INDIANA DEPARTMENT OF REVENUE 100 N. SENATE AVE. INDIANAPOLIS, IN 46204-2253 www.in.gov/dor SP 262 (R9/09-10) STATE OF INDIANA Partnership Return Booklet 2010 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 E Apportionment of Income for Indiana Schedule IT-65COMP - Partners’ Composite Adjusted Gross Income Tax Return Form DB020W-NR - Indiana Withholding Tax for Nonresidents Sales/Use Tax Worksheet Pass-through Tax Credits Available to Partners 1 American LegalNet, Inc. www.FormsWorkFlow.com Indiana Department of Revenue 2010 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. These forms must disclose 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 is imposed at the rate of 1.4 percent of the taxable receipts from the retail sale of utility services. Use Form URT-1 for this tax. 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. Also enclose Schedule M-3. Federal Schedules K-1 should not be enclosed but must be made available for inspection upon request by the Department. 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: 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 approval or rejection in another state; 7. Interstate transportation; or 8. The maintenance of a public utility. 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-65. Refer to Commissioner’s Directive #18 at www.in.gov/dor/3617.htm Utility Services Use Tax An excise tax known as the utility services use tax is imposed on the retail consumption of utility services in Indiana where the utility receipts tax is not paid by the utility providing the service. This tax is imposed at the rate of 1.4 percent. 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. The tax is 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 must remit this tax on Form USU-103. For more information, refer to Commissioner’s Directive #32 at www.in.gov/dor/3617.htm 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 the provisions of Treas. Reg. 1.6032-1 when reporting for Indiana purposes. General Filing Instructions Liability of the Partnership References to the Internal Revenue Code Public Law (PL) 113-2010, SEC. 54 updates references to the Internal Revenue Code in certain Indiana tax statutes. For tax year 2010, 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, 2010. 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. 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 3 for more information. 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. The exception is if the 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 the instructions for the Sales/Use Tax Worksheet on page 19. 2 American LegalNet, Inc. www.FormsWorkFlow.com income taxes at rates of 3.4 percent or higher to their resident states. The reverse credit states are:  Arizona;  California [see note];  Oregon; and  Washington, D.C. 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 the instructions for IT-65 Schedule E Apportionment of Income for Indiana on page 20. Any partnership that has nonresident partners must also file a composite return for all its nonresident partners. It must do so even if a nonresident partner has other income from Indiana. Any partnership that fails to file a composite return that includes all its nonresident partners will be assessed a penalty of $500. Note: Indiana state withholding is required whenever a California resident partner is included in an Indiana composite tax return. 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 January 1 is located in an Indiana county that has adopted a county income tax. Use Departmental Notice #1 to determine county tax withholding rates. It is available at www.in.gov/dor/3618.htm To verify a county’s rate, visit the Department’s Web site or call our main tax line at (317) 233-4016. 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. Withholding Tax Liabilities of Partnerships The following instances require the partnership to register with the Department and become an Indiana withholding agent on behalf of each of the following: 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 on Residents A partnership must withhold for Indiana tax purposes if:  It is making payments of salaries, wages, tips, fees, bonuses, and commissions;  These payments are subject to Indiana state and/or county income taxes; and  The partnership is required by the IRC to withhold federal taxes on these types of payments A corporation is subject to AGI tax at the rate of 8.5 percent. A partnership must withhold and remit the Indiana Financial Institution Tax (FIT) if:  The partnership conducts the business of a financial institution;  The partnership has nonresident corporate partners; and  The partners transact the business of a financial institution. The partnership must remit payment of amounts withheld 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. 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. However, if a written declaration that the partner is not subject to the FIT exists, the withholding is not required. In this instance only, corporate AGI tax must be withheld from the nonresident corporate partner’s distributive share of income apportioned to Indiana. Withholding on Nonresidents 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. Caution: The withholding provisions on nonresidents do not apply to partners who are any one of the following entities:  An Indiana-domiciled corporation registered with the Indiana Secretary of State;  A non-Indiana domiciliary corporation registered with the Indiana Secretary of State;  A nontaxable trust or estate;  An S corporation; or  A wholly exempt nonprofit organization with no unrelated trade or business partnership income. Refer to Income Tax Information Bulletin #88, available at www.in.gov/dor/3650.htm If an employee resides in a state that has entered into a reciprocal agreement with Indiana, an exception from withholding applies. However, this does not affect county taxation. 