Question 15).

In addition, a PE is not required to make a Connecticut composite income tax payment where the member is a resident noncorporate member or a corporate member.



5.  If a PE makes a Connecticut composite income tax payment on behalf of a member who is a nonresident individual, is the member required to file Form CT-1040NR/PY?  The member is not required to file Form CT-1040NR/PY if the Connecticut composite income tax payment made by the PE on the memberís behalf (and any other Connecticut composite income tax payment made by any other PE on the memberís behalf) satisfies the memberís Connecticut income tax liability. However, if the Connecticut composite income tax payment made on the memberís behalf exceeds the memberís Connecticut income tax liability, such member may file Form CT-1040NR/PY to claim a refund of the overpayment.  The member is required to file Form CT-1040NR/PY if the Connecticut composite income tax payment made by the PE on the memberís behalf (and any other Connecticut composite income tax payment made by any other PE on the memberís behalf) does not satisfy the memberís Connecticut income tax liability, or if the member has Connecticut source income other than from one or more PEs.


 

6.  How are Connecticut composite income tax payments calculated?   The Connecticut composite income tax payment for a member for whom a payment must be made is calculated by multiplying the memberís share of the PEís separately and nonseparately computed income derived from or connected with Connecticut sources by 5% (.05).  The PE must calculate the Connecticut composite income tax payment based only on the memberís share of the PEís income derived from or connected with Connecticut sources (and not on the memberís share of the PEís income or losses derived from or connected with non-Connecticut sources).  The PE may not take into account a memberís income or losses from sources other than the PE. The member, if filing Form CT-1040NR/PY (see Question 5), shall take into account all of his or her income or losses derived from or connected with Connecticut sources, and may claim a refund of any overpayment of Connecticut income tax.

 


7. When is a PE required to make estimated Connecticut composite income tax payments for a member? Beginning with estimated Connecticut composite income tax payments due on or after June 15, 2004, a PE is required to make estimated Connecticut composite income tax payments for a member where:

  • The PE is required to make a Connecticut composite income tax payment on behalf of the member (see Question 3); and
  • The memberís Connecticut income tax liability on the memberís share of the PEís income derived from or connected with Connecticut sources is expected to equal or exceed $1,000. Therefore, estimated Connecticut composite income tax payments will be required if a memberís share of the PEís income derived from or connected with Connecticut sources is expected to equal or exceed $20,000.

In accordance with the above criteria, a PE may be required to make estimated Connecticut composite income tax payments on behalf of all of its members, some of its members, or none of its members.

For each installment, the PE must aggregate the estimated Connecticut composite income tax payments made on behalf of all members for whom estimated composite income tax payments must be made and file one Form CT-1065/CT-1120SI ES, Estimated Connecticut Composite Income Tax Payment.


8. How are estimated Connecticut composite income tax payments calculated?  Estimated Connecticut composite income tax payments for a member for whom an estimated payment must be made are calculated as follows:

  • On or before the fifteenth day of the fourth month of the PEís taxable year (April 15 for a PE whose taxable year for federal income tax purposes is the calendar year), 25% of the memberís required annual payment must be paid (see Question 9);
  • On or before the fifteenth day of the sixth month of the PEís taxable year (June 15 for a PE whose taxable year for federal income tax purposes is the calendar year), 25% of the memberís required annual payment must be paid (A  total of 50% of the memberís required annual payment must be paid on or before this date.);
  • On or before the fifteenth day of the ninth month of the PEís taxable year (September 15 for a PE whose taxable year for federal income tax purposes is the calendar year), 25% of the memberís required annual payment must be paid (A  total of 75% of the memberís required annual payment must be paid on or before this date.); and
  • On or before the fifteenth day of the first month of the PEís next succeeding taxable year (January 15 for a PE whose taxable year for federal income tax purposes is the calendar year), 25% of the memberís required annual payment must be paid (A total of 100% of the memberís required annual payment must be paid on or before this date.).

For a PE whose taxable year for federal income tax purposes is other than the calendar year and whose first payment for the 2004 taxable year is required to be paid on or after June 15, 2004, such payment is required to be made on or before the fifteenth day of the fourth month of the PEís taxable year.


