INDIANA DEPARTMENT OF REVENUE 100 N. SENATE AVE. INDIANAPOLIS, IN 46204-2253 www.in.gov/dor SP 262 (R7/09-08) STATE OF INDIANA Partnership Return Booklet 2008 Form IT-65 This booklet contains: Form IT-65 - Indiana Partnership Return IT-65 - Schedule IN K-1 - Partner's Share of Indiana Adjusted Gross Income Worksheet for Partnership Distributive Share Income, Deductions and Credits Worksheet for Attributing Partnership Income for Unitary Corporate Partners Schedule IT-65COMP - Partners' Composite Adjusted Gross Income Tax Return IT-65 Schedule E Apportionment of Income Pass-through Tax Credits Available to Partners Sales/Use Tax Worksheet Form DB020W-NR - Indiana Withholding Tax for Nonresidents American LegalNet, Inc. www.FormsWorkflow.com 2 American LegalNet, Inc. www.FormsWorkflow.com Indiana Deparment of Revenue 2008 IT-65 -- Indiana Partnership Return Booklet Who Must File and When Utility Receipts Tax Partnerships conducting business within Indiana must file an annual return (Form IT-65) and an information return (IT-65 IN K-1) with the Department, disclosing each partner’s share of distributed and undistributed income. These forms are due on or before the 15th day of the fourth month following the close of the partnership’s tax year. A Utility Receipts Tax (Form URT-1) is imposed at the rate of 1.4 percent of the taxable receipts from the retail sale of utility services. Gross receipts are defined as the value received for the retail sale of utility services. The utility services subject to tax include electric energy, natural gas, water, steam, sewage, and telecommunications. Enclose with Form IT-65 the first four pages of the U.S. Partnership Return of Income, Form 1065 or 1065B and Schedule M-3. Federal Schedules K-1 should not be enclosed, but must be made available for inspection upon request by the Department. If you have more than $1,000 in gross receipts from the sale of utility services, you may be required to file Form URT-1 (Utility Receipts Tax Return), in addition to Form IT-20S. Refer to Commissioner’s Directive #18 at www.in.gov/dor/3617.htm Any partnership doing business in Indiana or deriving gross income from sources within Indiana is required to file a return. The following activities occurring in Indiana constitute doing business or deriving income from Indiana sources: Utility Services Use Tax Effective July 1, 2006, an excise tax known as the utility services use tax is imposed on the retail consumption of utility services in Indiana at the rate of 1.4 percent where the utility receipts tax is not paid by the utility providing the service. 1. The maintenance of an office, a warehouse, a construction site, or another place of business; 2. The maintenance of an inventory of merchandise or material for sale, distribution, or manufacture, or consigned goods; 3. The sale or distribution of merchandise to customers directly from company-owned or -operated vehicles when the title of merchandise is transferred from the seller or distributor to the customer at the time of sale or distribution; 4. The rendering of a service to customers in Indiana; 5. The ownership, rental, or operation of a business or property (real or personal) in Indiana; 6. The acceptance of orders in Indiana with no right of ap- proval or rejection in another state; 7. Interstate transportation; or 8. The maintenance of a public utility. You might be liable for this tax if you purchase utility services from outside Indiana (or anywhere if for resale) and become the end user in Indiana of any part of the purchase. The person who consumes the utility service is liable for the utility services use tax based on the price of the purchase. Unless the seller of the utility service is registered with the Department to collect the utility services use tax on your behalf, you are required to remit this tax on Form USU-103. For more information, refer to Commissioner’s Directive #32 available at www.in.gov/dor/3617.htm General Filing Instructions Liability of the Partnership Partnerships as entities are not subject to income taxes. However, publicly traded partnerships treated as corporations pursuant to IRC Section 7704 are classified for Indiana tax purposes in the same manner as they are classified for federal tax purposes. A limited liability company classified as a corporation for federal tax purposes should file Form IT-20. The term “partnership” includes a syndicate, group, pool, joint venture, limited liability company, limited liability partnership, or other unincorporated organization that is not, within the meaning of Indiana Code (IC) 6-3-1, a corporation, a trust, or an estate. Banks with common trust funds filing U.S. Form 1065 must file partnership Form IT-65 and comply with provisions of Treas. Reg. 1.6032-1 when reporting for Indiana purposes. • Partnerships are considered to be the taxpayer with respect to the payment of amounts required to be withheld at source. See the section “Withholding Tax Liabilities of Partnerships” on page 4 for more information. References to the Internal Revenue Code Public Law (PL) 131-2008, SEC. 12 updates references to the Internal Revenue Code in certain Indiana tax statutes. For tax year 2008, any reference to the Internal Revenue Code and subsequent regulations means the Internal Revenue Code of 1986, as amended and in effect on Jan. 1, 2008. • Partnerships are subject to the use tax. Use tax is due on the storage, use, or consumption of tangible personal property purchased in a transaction in Indiana or elsewhere, unless such transaction is exempt from the sales and use tax by law or the sales tax due and paid on the transaction equals the use tax due. See instructions for the Sales/Use Tax Worksheet on page 27. 3 American LegalNet, Inc. www.FormsWorkflow.com • An apportionment schedule must be included with the return if the partnership is doing business both within and outside Indiana and has any partners not domiciled in Indiana. See instructions for IT-65 Schedule E Apportionment of Income for Indiana on page 18. not apply to residents of reverse credit states (Arizona; California [see note]; Oregon; and Washington, D.C.) who are subject to and pay income taxes at rates of 3.4 percent or higher to their resident state. Note: Indiana state withholding is required whenever a California resident partner is included in an Indiana composite adjusted gross income tax return. • Effective for taxable years beginning after Dec. 31, 2007, any partnership that has nonresident partners must also file a com- posite return for all its nonresident partners, even if a nonresi dent partner has other income from Indiana. A penalty of $500 will be assessed to any partnership that fails to file a composite return that includes all its nonresident partners (PL 211-2007 SEC. 27, 44, 58). Withholding at the appropriate adopting county’s nonresident tax rate is required on each Indiana nonresident partner whose principal place of business or employment on Jan. 1 is located in an Indiana county that has adopted a county income tax. Use Departmental Notice #1 to determine county tax withholding rates. To get this notice, go to www.in.gov/dor/3618.htm To avoid penalty and interest charges for delinquent filing of returns, a partnership should verify its tax status and withholding responsibilities before commencing business in Indiana. To verify a county’s rate, visit the Department Web site or call our main tax line at (317) 233-4016 for assistance. Corporate Partners – Partnerships must withhold on income distributions to all corporate partners that are not registered with the Indiana Secretary of State. This withholding must be an amount reflecting the ultimate Indiana tax liability due by respective partners because of the partnership’s activities. Withholding Tax Liabilities of Partnerships The following instances obligate the partnership to register with the Department and become an Indiana withholding agent on behalf of each of the following: A corporation is subject to