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. 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;  A beneficiary; or  A partner. 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). It must do this each time it pays or credits any of its nonresident and part-year resident individual partners. This does not apply to residents of reverse credit states who are subject to and pay 3 American LegalNet, Inc. www.FormsWorkFlow.com It must also 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. See Income Tax Information Bulletin #85 at www.in.gov/dor/3650.htm for more information. Withholding Amounts on Nonresident Partners – The partnership’s withholding of state and/or county tax from nonresident partners is payable quarterly if the monthly average is less than $50. This is paid 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. For example, if a current distribution is made on June 17, 2010, the withholding tax is remitted with Form WH-1 for June and is due on July 30, 2010. 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. It also 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 is due by the 15th day of the third month following the end of the taxable year. For example, if a single annual distribution for a calendar year is made on Dec. 31, 2010, the withholding tax is due March 15, 2011. Advances or drawings against a partner’s distributive share of income are deemed paid on the last day of the partnership’s tax year. A copy of the withholding return is included on page 18. The partnership is liable for any delinquent penalty and interest in addition to the amount withheld or required to be withheld and paid to the Department. 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 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. This TID consists of:  A 10-digit number exclusive to the taxpayer; and  A 3-digit number for the location being registered. The partnership has two options in registering as a withholding agent:  It can request and file the Indiana Department of Revenue Business Tax Application, Form BT1, for the partnership. You can 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  The second option is to visit the downtown Indianapolis office of the Department or one of the district offices located throughout the state to get registered the same day. American LegalNet, Inc. www.FormsWorkFlow.com Note: Beginning Jan. 1, 2010, new businesses that register with the Indiana Department of Revenue to collect sales or withholding taxes are required to file using INtax, per legislation (IC 6-2.5-6-1 and IC 6-3-4-8.1). For more information, and to get registered, visit www.intax.in.gov How to Submit the Withholding Payment 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 are assigned to an annual, a quarterly, or a monthly status. Those businesses not registered with INtax (www.intax.in.gov) are mailed a voucher packet. This packet contains the employer’s Withholding Tax Returns to be used for this purpose. Each return must be completed and mailed (postmarked) by its due date. It should include the total amount withheld for that period. By law, the withholding return must be filed even when no withholding amount is due. For more information about remitting Form WH-1, visit http://www.in.gov/dor/4183.htm If the partnership pays or credits amounts to its nonresident partners only one time each year, it might 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 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. Form DB020W-NR is included on page 18. 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. Form WH-3 – The withholding agent must complete and file an annual Withholding Tax Reconciliation Return, Form WH-3, by the end of February following the close of each calendar year. The agent must include the following:  The Indiana taxpayer identification number (TID);  The partnership’s name; and  The calendar year. Form WH-3 is used to reconcile the monthly, quarterly, or annual WH-1 returns. When remitting this form, the business must also remit the supporting W-2 and WH-18 reports. Although you can use magnetic tape to transmit W-2 information, you must enclose paper copies of Form WH-18 with the WH-3 when submitting it. Note that effective July 1, 2010, any employer that files more than 25 W-2s in a calendar year is required to file both the WH-3 form and their W-2s electronically. This new law (IC 6-3-4-16.5) applies to W-2s filed after Dec. 31, 2010. To learn how to remit the WH-3 electronically, visit www.in.gov/dor/4455.htm How Fill to Out Form WH-3 – On Form WH-3, the withholding agent enters the total annual amount of state and county income 4 taxes or other taxes withheld from employees and nonresidents receiving income subject to Indiana withholding. These amounts must match what is 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. If the withholding agent has overpaid the withholding liability for the year, it is entitled to a refund. Enter the amount to be refunded on Form WH-3. Also, 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 and submit the payment under separate cover. Form WH-1U is included with the WH-3 packet. The Indiana TID and the period to which the payment should be applied must also be indicated. (Use Form DB020W-NR on page 18 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. This form is available at https://forms.in.gov/Download.aspx?id=7259 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 AGI. It is generally subject to the same rules for arriving at Indiana AGI. Thus, 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). 