9.  What are the ďsafe harborĒ provisions for a PE making estimated Connecticut composite income tax payments?  Estimated Connecticut composite income tax payments for a member for whom estimated composite income tax payments must be made (see Question 7) are to be made in accordance with Conn. Gen. Stat. ß12-722. The required annual payment for the taxable year beginning on or after January 1, 2004, and prior to January 1, 2005, is 90% of the tax shown for the member on the 2004 Form CT-1065/CT-1120SI.

The required annual payment for taxable years beginning on or after January 1, 2005, is the lesser of:

  • 90% of the tax shown for the member on the current year Form CT-1065/CT-1120SI; or
  • 100% of the tax shown for the member on the prior year Form CT-1065/CT-1120SI.

Each required installment is 25% of the required annual payment.  In the case of any required installment, if the member establishes, in accordance with 26 C.F.R. ß1.6654-2(d)(2), that the annualized income installment is less than 25% of the required annual payment, the amount of the required installment is the annualized income installment, as described in Conn. Gen. Stat. ß12-722(d)(2).

If the required annual payment is not made for a member, interest at 1% (.01) per month or fraction of a month will be added to the tax due until the earlier of the fifteenth day of the fourth month following the close of the PEís taxable year (April 15 for a PE whose taxable year for federal income tax purposes is the calendar year), or the date on which the underpayment is paid.  The interest may be collected by the Department of Revenue Services (DRS) from either the PE or the member.


10. If a PE is required to make estimated Connecticut composite income tax payments but the estimated tax payments, if any, made by the PE fail to meet the ďsafe harborĒ provisions, is there any circumstance in which the PE will not be subject to an addition to tax for failing to make the required estimated tax payments?  (The following answer applies for taxable years beginning on or after January 1, 2004, and before January 1, 2008.)  A PE whose estimated tax payments, if any, fail to meet the ďsafe harborĒ provisions for a taxable year (see Question 9) will not be subject to an addition to tax for the taxable year if, during the taxable year, the PE did not make an actual payment in cash or other property to any member in respect of such memberís share, or otherwise make available to the member such payment so that it may be drawn upon by the member at any time at the memberís election.  However, in such a circumstance, the PE will still be required to make a Connecticut composite income tax payment for the taxable year on behalf of its members upon filing its Form CT-1065/CT-1120SI for the taxable year (or its Form CT-1065/CT-1120SI EXT, if the PE has timely requested an extension of time to file Form CT-1065/CT-1120SI). 


11. If a member made a Connecticut income tax payment (including estimated Connecticut income tax payments) for a taxable year, may the PE net that payment against the Connecticut composite income tax payment (including estimated Connecticut composite income tax payments) required to be made on behalf of the member for that taxable year and pay only the difference to DRS?  (The following answer applies for taxable years beginning on or after January 1, 2004, and before January 1, 2008.).  Yes.  However, if the total of any Connecticut income tax payments (including estimated Connecticut income tax payments) made by the member and any Connecticut composite income tax payments (including estimated Connecticut composite income tax payments) made by the PE on behalf of the member is less than the memberís Connecticut income tax liability, DRS may collect the tax, penalty, and interest from either the PE or the member.  The PE may, at its own risk, rely or act on a statement by a member that Connecticut income tax payments (including estimated Connecticut income tax payments) have been made by the member but is otherwise required to make Connecticut income tax payments (including estimated Connecticut income tax payments) on behalf of the member, notwithstanding any instructions to the contrary by the member.  In completing Schedule CT K-1 for the member, the PE will report on Schedule CT K-1, Part III, Line 1, only the Connecticut composite income tax payments made by the PE on behalf of the member, where the payments are submitted with Form CT-1065/CT-1120SI ES, Form CT-1065/CT-1120SI EXT, and Form CT-1065/CT-1120SI.