and will pay adjusted gross income tax at the rate of 8.5 percent. Withholding on Residents Partnerships making payments of salaries, wages, tips, fees, bonuses, and commissions subject to Indiana state and/or county income taxes and required by the Internal Revenue Code to withhold federal taxes on those types of payments are also required to withhold for Indiana tax purposes. Payment of amounts withheld must be remitted to the Department on the proper WH-1 withholding return by its due date. If a return and/or payment of the proper amount of tax withheld is not paid by the due date, penalty and interest will be added. A partner may be personally subject to criminal prosecution if the failure to pay and/or file a withholding return is due to fraud or tax evasion. Partnerships conducting the business of a financial institution that have nonresident corporate partners that transact the business of a financial institution are responsible to withhold and remit the Indiana Financial Institution Tax (FIT). An FIT of 8.5 percent must be withheld on the respective nonresident corporate partner’s share of partnership income as computed under IC 6-5.5-4 unless there is a written declaration that the partner is not subject to the financial institution tax. In this instance only, corporate adjusted gross income tax needs to be withheld from the nonresident corporate partner’s distributive share of income apportioned to Indiana. Withholding on Nonresidents Caution: The withholding provisions on nonresidents do not apply to partners who are any one of the following entities: Employees – A partnership must withhold Indiana state and/or county income taxes from employees who work in Indiana but are not residents of Indiana. However, withholding on compensation of nonresident team members of certain professional sports organizations is based on duty days performed in Indiana. Refer to Income Tax Information Bulletin #88, available at www.in.gov/dor/3650.htm 1. Indiana-domiciled corporation registered with the Indiana Secretary of State; 2. Non-Indiana domiciliary corporation registered with the Indiana Secretary of State; 3. Nontaxable trust or estate; 4. S corporation; or 5. Wholly exempt nonprofit organization with no unrelated trade or business partnership income. If an employee resides in one of the states that have entered into a reciprocal agreement with Indiana, an exception from withholding applies, but this does not affect county taxation. A partnership must withhold tax from income distributions to an S corporation, a fiduciary, or another partnership passing through Indiana income to a nonresident shareholder, beneficiary, or partner and designate as a “Nominee” the ultimate recipient as if there were no other intermediary entities. The upper tier partnership passing through Indiana income to its partners must withhold tax for nonresident nominees on a final pro rata basis without reapportioning the income at the lower level. Refer to Income Tax Information Bulletin #85 at www.in.gov/dor/3650.htm for more information. For purposes of withholding county income taxes, the term “nonresident” refers to a nonresident of the county where the partnership has locations or is located. Individual Partners – A partnership must withhold state income tax at the rate of 3.4 percent on the apportioned distributive shares of partnership income (on current-year earnings derived from Indiana sources) each time it pays or credits any of its nonresident and part-year resident individual partners. This does 4 American LegalNet, Inc. www.FormsWorkflow.com If you need to establish a withholding account with the Department, you should contact the Tax Administration at (317) 233-4015 or the Tax Form Order Request Line at (317) 615-2581 to obtain Form BT-1, Business Tax Application and withholding registration. Also see www.in.gov/dor/ Withholding Amounts The partnership’s withholding of state and/or county tax from nonresident partners is payable quarterly, if the monthly average is less than $50, on Form WH-1. This form must be filed by the last day of the month following the end of each quarter where a distribution was made (e.g., if a current distribution is made on June 17, 2009, the withholding tax is remitted with Form WH-1 for June, and is due on July 30, 2009). Form WH-3 – An annual Withholding Tax Reconciliation Return, Form WH-3, must be completed by the withholding agent and filed by the end of February following the close of each calendar year. The Indiana taxpayer identification number (TID), the partnership’s name, and the calendar year must be included. This form is used to reconcile the monthly, quarterly, or annual WH-1 returns with the W-2 and WH-18 reports submitted with the WH-3. Although magnetic tape can be used to transmit W-2 information, paper copies of Form WH-18 must be enclosed to the WH-3 when it is submitted. On Form WH-3, the withholding agent enters the total annual amount of state and county income taxes or other taxes withheld from employees and nonresidents receiving income subject to Indiana withholding as listed on federal Form W-2 and Indiana Form WH-18. The amount of county tax withheld during the year is separated according to the amounts withheld for each county. A partnership having one distribution credited to partners during the year or at the close of the partnership’s fiscal year may be permitted to file Form DB020W-NR. This creates a nonresident withholding account if one does not exist and allows the respective state and county withholding tax amounts on nonresidents to be paid at one time when a nonresident withholding account is established. This withholding return, a copy of which is included in this booklet, is due by the 15th day of the third month following the end of the taxable year (e.g., if a single annual distribution for a calendar year is made on Dec. 31, 2008, the withholding tax is due March 15, 2009). Advances or drawings against a partner’s distributive share of income are deemed paid on the last day of the partnership’s tax year. Note: Compliance with the act of withholding will not relieve any non-Indiana domiciled partner from annual filing requirements (except individuals included in a composite return) or the payment of any unpaid tax, penalties, and interest. How to Submit the Withholding Payment Form WH-1 – The periodic payment of amounts withheld from nonresident partners should be included in the remittance with Form WH-1. This form is also used to remit amounts withheld on employees. Withholding agents assigned to an annual, quarterly, or monthly status will be mailed a voucher packet containing the employer’s Withholding Tax Returns to be used for this purpose. Each return needs to be completed and mailed (postmarked) by its due date and should include the total amount withheld for that period. By law, the withholding return must be filed even when no withholding amount is due. If the withholding agent has overpaid the withholding liability for the year, he is entitled to a refund. Enter the amount to be refunded on Form WH-3 and provide an explanation. If the withholding agent has underpaid the payroll or nonresident partner withholding liability for the year, do not submit the payment with Form WH-3; instead, complete Form WH-1U (included with the WH-3 packet) and submit the payment under separate cover. The Indiana taxpayer identification number and the period to which the payment should be applied must also be indicated. (Form DB020W-NR on page 26 is used to make an initial payment of the withholding tax due on once-a-year income distributions to nonresident partners.) Specific instructions for completing Form WH-18 are found on the reverse side of that form. A supply of these forms is available from the Department upon request. The partnership shall be liable for any delinquent penalty and interest in addition to the amount withheld or required to be withheld and paid to the Department. How to Register as a Withholding Agent A partnership