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. Individual partners must complete Form IT-40, Indiana Individual Income Tax Return. Nonresidents – Part- and full-year nonresident partners must report their shares of partnership income (loss) as adjusted. This is 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. The partner must complete Form IT-40PNR, Indiana Part-Year or Full-Year Nonresident Individual Income Tax Return. The partner must claim credit 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. 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. A part-year nonresident partner must file Form IT-40PNR and report:  The total amount of income (loss) received while residing in Indiana; and  That part of Indiana source income received while a nonresident. A part-year nonresident partner also reports apportioned Indiana income (loss), as modified, 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 one of the following:  Form FIT-20;  Form IT-20;  Form IT-20S;  Form IT20NP; or  Form IT-41. All distributions are fully taxable for AGI tax purposes. Taxable partnership income (loss) includes pro rata Indiana modifications. However, losses may not exceed the limits imposed by IRC Section 704. Corporate partners doing business within and outside Indiana must also determine their taxable AGI 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. Thus, a multistate corporation must first determine what part of its AGI, which includes all partnership income, constitutes business income and what part is nonbusiness income. The relationship between the business of the corporate partner and the partnership controls the classification. Non-unitary partnership income distributions attributed at the partnership level to Indiana are treated as allocated income on the corporate partners’ Indiana returns. 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. 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 must be added back in when determining AGI. 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 5 American LegalNet, Inc. www.FormsWorkFlow.com 2. If the partnership derives income from sources entirely within Indiana or entirely outside Indiana, the income is not subject to formula apportionment. See 45 IAC 3.1-1-153 for reporting requirements. Using the three-factor apportionment formula under IC 6-3-2-2(b), ABC Company determines its apportionment percentage as follows: Property factor 80.00% Payroll factor 40.00% Sales factor (weighted) +120.00% 240.00% Divide by factor values present: 10 Indiana apportionment percentage 24% For non-unitary partners, taxable partnership distributions included in federal taxable income are deducted on the non-business and non-unitary income adjustment line of the corporation’s return. Non-unitary partnership income attributed to Indiana is entered on the adjustment line used to report Indiana allocated nonbusiness income and Indiana non-unitary partnership income. (This non-unitary partnership income includes apportioned pro rata modifications.) The corporate taxpayer’s taxable income for Indiana equals:  The apportioned business income, which includes 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 AGI. Computations for Taxpayers A and B: Taxpayer A, as a resident of Indiana, must report his own entire share of partnership income to Indiana regardless of whether the partnership apportions its income. As a general rule, if Taxpayer A pays tax to another state (on a portion of partnership income), he can take a credit on his individual return. Indiana adjusted partnership income for Taxpayer A is computed as follows: Guaranteed payment $10,000 Distributive share (50% x $65,000) +32,500 Indiana adjusted distributive share of income $42,500 Corporate partners subject to the Indiana financial institution franchise tax must include the corporation’s percentage of partnership adjusted gross or apportioned income, as computed under IC 6-5.5-4. This is reported on Form FIT-20. Taxpayer B, as a nonresident of Indiana, reports only her own share of partnership income and guaranteed payment apportioned to Indiana. As a general rule, if Taxpayer B is required to pay tax to another state on a portion of her income from ABC Company, she cannot take a credit on her Indiana return but must claim it from her state of residence. Use the worksheet on page 15 for Attributing Partnership Income for Unitary Corporate Partners to compute the portion of partnership income subject to tax under the Adjusted Gross Income Tax Act. Indiana adjusted partnership income for Taxpayer B is computed as follows: Guaranteed payment $10,000 Distributive share (50% x 65,000) +32,500 Total partnership share of income $42,500 Multiply by apportionment percentage x 24% Apportioned Indiana distributive share of income $10,200 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 addback of income taxes and the deduction from income for U.S. government obligations) are limited to current reporting. However, they may also affect the basis of the partner’s interest. Accounting Periods and Methods The accounting period for Form IT-65 and the method of accounting adopted must be the same as used for federal income tax purposes. Indiana Partnership Income for Individuals Examples: Taxpayer A is a resident of Indiana, and Taxpayer B is a nonresident of Indiana. Each has a 50 percent interest in ABC Company, an Indiana partnership doing business both within Indiana and outside Indiana. Extended Due Date 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. 