12.  Is a PE subject to interest and penalty for late payment of the Connecticut composite income tax?  Yes, subject to the circumstances described in Questions 10 and 11.  If a Connecticut composite income tax payment reported for a member on Form CT-1065/CT-1120SI is not timely paid, interest will be assessed at 1% (.01) per month or fraction of a month until the tax is paid in full.  The penalty for paying all or a portion of the tax late is 10% (.10) of the tax paid late. The late payment penalty may be avoided if the PE:

  • Files Form CT-1065/CT-1120SI EXT, Application for Extension of Time to File Connecticut Composite Income Tax Return, on or before the original due date of the return;
  • Pays at least 90% of the tax shown to be due on the return on or before the original due date; and
  • Pays the balance due with the return on or before the extended due date.

If the PE does not file its return and the Commissioner of Revenue Services files a return on its behalf, the penalty is 10% (.10) of the balance due or $50, whichever is greater.  The interest and penalty may be collected by DRS from either the PE or the member.

If no tax is due, the Commissioner of Revenue Services may impose a $50 penalty for late filing.

 


13.  What information is a PE required to furnish to its members?  A PE must furnish Schedule CT K-1, Memberís Share of Certain Connecticut Items, to each member who is a noncorporate member (whether resident or nonresident) or a PE.  Part I of Schedule CT K-1 will be required to be completed by the PE for each member who is a noncorporate member or a PE.  Part II of Schedule CT K-1 will be required to be completed by the PE for each member who is a nonresident noncorporate member or a PE.  Part III of Schedule CT K-1 will be required to be completed by the PE for each member on whose behalf Connecticut composite income tax payments, including estimated Connecticut composite income tax payments, were made by the PE.  Specifically, Connecticut composite income tax payments made by the PE on behalf of a member, where the payments are submitted with Form CT-1065/CT-1120SI ES, Form CT-1065/CT-1120SI EXT, and Form CT-1065/CT-1120SI, are to be reported on Schedule CT K-1, Part III, Line 1.  On the other hand, Connecticut income tax payments made by the PE on behalf of a member, where the payments are submitted with Form CT-G ES, Form CT-G EXT, or Form CT-G, are not to be reported on Schedule CT K-1, Line III, Part 1.

The PE is required to furnish Schedule CT K-1 to members who are noncorporate members or PEs on or before the fifteenth day of the fourth month following the close of the PEís taxable year (April 15 if the PEís taxable year for federal income tax purposes is the calendar year).  If the PE has requested an extension of time to file Form CT-1065/CT-1120SI by timely filing Form CT-1065/CT-1120SI EXT, the deadline for furnishing Schedule CT K-1 to members is automatically extended to the fifteenth day of the tenth month following the close of the taxable year (October 15 if the PEís taxable year for federal income tax purposes is the calendar year).  The PE is required to maintain a copy of each Schedule CT K-1 that it furnishes, and to provide a copy to DRS, upon request.

The PE is not required to furnish Schedule CT K-1 to members which are corporate members.


14.  Will any overpayment of a memberís income tax be refunded or credited to the PE? No.  Any overpayment of a noncorporate member will be refunded or credited only to the member, and not to the PE.  If the PE is a subsidiary PE because it has a member that is itself a PE (parent PE), any overpayment of the parent PE will be refunded or credited only to noncorporate members of the parent PE, and not to the subsidiary PE or the parent PE.

A nonresident noncorporate member will file Form CT-1040NR/PY (if a nonresident or part-year individual) or Form CT-1041 (if a nonresident trust or estate or a part-year resident trust) to have the overpayment refunded or credited.

If an amended Form CT-1065/CT-1120SI is filed to have an overpayment of Connecticut income tax refunded or credited, the overpayment will be refunded or credited to members.  However, the amended Form CT-1065/1120SI and the amended returns of members (or, if the members did not file original tax returns, the original tax returns of members) must be filed before the Connecticut statute of limitations expires.


15.  Under what circumstances may a PE file a Form CT-G? A PE with two or more qualified electing nonresident members may file Form CT-G on behalf of its qualified electing nonresident members.  (See Question 16)  Previously, Form CT-G could be filed only by a PE with 10 or more qualified electing nonresident members.   