with any withholding liability as previously described is required to register as an Indiana withholding agent. The Department assigns an Indiana TID consisting of a 10-digit number exclusive to the taxpayer and a three-digit number for the location being registered. If the partnership pays or credits amounts to its nonresident partners only one time each year, it may be permitted to file a designated nonresident withholding return to pay the withholding tax from income distributions made to the nonresident partners. The initial use of Form DB020W-NR (included in this booklet), filed with WH-18 copies, will result in the creation of a separate withholding account aside from any existing payroll withholding account. The payment due date on this type of account is automatically extended to the 15th day of the third month following the end of the partnership’s taxable year. The partnership has two options in registering as a withholding agent. The first option is to request and to file the Indiana Department of Revenue Business Tax Application, Form BT1, for the partnership. Request Form BT-1 and the Instructions for Withholding Registration by calling the Tax Administration at (317) 233-4015. It takes approximately two to three weeks to process an application that has been mailed to the Department; however, any initial withholding payments can be remitted with the application. The BT-1 can also be completed online at https://secure.in.gov/apps/dor/bt1 If payment is made for any composite tax due on Form IT-65 and is filed past the due date of the withholding return, the partnership will owe penalty and interest. Penalty charges can be avoided by timely paying withholding tax liabilities. 5 American LegalNet, Inc. www.FormsWorkflow.com The second option is to visit either the downtown Indianapolis office of the Department or one of the district offices located throughout the state to be registered the same day. Corporate partners doing business within and outside Indiana must also determine their taxable adjusted gross income from Indiana sources through the use of the allocation and apportionment provisions contained in IC 6-3-2-2(b)-(h). These generally follow the Uniform Division of Income for Tax Purposes Act so that a multistate corporation must first determine what part of its adjusted gross income, which includes all partnership income, constitutes business income and what part is non-business income. The relationship between the business of the corporate partner and the partnership controls the classification. Nonunitary partnership income distributions attributed at the partnership level to Indiana are treated as allocated income on the corporate partners’ Indiana returns. Partner’s Liability and Filing Requirements A partner’s share of profit or loss from a partnership is included in the partner’s calculation of federal adjusted gross income and is generally subject to the same rules for arriving at Indiana adjusted gross income. Therefore, a partner’s distributive share, before any modifications required by Indiana statutes, is the same ratio and amount as determined under IRC Section 704 and its prescribed regulations. The partners include their share of all partnership income, whether distributed or undistributed, on their separate or individual Indiana income or franchise tax returns. Each partner’s distributive share of income is adjusted by modifications provided for in IC 6-3-1-3.5(a) or (b). If the corporate partner’s activities and the partnership’s activities constitute a unitary business under established standards, disregarding ownership requirements, the business income of the unitary business attributable to Indiana is determined by a threefactor apportionment formula. The formula consists of property, payroll, and sales of the corporate partner and its actual share of the partnership’s factors for any partnership year ending within or with the corporate partner’s taxable year. Individual Partners Residents – A resident partner reports the entire distributive share of partnership income (loss) as adjusted, no matter where the partnership’s business is located or in which states it does business. Form IT-40, Indiana Individual Income Tax Return, is completed by the individual partners. The partner’s proportionate share of all of the partnership’s (unapportioned) state income and other adjustments required under IC 6-3-1-3.5 is to be added back in determining adjusted gross income. Nonresidents – Part- and full-year nonresident partners report their share of partnership income (loss), as adjusted, derived from or attributed to sources within Indiana as determined by the use of the apportionment formula described in IC 6-3-2-2(b). Whenever a partnership has a nonresident partner and conducts business within and outside Indiana, the partnership must include the apportionment worksheet with Form IT-65. Form IT-40PNR, Indiana Part-Year or Full-Year Nonresident Individual Income Tax Return, is completed by the partner. Credit must be claimed on that return for amounts withheld by the partnership from the partner’s distributive share of income. Form WH-18, copy C, must be enclosed with the return to verify any such withholding credit amount. If the corporate partner’s activities and the partnership’s activities do not constitute a unitary business under established standards, the corporate partner’s share of the partnership income attributable to Indiana is determined as follows: 1. If the partnership derives income from sources within and outside Indiana, the income derived from sources within Indiana is determined by a three-factor apportionment formula consisting of property, payroll, and sales of the partnership; or 2. If the partnership derives income from sources entirely within Indiana, or entirely outside Indiana, such income is not subject to formula apportionment. See 45 IAC 3.1-1-153 for reporting requirements. Nonresident partners are exempt from the filing requirements of an Indiana Individual Income Tax Return only if they are properly included as members of a composite return. For non-unitary partners, taxable partnership distributions included in federal taxable income are deducted on the nonbusiness and non-unitary income adjustment line of the corporation’s return. Non-unitary partnership income attributed to Indiana, including apportioned pro rata modifications, is entered on the adjustment line used to report Indiana allocated nonbusiness income and Indiana non-unitary partnership income. Apportioned business income, including unitary partnership income and non-unitary partnership income attributed to Indiana, plus the corporate partner’s other non-business income allocated to Indiana (plus modifications required by IC 6-3-1-3.5(b) for adjusted gross income) equals the corporate taxpayer’s taxable income for Indiana. Corporate partners subject to the Indiana financial institution franchise tax will include the corporation’s percentage of partnership adjusted gross or apportioned income, as computed under IC 6-5.5-4, on Form FIT-20. A part-year nonresident partner must file Form IT-40PNR, reporting the total amount of income (loss) received while residing in Indiana and that part of Indiana source income received while a nonresident. Apportioned Indiana income (loss), as modified, received by a nonresident of Indiana is also reported on Form IT-40PNR. Note: Passive losses may not exceed the limits imposed by IRC Section 469. Losses also may not exceed the partner’s investment. See IRC Section 704. Corporate Partners Corporate partners report their distributive share of the partnership income (loss) on Form FIT-20, IT-20, IT-20S, IT20NP, or IT-41. All distributions are fully taxable for adjusted gross income tax purposes. Taxable partnership income (loss) includes pro rata Indiana modifications; however, losses may not exceed the limits imposed by IRC Section 704. Use the worksheet on page 15 for Attributing Unitary Partnership Income for Unitary