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. 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 the front of the IT-65 return. Computations for ABC Company for a Taxable Period: ABC Company computes its adjusted partnership income as follows: Income from operations $530,000 Expenses (500,000) Addback modification +35,000 Partnership income $65,000 If a federal extension is not needed, a partnership can request a separate Indiana extension of time to file by writing to: Indiana Department of Revenue Tax Administration 100 N. Senate Ave. Indianapolis, IN 46204-2253 6 American LegalNet, Inc. www.FormsWorkFlow.com 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. 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 AGI tax on nonresident partners. 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. They must do so within 120 days after the filing of the amended federal return. Adjustments made by the IRS affecting the reportable Indiana income must be followed with an amended partnership return. This must be filed 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. Instructions for Completing Form IT-65 Filing Period and Identification Aggregate Partnership Distributive Share Income File a 2010 partnership return for a tax year ending on Dec. 31, 2010; a short tax year beginning and ending in 2010; or a fiscal year beginning in 2010 and ending in 2011. 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. Note: Please round all entries to the nearest whole dollar amount. Also, please do not use a comma in dollar amounts of four digits or more. For example, instead of entering “3,455” you should enter “3455.” 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. 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. The federal identification number shown in the box at the upperright corner of the return must be accurate. It must also be the same as what’s 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. For foreign addresses, please note the following:  Be sure to enter the name of the city, town, or village in the box labeled City;  Be sure to enter the name of the state or province in the box labeled State; and  Be sure to enter the postal code and the 2-digit country code in the box labeled ZIP Code. You might be able to take the Section 179 deduction. You also might be able to deduct that portion of investment expenses that is included in federal Schedule K as part of line 13 and line 20 relating to investment portfolio (royalty) income and that flows to federal Schedule E. Do not deduct other expenses treated as federal itemized deductions. Use the Worksheet for Partnership Distributive Share Income, Deductions, and Credits to help you calculate this figure. You must use the income worksheet if this partnership received any distributive income from one of the following:  An owned partnership interest;  An estate; or  A trust. Enter your principal business activity code in the designated block of the return. Use the six-digit activity code as reported on the federal tax return. This number is derived from the North American Industry Classification System (NAICS). A link to a list of these codes is available on the Department’s Web site at www.in.gov/dor/3742.htm See instructions on page 19 and worksheet on page 15. If filing federal Form 1065B by an electing large partnership, use the amounts from line 1 through 8 of Schedule K. Convert distributive share of income items into a Form 1065 Schedule K format. Carry the figures to IT-65 and IT-65 IN K-1. Questions K through S and Other Fill-in Lines All corporations filing an Indiana corporation income tax return must complete the top portion of the form. This includes questions K through S. Check or complete all the boxes that apply to your return: K. Indicate the date and place the partnership was organized. L. Indicate the partnership’s state of commercial domicile. 7 American LegalNet, Inc. www.FormsWorkFlow.com Indiana 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 AGI. The depreciation allowances in the year of purchase and in later years must be adjusted to reflect the additional first-year depreciation deduction until the property is sold. This firstyear depreciation deduction includes the special depreciation allowance for 50% bonus depreciation property. Required Indiana State Modifications - Lines 2a through 2f Lines 2a through 2e. Enter any addbacks and deductions here. Enter the name of the addback/deduction, its 3-digit code, and its amount. Use a negative sign for negative amounts (-). Attach additional sheets if necessary. The following addbacks and deductions should be entered on lines 2a through 2e:  The addback of all state taxes based on or measured by income, levied by any state, deducted on the federal return. (3-digit code: 100) If a taxpayer placed any IRC Section 179 property in service in the current taxable year or in an earlier taxable year, you must add or subtract an amount necessary to make the taxpayer’s AGI equal to the amount of AGI that would have been computed if an election had 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.  