16.   Who is a qualified electing nonresident member for purposes of filing Form CT-G? A qualified electing nonresident member is one who meets all of the following conditions:

  • The member was a nonresident individual for the entire taxable year;
  • The member did not maintain a permanent place of abode in Connecticut at any time during the taxable year;
  • The member (or his or her spouse, if a joint federal income tax return is or will be filed) did not have any income derived from or connected with Connecticut sources other than from one or more PEs;
  • The member waives the right to claim any Connecticut personal exemption under Conn. Gen. Stat. ß12-702 and any Connecticut personal credit under Conn. Gen. Stat. ß12-703;
  • The member does not have a Connecticut alternative minimum tax liability for the taxable year;
  • The member has the same taxable year as the other qualified electing nonresident individuals; and
  • The member elects to be included in Form CT-G, by completing and delivering Form CT-2NA, Connecticut Nonresident Income Tax Agreement/Election to be Included in a Group Return, to the PE prior to the filing of Form CT-G by the PE.

The filing of Form CT-G will be treated in the same manner as the filing of separate returns and will satisfy the filing requirements otherwise separately imposed under Connecticut law on each qualified electing nonresident individual in the group.  Qualified electing nonresident individuals who are included in Form(s) CT-G are not required (and are generally not permitted) to file Form CT-1040NR/PY.  DRS retains the right to require the filing of a Form CT-1040NR/PY by any of the qualified electing nonresident individuals. A nonresident individual may not revoke an election to be included in a group return, or elect to be included in a group return, after the fifteenth day of the fourth month following the close of the entityís taxable year.


17. When is Form CT-G due?  Form CT-G is due on or before the fifteenth day of the fourth month following the close of the taxable year of the qualified electing nonresident individual(April 15 for individuals whose taxable year for federal income tax purposes is the calendar year).  If the due date falls on a Saturday, Sunday, or legal holiday, the next business day is the due date.


18. Are estimated Connecticut group income tax payments required for members included in Form CT-G?  Yes.  Estimated Connecticut  group income tax payments are required for a member included in Form CT-G if the memberís Connecticut income tax liability on the memberís share of the PEís income derived from or connected with Connecticut sources is expected to equal or exceed $1,000.  For each installment, the PE must aggregate the estimated Connecticut group income tax payments made on behalf of nonresident members and file one Form CT-G ES, Estimated Connecticut Group Income Tax Payment.


19. How does the new legislation affect publicly traded partnerships?  A publicly traded partnership is required to report the name, address, social security number, or federal employer identification number to DRS for each unitholder whose distributive share of partnership income derived from or connected with Connecticut sources exceeds $500.  A publicly traded partnership will fulfill this requirement by filing Form CT-1065/CT-1120SI, and completing Parts II, III, IV, V and VI thereof.  In completing those parts, the partnership will only report for those unitholders whose distributive share of the partnershipís income derived from or connected with Connecticut sources exceeds $500.  The partnership will also furnish a Schedule CT K-1 to each such unitholder (see Question 13).  Note:  A publicly traded partnership is not required to make composite income tax payments, including estimated composite income tax payments, on behalf of its unitholders.


20.  How does the new legislation affect an investing partnership?  An investing partnership is not subject to the requirements of the new legislation.  However, an investing partnership that does not make the election (under 26 C.F.R. ß1.761-2) not to be treated as a partnership for federal income tax purposes, and that is treated as a partnership subject to Subchapter K of Chapter 1 of the Internal Revenue Code, is subject to the requirements of the new legislation.


21. How does the new legislation affect a partnership deemed, pursuant to Conn. Gen. Stat. 12-711(f), not to be carrying on a trade or business in Connecticut?  Such a partnership is not subject to the requirements of the new legislation.