Corporate Partners for computing the 6 American LegalNet, Inc. www.FormsWorkflow.com portion of partnership income subject to tax under the Adjusted Gross Income Tax Act. apportioned to Indiana. As a general rule, if Taxpayer B is required to pay tax to another state on a portion of the income from ABC Company, a credit cannot be taken on the Indiana return but must be claimed from the state of residence. Indiana adjusted partnership income for Taxpayer B is computed as follows: Basis of Partner’s Interest in Partnership For Indiana income tax purposes, the basis of the partnership interest is generally the same as its basis for federal income tax purposes. Adjustments to income and loss under the Indiana Adjusted Gross Income Tax Act (for the add back of income taxes and the deduction from income for U.S. government obligations) are limited to current reporting but may also affect the basis of the partner’s interest. Guaranteed payment Distributive share (50% x 65,000) Total partnership share of income Multiply by apportionment percentage Apportioned Indiana distributive share of income Indiana Partnership Income for Individuals $10,000 +32,500 $42,500 x 35.98% $15,292 Examples: Taxpayer A, a resident of Indiana, and Taxpayer B, a nonresident of Indiana, each has a 50 percent interest in ABC Company, an Indiana partnership doing business both within Indiana and outside Indiana. Accounting Periods and Methods ABC Company has income from operations of $530,000 and expenses of $500,000. Of these expenses, $35,000 is an expense for state income tax. Taxpayers A and B each received a guaranteed payment of $10,000. Extended Due Date The accounting period for Form IT-65 and the method of accounting adopted must be the same as used for federal income tax purposes. The initial due date for filing is the 15th day of the fourth month following the close of the partnership’s tax year. The Department accepts the federal extension of time application (Form 7004) or the federal electronic extension. If you have one, you do not need to contact the Department prior to filing the annual return. Returns postmarked within 30 days after the last date indicated on the federal extension form are considered timely filed. Computations for ABC Company for a Taxable Period: ABC Company computes its adjusted partnership income as follows: Income from operations Expenses Add back modification Partnership income $530,000 (500,000) +35,000 $65,000 Do not file a separate copy of this form with the Department to request an Indiana extension. If applicable, enclose a copy of the federal extension of time with the return when filing your state return. Check box Q1 on front of the IT-65 return. Using the three-factor apportionment formula under IC 6-3-22(b), ABC Company determines its apportionment percentage as follows: Property factor Payroll factor Sales factor (weighted) If a federal extension is not needed, a partnership may request a separate Indiana extension of time to file by writing the Indiana Department of Revenue, Tax Administration, 100 N. Senate Ave., Indianapolis, IN 46204-2253. 80.00% 40.00% +120.00% 240.00% Any payment made after the original due date must include penalty and interest. Caution: The filing due date for the partnership return is different from the payment due date of income tax withholding and composite adjusted gross income tax on nonresident partners. Divide by factor values present: 6.67 Indiana apportionment percentage 35.98% Computations for Taxpayers A and B: Taxpayer A, as a resident of Indiana, must report its own entire share of partnership income to Indiana regardless of whether the partnership apportions its income. As a general rule, if tax is paid to another state (on a portion of partnership income) by Taxpayer A, a credit may be taken on the individual return. Indiana adjusted partnership income for Taxpayer A is computed as follows: Guaranteed payment Distributive share (50% x $65,000) Indiana adjusted distributive share of income Amended Returns If the partnership files an amended federal return and the change(s) affects the Indiana income or the taxable income reportable by the partners, both the partnership and the partners must file amended Indiana returns within 120 days after the filing of the amended federal return. Adjustments made by the Internal Revenue Service affecting the reportable Indiana income must be followed with an amended partnership return within 120 days after the adjustment becomes final. Check box A1 at the top of Form IT-65 if you are filing an amended return. $10,000 +32,500 $42,500 Taxpayer B, as a nonresident of Indiana, reports only its own share of partnership income and guaranteed payment 7 American LegalNet, Inc. www.FormsWorkflow.com Instructions for Completing Form IT-65 Aggregate Partnership Distributive Share Income Filing Period and Identification Line 1. Enter the amount from the U.S. Partnership return Schedule K: net ordinary business income, net income from real estate activities from Form 8825, other rental income activities, portfolio income and deductions, royalties, capital gains and losses, guaranteed payments, and other income. File a 2008 partnership return for a tax year ending on Dec. 31, 2008; a short tax year beginning and ending in 2008; or a fiscal year beginning in 2008 and ending in 2009. For a fiscal or short tax year, fill in both the beginning month, day, and year and the ending month, day, and year at the top of the form. The Section 179 deduction and that portion of investment expenses included in federal Schedule K, part of line 13 and line 20 relating to investment portfolio (royalty) income, and flowing to federal Schedule E, may be tentatively deducted. Do not deduct other expenses treated as federal itemized deductions. Identification Section Check box A1 at the top of the form if you are filing an amended return. For a name change, check box B1 at the top of the return. You must enclose with the return copies of amended articles filed with the Indiana Secretary of State. Use Worksheet for Partnership Distributive Share Income, Deductions, and Credits to assist in the calculation of this figure. You must use the income worksheet if this partnership received any distributive income from an owned partnership interest, estate, or trust. See instructions on page 10 and worksheet on page 15. The federal identification number shown in the box at the upperright corner of the return must be accurate and the same as used on the U.S. Return of Partnership Income. Please use the correct legal name of the partnership and its current mailing address. List the name of the county in Indiana where you have a primary business location. Enter “O.O.S.” in the county box D for an address outside Indiana. If filing federal Form 1065B by an electing large partnership, use amounts from line 1 through 8 of Schedule K. Convert distributive share of income items into a Form 1065 Schedule K format. Carry figures to IT-65 and IT-65 IN K-1. Enter your principal business activity code, derived from the North American Industry Classification System (NAICS), in the designated block of the return. Use the six-digit activity code as reported on the federal tax return. A link to a list of these codes is available on the Department’s Web site: www.in.gov/dor/3742.htm Required Indiana State Modifications Lines 2(a) through 2(e) Questions K through S and Other Fill-in Lines Line 2(a). Add back all state taxes based on or measured by income, levied by any state, deducted on the federal return. All corporations filing an Indiana corporation income tax return must complete the top portion of the form including questions K through S. Check or complete all boxes that apply to your return. K. Indicate the date and place the partnership was organized. L. Indicate the state of the commercial domicile of the partnership. M. Indicate the year the initial Indiana return was filed. N. Indicate the accounting method used. O. Check box O-1 if you are filing