An amount attributable to bonus depreciation in excess of any regular depreciation that would be allowed if an election under IRC Section 168(k) had not 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 was allowed in the current taxable year or in an earlier taxable year must add or subtract an amount necessary to make their AGI equal the amount computed without applying any bonus depreciation. The first-year special depreciation includes 50 percent bonus depreciation. The subsequent depreciation allowance must be calculated on the state’s stepped-up basis until the property is disposed. Enclose a statement to explain your adjustment. (3-digit code: 104) Note: If the net amount determined for the net bonus depreciation allowance or excess IRC Section 179 deduction is a negative figure (because of a higher depreciation basis in subsequent years), use a negative sign to denote this. If the taxable income is a loss, this adjustment increases a loss when added back. Enclose a statement to explain your adjustment.  Deduct interest income, less related expenses, from certain obligations of the U.S. government included as income on the federal return. Request Income Tax Information Bulletin #19 at www.in.gov/dor/3650.htm for a list of eligible items. (3-digit code: 610) 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. Also, it had a remaining basis of $100,000. An additional 50 percent bonus depreciation of $50,000 was elected. This left a basis of $50,000 for a 5-year Modified Accelerated Cost Recovery System (MACRS) property (half-year convention) depreciation deduction of 20% ($10,000). The total amount of federal deduction was $160,000.  Deduct Indiana lottery prize money. If you make a purchase of a winning Indiana lottery game or ticket, a portion of the prize money you receive and included in your 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. (3-digit code: 606) For state purposes, the bonus depreciation of $50,000 was not allowed and must be added back. The IRC Section 179 deduction was capped at $25,000. So the $75,000 excess amount must be added back. These adjustments result in a stepped-up basis of $175,000 for the state return. This is the amount on which you figure the allowable first-year MACRS property depreciation deduction of 20% ($35,000) for 2005. This was a total state deduction of $25,000 more than was already deducted under the General Depreciation System (GDS). The additional depreciation may be excluded in subsequent years from the amounts to be added back when excess IRC Section 179 deduction or bonus depreciation was elected.  Add back the deduction for deferral of business indebtedness discharge and reacquisition. Enter an amount equal to the amount claimed as a deferral of income arising from business indebtedness discharged in connection with the reacquisition after Dec. 31, 2008, and before Jan. 1, 2011, of an applicable debt instrument (as provided in Section 108(i) of the IRC), for federal income tax purposes. (3-digit code: 107)  Add back the deduction for qualified restaurant property. Enter an amount equal to the amount you claimed as a deduction for federal income tax purposes for qualified restaurant property. The property must have been placed in service during the taxable year. It also must have been classified as a 15-year property under Section 168(e)(3)(E)(v) of the IRC. (3-digit code: 108) Commissioner’s Directive #19 (www.in.gov/dor/3617.htm) explains this initial required modification on the allowance of depreciation for state tax purposes.  Your share of the IRC Section 179 adjustment claimed for federal tax purposes that exceeds the amount recognized for state tax purposes. (3-digit code: 105) Indiana adopted the former expensing limit provided by the Jobs Creation and Workers Assistance Act of 2002. 8  Add back the deduction for qualified retail improvement property. Enter an amount equal to the amount you claimed as a deduction for federal income tax purposes for qualified retail improvement property. The property must have been placed in service during the taxable year. It must also have American LegalNet, Inc. www.FormsWorkFlow.com Generally, apportioned income is determined by averaging a percentage of the three factors. The resulting 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. been classified as a 15-year property under Section 168(e)(3)(E)(ix) of the IRC. (3-digit code: 109)  Add back the deduction for qualified disaster assistance property. Add or subtract an amount equal to the amount claimed as a deduction for the special allowance for qualified disaster assistance property under Section 168(n) of the IRC for federal income tax purposes. (3-digit code: 110) See IT-65 Schedule E instructions beginning on page 20. On line 4, enter 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 100 percent.  Add back the deduction for qualified refinery property. Enter an amount equal to the amount you claimed as a deduction for expense costs for qualified refinery property under Section 179C of the IRC for federal income tax purposes. (3-digit code: 111) Before continuing to lines 5 through 16, complete IT-65 Schedule IN K-1 for each partner.  