22. How does the new legislation affect single member LLCs (SMLLCs)? 

  • SMLLC owned by a corporation.  An SMLLC that, for federal income tax purposes, is disregarded as an entity separate from the corporation which is its owner is treated as a C corporation for purposes of the new legislation.  Therefore, if the SMLLC is a member of a PE, the PE is not required to make Connecticut composite income tax payments for the SMLLC.  Also, if the SMLLC is not a PE, it is not required to make Connecticut composite income tax payments for its owner.
  • SMLLC owned by an individual.  An SMLLC that, for federal income tax purposes, is disregarded as an entity separate from the individual who is its owner is treated as an individual for purposes of the new legislation.  Therefore, if the SMLLC is a member of a PE, the PE is required to make Connecticut composite income tax payments for the SMLLC, if the criteria of Question 3 are met.  Also, if the SMLLC is not a PE, it is not required to make Connecticut composite income tax payments for its owner.
  • SMLLC that elects to be taxed as a C corporation.  An SMLLC that elects, for federal income tax purposes, to be taxed as a C corporation is treated as a C corporation for purposes of the new legislation.  Therefore, if the SMLLC is a member of a PE, the PE is not required to make Connecticut composite income tax payments for the SMLLC.  Also, if the SMLLC is not a PE, it is not required to make Connecticut composite income tax payments for its owner.
  • SMLLC that elects to be taxed as an S corporation. An SMLLC that elects, for federal income tax purposes, to be taxed as an S corporation is treated as a PE. If the SMLLC is a member of a PE, it is then treated as a parent PE.

23. Does the new legislation require a subsidiary PE to make a Connecticut composite income tax payment on behalf of a member that is itself a PE (ďparent PEĒ)?  Yes.  A subsidiary PE is required to make a Connecticut composite income tax payment on behalf of a parent PE where the parent PEís share of the subsidiary PEís income derived from or connected with Connecticut sources is $1,000 or more.  The subsidiary PE is also required to make estimated Connecticut composite income tax payments on behalf of the parent PE where the parent PEís share of the subsidiary PEís income derived from or connected with Connecticut sources is expected to equal or exceed $20,000. 

However, if both of the following conditions are met, a subsidiary PE is not required to make a Connecticut composite income tax payment on behalf of a parent PE:

  • The parent PE provides sufficient evidence to the subsidiary PE that a member of the parent PE is a member on whose behalf a Connecticut composite income tax payment is not otherwise required to be made (see Questions 3 and 4); for example, the member is a corporate member or a resident noncorporate member; and
  • Information about the memberís share of the parent PEís income is provided to the subsidiary PE.

Example 1:  P, a PE, is a member of S, a PE.  Therefore, P is a parent PE with respect to S, and S is a subsidiary PE with respect to P.  Pís share of Sís income derived from or connected with Connecticut sources is $1,000, or more.  Each member of P is a C corporation.  P provides sufficient evidence of this to S.  S is not required to make a Connecticut composite income tax payment on behalf of P.

Example 2:  The facts are the same as in Example 1 except for the following:  Pís share of Sís income derived from or connected with Connecticut sources is expected to equal or exceed $20,000, and the members of P are four individuals, each with a 25% share of Pís income.  Three of the individuals (A, B, and C) are resident individuals, and one (D) is a nonresident individual.  P provides sufficient evidence of this to S.  S is not required to make a Connecticut composite income tax payment on behalf of P to the extent of A, B, or Cís share of Pís income.  S is required to make a Connecticut composite income tax payment on behalf of P, but only to the extent of Dís share of Pís income, and must report such payment made on behalf of P on the Schedule CT K-1 issued by S to P.  P is required to make a Connecticut composite income tax payment on behalf of D, but may take into account any Connecticut composite income tax payment made by S on behalf of P (see Question 24).  P must report the payment made on behalf of D (after taking into account the payment made by S on behalf of D) on the Schedule CT K-1 issued by P to D.  Neither S nor P is required to make estimated Connecticut composite income tax payments unless Dís share of Pís income is expected to equal or exceed $20,000.


24. In making Connecticut composite income tax payments on behalf of its members, may a parent PE take into account Connecticut composite income tax payments made by a subsidiary PE on behalf of the parent PE?   Yes.  A parent PE may take into account Connecticut composite income tax payments made by a subsidiary PE on behalf of the parent PE.