an initial return. Check box O-2 only if the partnership is dissolved, is liquidated, or has withdrawn from the state. Also, you must timely file Form BC-100 to close out any sales and withholding accounts. Go to www.in.gov/dor/3508.htm to complete this form online. Check box O-3 if the partnership is in bankruptcy. Check box O-4 if you are filing as a composite return for nonresident partners. P. Enter the number of partners in the partnership in entry box P-1. Enter in entry box P-2 the number of all partners who are nonresidents of Indiana. Q. Check box 1 if you have a valid extension of time or an electronic federal extension of time to file your return. If applicable, enclose a copy of federal Form 7004 when filing your state return. S. Check box 1 if this partnership is a member of any other partnership. Line 2(b). Add or subtract an amount attributable to bonus depreciation in excess of any regular depreciation that would be allowed had not an election under IRC Section 168(k) been made as applied to property in the year that it was placed into service. Taxpayers that own property for which additional first-year special depreciation for qualified property, including 50 percent bonus depreciation, was allowed in the current taxable year or in an earlier taxable year must add or subtract an amount necessary to make their adjusted gross income equal to the amount computed without applying any bonus depreciation. The subsequent depreciation allowance is to be calculated on the state’s steppedup basis until the property is disposed. Enclose a statement to explain your adjustment. Example: If the IRC Section 179 deduction was elected on business equipment acquired during 2005 costing $200,000, the capital expensing deduction was $100,000 with a remaining basis of $100,000. An additional 50 percent bonus depreciation of $50,000 was elected, leaving a basis of $50,000 for a 5-year Modified Accelerated Cost Recovery System (MACRS) property (half-year convention) depreciation deduction of 20 percent ($10,000). The total amount of federal deduction was $160,000. 8 American LegalNet, Inc. www.FormsWorkflow.com For state purposes, the bonus depreciation of $50,000 was not allowed and must be added back on line 2b. The IRC Section 179 deduction was capped at $25,000, so the $75,000 excess amount must be added back on line 2c. These adjustments result in a stepped-up basis of $175,000 for the state return on which to figure the allowable first-year MACRS property depreciation deduction of 20 percent ($35,000) for 2005. This was a total state deduction of $25,000 more than already deducted under the General Depreciation System (GDS). The additional depreciation may be excluded in subsequent years from the amounts to be added back on line 2(b), or 2(c) when excess IRC Section 179 deduction or bonus depreciation was elected. Line 2(f). Deduct Indiana lottery prize money - A portion of prize money received from the purchase of a winning Indiana lottery game or ticket included in federal taxable income should be excluded. The proceeds of up to $1,200 are deductible from each winning lottery game or ticket paid through the Hoosier State Lottery Commission. Explain the deduction on an enclosed statement. Commissioner’s Directive #19 (www.in.gov/dor/3617.htm) explains this initial required modification on the allowance of depreciation for state tax purposes. Line 3. Add lines 1 and 2g. Line 2(c). Enter your share of the IRC Section 179 adjustment claimed for federal tax purposes that exceeds the amount recognized for state tax purposes. Partnerships deriving income from sources within and outside Indiana and having non-Indiana domiciled partners or nonunitary corporate partners must complete line 4. Indiana adopted the former expensing limit provided by the Jobs Creation and Workers Assistance Act of 2002 and has since specified an expensing cap of $25,000. This modification affects the basis of the property if a higher Section 179 limit was applied. The increase to a $100,000 deduction and a beginning $400,000 phase-out limitation was not allowed for purposes of calculating Indiana adjusted gross income. The depreciation allowances in the year of purchase and in later years must be adjusted to reflect the additional first-year depreciation deduction, including the special depreciation allowance for 50 percent bonus depreciation property, until the property is sold. Line 4. Under the Adjusted Gross Income Tax Act, taxable income from a trade or business conducted within and outside Indiana is computed using a three-factor formula consisting of property, payroll, and weighted sales factor. Generally, apportioned income is determined by averaging a percentage of the three factors. The resulting apportionment percentage determines the Indiana net income of the nonresident individual partners, non-unitary corporations, and other member partnerships that pass through as a result of the partnership’s activities everywhere. Line 2(g). Enter total Indiana modifications (add the resulting amounts from lines 2a through 2c; subtract lines 2e and 2f). Note: Entries made on federal Form 8825 should also be considered when completing entries on line 2. Apportionment of Income See IT-65 Schedule E instructions beginning on page 18. Add or subtract the amount necessary to make the adjusted gross income of the taxpayer that placed any IRC Section 179 property in service in the current taxable year or in an earlier taxable year equal to the amount of adjusted gross income that would have been computed had an election not been made for the year in which the property was placed in service to take deductions (as defined in IRC Section 179) in a total amount exceeding $25,000. Enter on line 4 the Indiana apportionment percentage if the partnership has any multistate business activities. If apportioning income, enter the Indiana percentage (rounded to two decimal places) from line 4(c) of IT-65 Schedule E, Apportionment of Income for Indiana. Do not enter one hundred (100) percent. Before continuing to lines 5 through 16, complete IT-65 Schedule IN K-1 for each partner. Note: If the net amount determined for line 2(b) or 2(c) is a negative figure (because of a higher depreciation basis in subsequent years), enter the amount in . If the taxable income is a loss, this adjustment when added back increases a loss. IT-65 Schedule IN K-1 Partner’s Share of Indiana Adjusted Gross Income, Deductions, Modifications, and Credits Enclose a statement to explain your adjustment. Enclose a copy of each partner’s IN K-1 to Form IT-65 and provide a completed copy of Schedule IN K-1 to each partner. Line 2(e). Deduct interest income, less related expenses, from certain obligations of the United States government included as income on the federal return. Note: Contact the Department for alternative filing options for IT-65 Schedule IN K-1 at (317) 233-4015. For information on the acceptable electronic data file format, visit the Department’s Web site at www.in.gov/dor/3772.htm Request Income Tax Information Bulletin #19 at www.in.gov/dor/3650.htm for a listing of eligible items. 