Add back the deduction for qualified film or television production. Enter an amount equal to the amount you claimed as a deduction for expense costs for qualified film or television production under Section 181 of the IRC for federal income tax purposes. (3-digit code: 112) Summary of Calculations for IT-65 Sales/Use Tax Worksheet IC 6-2.5-3-2 imposes a use tax on 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. This rate is 7 percent. Examples of taxable items include:  Magazine subscriptions;  Office supplies;  Electronic components; and  Rental equipment.  Add back the deduction for qualified preferred stock. Enter an amount equal to the amount you claimed as a deduction for a loss from the sale or exchange of preferred stock. Do this only if that loss was treated as an ordinary loss under Section 301 of the Emergency Economic Stabilization Act of 2008 in the current taxable year or in an earlier taxable year. (3-digit code: 113) Any property purchased free of tax by use of an exemption certificate is subject to the use tax. In addition any property purchased 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 19 to compute any sales/use tax liability. For more information about use tax, call (317) 233-4015. The stock must be preferred stock in one of the following: o The Federal National Mortgage Association, established under the Federal National Mortgage Association Charter Act (12 U.S.C. 1716 et seq.); or o The Federal Home Loan Mortgage Corporation, established under the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1451 et seq.) 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. You do this on Form ST-103, Indiana Annual, Quarterly, or Monthly Sales and Use Tax Voucher. If you do not pay your use tax by the original due date of the return, interest will be added to the amount due. A 10 percent penalty or $5, whichever is greater, is charged on each unpaid use tax liability. Line 2f. Enter the total amount of addbacks and deductions from any additional sheets. If you need to claim more than five addbacks and/or deductions, attach additional sheets detailing them. Total the amounts from the additional sheets and enter the total here (use a negative sign to denote a negative amount). Caution: Do not report your totals from Form ST-103 on this worksheet or on Form IT-65. Line 3. Add lines 1 through 2f. Line 5. Enter the use tax due from the completed Sales/Use Tax worksheet. Apportionment of Income Partnerships deriving income from sources within and outside Indiana and having non-Indiana-domiciled partners or non-unitary corporate partners must complete line 4. Line 6. Enter the total tax liability of the nonresident members from line 15G of Schedule IT-65COMP (columns D plus E minus F). Enclose composite Schedule IT-65COMP. Line 4. Under the Adjusted Gross Income Tax Act, taxable income from a trade or business conducted within and outside Indiana is figured using a three-factor formula. This formula consists of:  Property factor;  Payroll factor; and  Weighted sales factor. Line 7. Total tax: Add the tax shown on lines 5 and 6. Line 8. Enter the total amount of withholding. Be sure to attach WH-18 statements for composite members. 9 American LegalNet, Inc. www.FormsWorkFlow.com 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 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 the total interest due. Caution: Two separate calculations of interest and penalty might 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 payment of the composite tax to the actual date the balance is paid with the IT-65 return. 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. Contact the Department for the current rate of interest by calling (317) 233-4015 or getting Departmental Notice #3 at www.in.gov/dor/3618.htm 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 is still due on use tax paid after the original due date of the return. 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. *Exception: Certain partners will not be included in the composite filing. See the exceptions listed under “Filing Requirements for 2010 Composite Return” on page 22. 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. 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 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. Certification of Signatures and Authorization Section 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. 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 via 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 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. 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 your check payable to Indiana Department of Revenue. 10 American LegalNet, Inc. www.FormsWorkFlow.com 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 number, PTIN, or Social Security number);  His/her telephone number;  His/her complete address; and  His/her signature with date. Be sure to keep a copy of your completed return. 