Example 3:  P, a PE, is a member of S, a PE.  Therefore, P is a parent PE with respect to S, and S is a subsidiary PE with respect to P.  Pís share of Sís income derived from or connected with Connecticut sources is $1,000 or more.  S is required to make a Connecticut composite income tax payment on behalf of P, and does so.  P has four members, each of which has a 25% share of Pís income and each of which is a nonresident noncorporate member and each of whose share of Pís income derived from or connected with Connecticut sources is $1,000 or more.  Just as each of Pís members has a 25% share of Pís income derived from or connected with Connecticut sources, which share includes Pís share of Sís income derived from or connected with Connecticut sources, each of Pís members has a 25% share of the Connecticut composite income tax payment made by S on Pís behalf.  In making Connecticut composite income tax payments on behalf of each member, P may take into account the memberís 25% share of the Connecticut composite income tax payment made by S on Pís behalf.


25. In completing Form CT-1065/CT-1120SI, Part I, Schedule B, should a PE include a member who is a nonresident noncorporate member or a PE if the memberís income derived from or connected with Connecticut sources is less than $1,000?  A PE should not include on Form CT-1065/CT-1120SI, Part I, Schedule B, any member who is a nonresident noncorporate member or a PE if:

  • the memberís income derived from or connected with Connecticut sources is less than $1,000 and
  • no Connecticut composite income tax payment (including estimated Connecticut composite income tax payments) was made on the memberís behalf by the PE.  

However, a PE must include on Form CT-1065/CT-1120SI, Part I, Schedule B, any member on whose behalf a Connecticut composite income tax payment (including estimated Connecticut composite income tax payments), was made even if the payments were not required to be made, such as:

  • A member whose share of the PEís income derived from or connected with Connecticut sources is less than $1,000 (including a member whose share of the PEís losses or deductions derived from or connected with Connecticut sources exceeds the memberís share of the PEís gains or income derived from or connected with Connecticut sources).  When completing Part I, Schedule B, a PE should make no entries in Columns B and C for such member, but should make entries in the other columns. For information on the procedure for a nonresident member to obtain a refund of Connecticut composite income tax (including estimated Connecticut composite income tax) paid on their behalf, see Questions 5 and 14.
  • A member who is other than a nonresident noncorporate member or a PE.  When completing Part I, Schedule B, a PE should make no entries in Columns B and C for such member, but should make entries in the other columns.

See the DRS Web site for revised instructions for Form CT-1065/CT-1120SI, Part I, Schedule B.


Effect on Other Documents: Informational Publication 2004(12), Q & A on Connecticut Income Tax Changes Affecting Partnerships and Limited Liability Companies (LLCs) With Nonresident Partners or Members, and Informational Publication 2004(13), Q & A on Connecticut Income Tax Changes Affecting S Corporations With Nonresident Shareholders, are modified and superseded and may not be relied upon on or after the date of issuance of this Informational Publication.


 
Effect of This Document: An Informational Publication addresses frequently asked questions about a current position, policy, or practice, usually in a less technical question and answer format.
 

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Paperless Filing Methods (fast, easy, free, and confidential):

  • For business returns: Use Fast-File to file sales and use taxes, business use tax, room occupancy tax, estimated corporation business tax, business entity tax, or withholding tax returns over the Internet.  Visit the DRS Web site at www.ct.gov/DRS and click on File/Register OnLine.
  • For resident income tax returns: Use WebFile to file personal income tax returns over the Internet. Visit the DRS Web site at www.ct.gov/DRS and click on File/Register OnLine.

DRS E-News Service: Get connected to the latest news from DRS.  Receive notification by e-mail of changes to legislation, policies, and procedures.  DRS E-News is easy to sign up for Ė visit www.ct.gov/DRS and follow the directions.  Subscription services are available for employerís withholding tax, Fast-File information, Alerts, News Ė Press Releases, and Top 100 Delinquency List.


IP 2004(39)

Income Tax

Q & A on Connecticut Income Tax Changes Affecting Pass-through Entities

Issued: 2/9/2005