9 American LegalNet, Inc. www.FormsWorkflow.com Part 1 – Partner’s Identification Section Complete a separate IT-65 IN K-1 to identify each partner: (a) Enter the name and Social Security number of the partner, if an individual. (b) Enter another entity name and federal identification num- ber if the partner is another entity. (c) Enter the partner’s state of residence or commercial domicile. (d) Enter the amount of tax withheld on income distributions derived from Indiana sources for any nonresident part- ner for the taxable year. A WH-18, Indiana Misce laneous Withholding Tax Statement for Nonresidents, must be prepared for the nonresident partner. Do not include any penalty or interest paid on delinquent with holding tax. If no withholding tax was paid or if addition al withholding tax is due, see the instructions for filing Form DB020W-NR. Credit for any amount withheld is to be claimed on the partner’s Indiana individual composite or the corporation’s income tax return. (e) Enter the applicable pro rata percentage of the partner’s interest in the partnership. The percentage should be adjusted to an annual rate if necessary. Modify each required Schedule IN K-1 line by recalculating the pro rata share of total partnership income (with required Indiana modifications to adjusted gross income) reported on line 1 of Form IT-65. Use the pro rata amount from line 14A on the Worksheet for Partnership Distributive Share Income, Deductions, and Credits by applying these steps: Step 1. Deduct from the above pro rata share the respective pro rata amount of line 14B and line 15B of the worksheet. Step 2. Multiply the result by the Indiana apportionment percent reported on line 4 of Form IT-65 (from Schedule E, line 4c, if present). This amount should reflect the partner’s proportionate share of this partnership’s activity in Indiana. Part 2 – Distributive Share Amount Step 3. Add to the above amount the pro rata share of any other (entity) source income received by this partnership that was previously apportioned or allocated as distributive share income derived from Indiana (line 16C of the worksheet). The result is the modified Indiana partnership income from Indiana sources to be reported on the appropriate lines of Schedule IN K-1 of nonresident individuals, corporations, and partnerships for adjusted gross income purposes. Line 1 through Line 13b. For full-year Indiana resident partners, complete these lines as shown on the federal Schedule K-1, Form 1065 or Form 8865. Also use Worksheet for Attributing Partnership Income to Unitary Corporate Partners to compile additional information for reporting distributive share income. Certain corporate partners require these additional income figures from the partnership to properly report their own distributive share income and to compute their Indiana state income tax liability as a result of the partnership’s activity in Indiana. Complete lines 1 through 16 for the partner. Also provide the partner the IN K-1 showing the partner’s share of income, credits, and modifications. If filing federal Form 1065-B, convert taxable income distributions to federal Form 1065 Schedule K-1 format. For most corporate partners and all nonresident individual partners, the federal Schedule K-1 amounts should be multiplied by the apportionment percentage calculated on the IT-65 Schedule E. See the instructions beginning on page 18. The apportioned figures should be entered on lines 1 through 15. Investment interest expenses attributed to royalty income and all other federal deductions (excluding those treated as itemized deductions) should be included on lines 13a or 13b. No other type of investment interest expense, itemized deduction, or carryover loss should be reported on this line. Schedule IN K-1 continued Line 15. Enter the Indiana modifications from the front of Form IT-65, lines 2a-2f, as percentage applied, or apportioned in the case of nonresident individuals and non-unitary partners. List the pro rata share amount for each modification. For corporate partners that are unitary partners, enter only their pro rata share of modifications (unapportioned). Part 3 – Pro Rata Share of Indiana Pass-through Note: If the partnership has received any distributions from other entities having income previously apportioned to Indiana, use the following methodology to report distributive share income for IT-65 IN K-1. Tax Credits from Partnership Line 16. If the partnership has available any eligible Indiana credits flowing through to the partners, enter the name of the credit, the three-digit code number, and the pro rata amount of credits allotted to each partner. You must also enclose a completed credit schedule with Form IT-65 to support this credit distribution. Alternative Completion of IT-65 Schedule IN K-1 Information for Part 2 An alternative application of IT-65 Schedule IN K-1 must be used for members who are nonresident individuals, corporate partners, or other partnerships if the partnership had income from outside Indiana. Use the following method for completion of Schedule IN K-1 when the partnership had any apportioned income from outside Indiana or is otherwise required to complete the Indiana apportionment schedule. See the descriptive list of pass-through tax credits that may be available to a pass-through entity on page 20. Each credit is assigned a three-digit code number for identification purposes to be used when reporting and claiming these credits. For further information, go to www.in.gov/dor/3650.htm and request Income Tax Information Bulletin #59. 10 American LegalNet, Inc. www.FormsWorkflow.com  2. Interest on use tax is calculated on the amount of use tax on line 10 that is paid after the original due date of the IT-65 return. Summary of Calculations for IT-65 Sales/Use Tax Worksheet IC 6-2.5-3-2 imposes a use tax at the rate of 6 percent on purchases made from Jan. 1, 2008 to March 31, 2008 and 7 percent on purchases made from April 1, 2008 to Dec. 31, 2008 upon the use, storage, or consumption of tangible personal property in Indiana that was purchased or rented in a retail transaction, wherever located, and sales tax was not paid. Examples of taxable items include magazine subscriptions, office supplies, electronic components, and rental equipment. Also, any property purchased free of tax by use of an exemption certificate or from out of state and converted to a nonexempt use by the business is subject to the use tax. Complete the Sales/Use Tax Worksheet on page 27 to compute any sales/use tax liability. For more information regarding use tax, call (317) 233-4015. Contact the Department for the current rate of interest charged by calling (317) 233-4015 or visiting our Web site at www.in.gov/dor/3618.htm and getting Departmental Notice #3. Line 12. Enter the total penalty due. The penalty for late payment is 10 percent of the amount (but not less than $5) of any composite tax due on line 10 paid after the 15th day of the third month following the end of the partnership’s taxable year. (See the caution note on line 11.) The penalty, which equals the greater of 10 percent of the amount of use tax on line 10 or $5, is still due on use tax paid after the original due date of the return. Note: If you are a registered retail sales or out-of-state use tax agent for Indiana, you must report your nonexempt purchases used in your Indiana business on Form ST-103, Indiana annual, quarterly or monthly Sales and Use Tax Voucher. Interest is added if the use tax was not timely paid by the original due date of the return. A 10 percent penalty or $5, whichever is greater, is charged on each unpaid use tax liability. Caution: Do not report your totals from Form ST-103 on this worksheet or on Form IT-65. If a return showing no liability on line 7 is filed late, the penalty for failure to file by the due date is $10 per day the return is past due, up to a maximum of $250. In addition, a separate $10 penalty is assessed on each Schedule IN K-1 information return that is filed late. Line 13. A penalty of $500 is assessed to any partnership that fails to file a composite return for all its nonresident partners* (PL 211-2007 SEC. 27, 44, 58). If you fail to include all your nonresident partners on your composite return, please remit that penalty here. Line 5. Enter the use tax due from the completed Sales/Use Tax worksheet. Line 6. Enter the total tax liability of the nonresident members, columns D plus E. Enclose composite Schedule IT-65COMP. Line 7. Total tax: Add tax shown on lines 5 and 6. Line 8. Enter the total credits for all nonresident members as computed on Schedule IT-65 COMP, column F plus other credits, column G (enclose copy C of Form WH-18 for each composite member). Do not take any credit for individual or separate estimated tax payments made by the partners. *Exception: Certain partners will not be included