11 American LegalNet, Inc. www.FormsWorkFlow.com Indiana Department of Revenue Form IT-65 Indiana Partnership Return State Form 11800 (R9/8-10) 2010 for Calendar Year Ending December 31, 2010 or Other Tax Year Beginning Check box if amended. Name of Partnership 2010 and Ending Check box if name changed. Federal Identification Number Number and Street Indiana County or O.O.S. City State Principal Business Activity Code Telephone Number ( ) ZIP Code K. Date of organization ____________________ In the State of _________________________ L. State of commercial domicile _____________ M. Year of initial Indiana return_______________ N. Accounting method: Cash Accrual Other O. Check all boxes that apply to entity: Initial Return Final Return In Bankruptcy P. Enter total number of partners: Enter number of nonresident partners: Q. Do you have on file a valid extension of time to file your return (federal Form 7004 or an electronic extension of time)? Y N R. Are you a limited liability company electing partnership treatment on your federal return? S. Is this partnership a member of any other partnership(s)? Y N Aggregate Partnership Distributive Share Income (see worksheet) Composite Return Y N Round all entries 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); use minus sign for negative amounts ...................................................................................... 1 2a. Enter name of addback or deduction (see instructions) _________________________________________ Code No. _________ 2a 2b. Enter name of addback or deduction ________________________________________________________ Code No. _________ 2c. Enter name of addback or deduction ________________________________________________________ Code No. _________ 2d. Enter name of addback or deduction ________________________________________________________ Code No. _________ 2e. Enter name of addback or deduction ________________________________________________________ Code No. _________ 2f. Enter the total amount of addbacks and deductions from any additional sheets (use a minus sign for negative amount) ............................. 3. Total partnership income, as adjusted (add lines 1 through 2f) .......................................................................................................................... 4. Enter average percentage for Indiana apportioned adjusted gross income from IT-65 Schedule E line (4c), if applicable ............................... Summary of Calculations 5. Sales/use tax due on purchases subject to use tax from Sales/Use Tax worksheet (from page 19).................................................................. 6. Total composite tax from completed Schedule IT-65COMP (15G). Attach schedule .......................................................................................... 2b 2c 2d 2e 2f 3 4 . 7 8. Total amount of withholding (attach 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 carryforward allowed. Enter as a positive figure ........................................................................................... % 00 00 00 00 00 00 00 00 00 00 00 00 5 6 7. Total tax (add lines 5 and 6). Caution: If line 7 is zero, see line 12 late file penalty ............................................................................................ 00 00 00 00 00 00 00 00 16 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. I authorize the Department to discuss my return with my personal representative (see page 11) Y N Signature of Corporate Officer Print or Type Name of Corporate Officer Date Partnership's E-mail Address EE Paid Preparer: Firm’s Name (or yours if self-employed) Check One: Federal ID Number PTIN Social Security Number Title Personal Representative’s Name (Print or Type) Telephone Number Telephone Number Address Address City City State Zip Code + 4 Paid Preparer’s Signature Date State Zip Code + 4 Please mail forms to: Indiana Department of Revenue 100 N. Senate Ave. Indianapolis, IN 46204-2253 12210111594 12 American LegalNet, Inc. www.FormsWorkFlow.com IT-65 2010 Schedule IN K-1 Indiana Department of Revenue Partner’s Share of Indiana Adjusted Gross Income, Deductions, Modifications, and Credits State Form 49181 (R9/8-10) Tax Year Beginning 2010 and Ending Name of Partnership Federal Identification Number Distributions - Provide IN K-1 to each partner. Enlose IN K-1 with 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 26 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 ___________________________________ Social Security Number: First Name: a2 ___________________________ a3 (b) If Partner Is an Other Entity (please print clearly) Federal Identification Number: Name: b1 ___________________________________________________________________ b2 (c) Partner’s State of Residence or Commercial Domicile ............................................................c1 00 (d) Indiana Tax Withheld for Nonresident Partner (on WH-18) ...................................................... d (e) Partner’s Federal Pro Rata Percentage.................................................................................. e . % 00 (f) Partner’s Tax as Computed on IT-65COMP Column.............................................................. f Part 2 - Distributive Share Amount (use apportioned figures for nonresident partners) 12. IRC Section 179 expense deduction.............................................................................................. 00 00 00 00 00 00 00 00 00 00 00 00 13a. Portion of expenses related to investment portfolio income, including investment interest expense and other (federal nonitemized) deductions .................................................................. 