in the composite filing. See the exceptions listed under “Filing Requirements for 2008 Composite Return” on page 18. Keep track of the names of the partners not included on the composite return and who do not meet the above exception because the Department may request this information at a later date. Line 14. Amount due: If line 10 is greater than zero, add lines 10 through 13 and enclose a separate remittance for the total amount owed for each Form IT-65 filed. Please pay in U.S. funds. If paying by check, make check payable to Indiana Department of Revenue. Line 9. Enter any other payments and credits belonging to the partnership. This line may include an Economic Development for a Growing Economy (EDGE) job retention credit or media production credit that was not otherwise passed through to the partners. For EDGE credit information, see the section on Pass-through Tax Credits. For information on the media production credit, get Commissioner’s Directive #36 (www.in.gov/dor/3617.htm). A detailed explanation must be enclosed for any credits claimed on this line. Line 15. Overpayment: If the total of lines 8 and 9 exceeds line 7, subtract the total of lines 11 through 13 from line 10. If the result is less than zero, this is your net overpayment. Note: If penalties and interest are due because of a delinquent filing or payment, the overpayment must be reduced by these charges. If the result is a balance due, enter the difference on line 14. Line 10. Subtotal: Subtract lines 8 and 9 from line 7. If a balance due remains, proceed to lines 11, 12, and 13. Line 11. Enter total interest due. Line 16. Enter the same amount from line 15 to be refunded directly to you. An overpayment credit may not be carried over to the following year. Caution: Two separate calculations of interest and penalty may be required: 1. Interest is computed on the net amount of the composite tax on line 10 paid after the 15th day of the third month following the end of the partnership’s taxable year. Interest is calculated from the day following the due date for pay- ment of the composite tax to the actual date the balance is paid with the IT-65 return. 11 American LegalNet, Inc. www.FormsWorkflow.com Certification of Signatures and Authorization Section Mailing Options Please mail completed returns with a filled-in 2-D barcode to: Indiana Department of Revenue P.O. Box 7231 Indianapolis, IN 46207-7231 Be sure to sign, date, and print your name on the return. If a paid preparer completes your return, you can authorize the Department to discuss your return with the preparer by checking the authorization box above the signature line. All other prepared returns must be mailed to: Indiana Department of Revenue 100 N. Senate Ave. Indianapolis, IN 46204-2253 An officer of the corporation must show his title and sign and date the tax return. Please enter your daytime telephone number so we can call you if we have any questions about your tax return. Also, enter your e-mail address if you would like us to contact you by e-mail. Personal Representative Information Typically, the Department contacts you if we have any questions or concerns about your tax return. If you want the Department to be able to discuss your tax return with someone else (e.g., the person who prepared it or a designated person), you must complete this area. First, check the “Yes” box that follows the sentence “I authorize the Department to discuss my tax return with my personal representative.” Next, enter: • The name of the individual whom you are designating as your personal representative; • The individual’s telephone number; and • The individual’s complete address. If you complete this area, you are authorizing the Department to be in contact with your personal representative other than you concerning information about this tax return. After your return is filed, the Department will communicate primarily with your designated personal representative. Note: You can decide at any time to revoke the authorization for the Department to be in contact with your personal representative. If you do, you must tell us that in a signed statement. Include your name, your Social Security number, and the year of your tax return. Mail your statement to: Indiana Department of Revenue, P.O. Box 40, Indianapolis, IN 46206-0040. Paid Preparer Information Fill out this area if a paid preparer completed this tax return. Note: This area needs to be completed even if the paid preparer is the same individual designated as your personal representative. The paid preparer must provide: • The name and address of the firm that he/she represents; • His/her identification number (check one box for federal ID number, PTIN, or Social Security number); • His/her telephone number; • His/her complete address; and • His/her signature with date. Make sure you keep a copy of your completed return. 12 American LegalNet, Inc. www.FormsWorkflow.com Indiana Department of Revenue Form IT-65 Indiana Partnership Return State Form 11800 (R7/8-08) for Calendar Year Ending December 31, 2008 or Other Tax Year Beginning AA ________/_______/ 2008 and Ending BB ________/________/ ________ Check box if name changed. B1 Check box if amended. A1 Federal Identification Number Name of Partnership A B Number and Street Indiana County or O.O.S. Principal Business Activity Code H C D Telephone Number City State ZIP Code ) E I ( G F K. Date of organization 1 O. Check all boxes that apply to entity: 1 Initial Return 2 Final Return 3 In Bankruptcy 4 Composite Return In the State of 2 P. Enter total number of partners: 1 Enter number of nonresident partners: 2 Q. Do you have on file a valid extension of time to file your return L. State of commercial domicile (federal Form 7004 or an electronic extension of time)? 1 Y 2 N M. Year of initial Indiana return R. Are you a limited liability company electing partnership treatment on your federal return? 1 Y 2 N N. Accounting method: S. Is this partnership a member of any other partnership(s)? 1 Y 2 N 2 Accrual 3 Other 1 Cash Aggregate Partnership Distributive Share Income (See worksheet) 1. Total net income (loss) from U.S. Partnership return, Form 1065 Schedule K, lines 1 through 11 less line 12, and a portion of line 13 related to investment income (see instructions)....................................................................................... 1 2. Add backs: a) All state income taxes deducted on the federal return............................................................................................................ 2a b) Net bonus depreciation allowance........................................................................................................................................... 2b c) Excess IRC Section 179 deduction.......................................................................................................................................... 2c d) Do not use; for department use only. e) Interest on U.S. government obligations.................................................................................................................................. 2e Deduct: f) Indiana lottery prize money....................................................................................................................................................... 2g. Total state modifications to distributive share of partnership income (lines 2a through 2c minus lines 2e and 2f). ......................................... . 3. Total partnership income, as adjusted (add lines 1 and 2g) .............................................................................................................................. 4. Enter average percentage for Indiana apportioned adjusted gross income from IT-65 Schedule E line (4c), if applicable............................. 2f 2g 3 4 . Summary of Calculations 5. Sales/use tax due on purchases subject to use tax from Sales/Use Tax worksheet (from page 27)............................................................... 5 6. Total composite tax from completed Schedule IT-65COMP (D+E). Attach schedule....................................................................................... 6 7. 8. Total tax (add lines 5 and 6). Caution: If line 7 is zero, see line 12 late file penalty.......................................................................................... 7 Total composite tax return credits (attach schedule and WH-18 statement(s) for composite members) ......................................................... 8 9. % Other payments/credits belonging to the partnership (attach documentation) . ............................................................................................... 9 10. Subtotal (line 7 minus lines 8 and 9). If total is greater than zero, proceed to lines 11, 12, and 13................................................................... 10 11. Interest: Enter total interest due; see instructions. (Contact the Department for current interest rate)........................................................... 11 12. Penalty: If paying late, enter 10% of line 10. If line 7 is zero, enter $10 per day filed past the due date; see instructions.............................. 12 13. Penalty: If failing to include all nonresident partners on composite return, enter $500; see instructions........................................................ 13 14. Total Amount Due (add lines 10 through 13). If less than zero, enter on line 15. Make payment in U.S. funds.............................................. 14  15. Overpayment (line 8 plus line 9, minus lines 7, 11, 12, and 13)........................................................................................................................ 15 16. Refund: Amount from line 15. No carry forward allowed. Enter as a positive figure........................................................................................ 16 Do no write in line 20. Reserved for Department's use only.............................................................................................................................. 20 Certification of Signatures and Authorization Section Under penalties of perjury, I declare I have examined this return, including all accompanying schedules and statements, and to the best of my knowledge and belief it is true, correct, and complete. Partnership's E-mail Address EE I authorize the Department to discuss my return with my personal representative (see page 12) CC1 Y 2 N  Signature of Partner Date LL MM Print or Type Name of Partner FF Paid Preparer: Firm’s Name (or yours if self-employed.) OO Check One: 1 Title Federal I.D. Number PTIN OR 3 Social Security Number NN QQ Personal Representative’s Name (Print or Type) Telephone number PP Address GG Telephone number RR City HH Address SS City TT II State  StateUU 2 ZIP Code + 4VV ZIP Code + 4 JJ Paid Preparer's Signature Date  Please mail forms to: Indiana Department of Revenue, 100 N. Senate Ave., Indianapolis, IN 46204-2253 *122081101* VN 122081101 American LegalNet, Inc. www.FormsWorkflow.com IT-65 2008 Schedule IN K-1 State Form 49181 (R7/8-08) Indiana Department of Revenue Partners's Share of Indiana Adjusted Gross Income, Deductions, Modifications and Credits Tax Year Beginning AA _____________/________/ 2008 and Ending BB _____________/________/ __________ Name of Partnership Federal Identification Number A B Distributions - Provide IN K-1 to each partner. Attach IN K-1 to IT-65 return. For information on the acceptable electronic data file format, visit the Department’s Web site at www.in.gov/dor/3772.htm Pro rata amounts for lines 1 through 15 of any nonresident partner must be multiplied by the Indiana apportionment percent, if applicable from IT-65, line 4. Part 1 – Partner’s Identification Section (a) If Partner Is an Individual (please print clearly) Last Name: a1 (b) If Partner Is an Other Entity (please print clearly) Name: b1 Social Security Number: First Name: a2 a3 Federal Identification Number: b2 (c) Partner's State of Residence or Commercial Domicile....................................................................................c1 . (d) Indiana Tax Withheld for Nonresident Partner (on WH-18).............................................................................. d (e) Partner’s Federal Pro Rata Percentage............................................................................................................ e Part 2 - Distributive Share Amount (use apportioned figures for nonresident partners). 1. Ordinary business income (loss).......................................................................................................................... 2. Net rental real estate income (loss)..................................................................................................................... . 3. Other net rental income (loss).............................................................................................................................. 4. Guaranteed payments.......................................................................................................................................... 5. Interest income..................................................................................................................................................... 6a.Ordinary dividends................................................................................................................................................ 7. Royalties ............................................................................................................................................................ 8. Net short-term capital gain (loss) ........................................................................................................................ 9a. Net long-term capital gain (loss). ......................................................................................................................... . 10. Net IRC Section 1231 gain (loss) ........................................................................................................................ 11. Other income (loss) ............................................................................................................................................. 12. IRC Section 179 expense deduction.................................................................................................................... 13a.Portion of expenses related to investment portfolio income, including investment interest expense and other (federal non-itemized) deductions....................................................................................................... 13b.Other information from line 20 of federal K-1 related to investment interest and expenses not listed elsewhere...................................................................................................................... 14. Total pro rata distributions (Add lines 1 through 11; subtract lines 12, 13a, and 13b when applicable.)......... 15. State modifications - Designate the distributive share amount of each modification for Indiana adjusted gross income from line 2 on front of Form IT-65 (for nonresidents, apply apportioned figures): State income taxes deducted 2(a)____________________ Net bonus depreciation allowance 2(b) _ __________________ _ Excess IRC Section 179 deduction 2(c) _ __________________ _ Do not use; for department use only. 2(d) Interest on U.S. obligations 2(e) _ __________________ _ Indiana lottery prize money 2(f) _ __________________ _ Total distributive share of modifications............................................................................................ 15a Part 3 - Pro Rata Share of Indiana Pass-through Tax Credits from Partnership 16. Enter the name of the tax credit program, its three-digit ID code, and the dollar amount of the partner’s distributive share for each allowable credit Name of Credit: 00 . % 00 00 00 00 00 00 00 00 00 00 00 00 00 00 00 0