00 13b.Other information from line 20 of federal K-1 related to investment interest and expenses not listed elsewhere ..................................................................................................................... 00 14. Total pro rata distributions (Add lines 1 through 11; subtract lines 12, 13a, and 13b when applicable.) ........................................................................................................................... 00 1. Ordinary business income (loss).................................................................................................... 2. Net rental real estate income (loss) ............................................................................................... 3. Other net rental income (loss) ........................................................................................................ 4. Guaranteed payments.................................................................................................................... 5. Interest income............................................................................................................................... 6. Ordinary dividends ......................................................................................................................... 7. Royalties ...................................................................................................................................... 8. Net short-term capital gain (loss) .................................................................................................. 9. Net long-term capital gain (loss) .................................................................................................... 10.Net IRC Section 1231 gain (loss) .................................................................................................. 11. Other income (loss) ....................................................................................................................... Continued on next page 13610111594 13 American LegalNet, Inc. www.FormsWorkFlow.com IT-65 2010 Schedule IN K-1 Page 2 Part 3 - State Modifications Add or subtract the following. Designate the distributive share amount of each modification for Indiana adjusted gross income from line 2 on the front of Form IT-65. For nonresidents, apply apportioned figures. (Use a minus sign to denote negative amounts.) 15. State income taxes deducted ......................................................................................................... 00 16. Net bonus depreciation allowance ................................................................................................. 00 17. Excess IRC Section 179 deduction ................................................................................................ 00 18. Interest on U.S. obligations ............................................................................................................ 00 19. Indiana lottery prize money ............................................................................................................ 00 20. Deferral of business indebtedness discharge and reacquisition addback ..................................... 00 21. Qualified restaurant property addback ........................................................................................... 00 22. Qualified retail improvement property addback .............................................................................. 00 23. Qualified disaster assistance property addback ............................................................................. 00 24. Qualified refinery property addback ............................................................................................... 00 25. Qualified film or television production addback .............................................................................. 00 26. Qualified preferred stock addback.................................................................................................. 00 27. Total distributive share of modifications (add lines 15 through 26 and carry total to Column B on Schedule IT-65COMP) .............................................................................................................. 00 Part 4 - Pro Rata Share of Indiana Pass-through Tax Credits from Partnership 28. 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: ID Code: a _________________________________________ b __ __ __ d _________________________________________ e __ __ __ f g _________________________________________ h __ __ __ 00 00 c i 00 00 29. Total pass-through credits (add lines 28c, 28f, and 28i)................................................................. 13610121594 14 American LegalNet, Inc. www.FormsWorkFlow.com Worksheet for Partnership Distributive Share Income, Deductions and Credits Use this worksheet to compute the entry for line 1 of Form IT-65 and to assist in computing amounts reported on IT-65 Schedule IN K-1. Enter the total distributive share of income from each item as reportable on Form 1065, Schedule K. Do not complete Column B and C entry lines unless the partnership received distributive share or tiered income from other entities. A. B. C. Distributive Share Amounts: Partnership Distributions from Distributions Income Partnerships/ Attributed to Partnership's Distributive Share of Items All Sources Estates/Trusts Indiana Everywhere 1. Ordinary business income (loss) .............................................. Enter for line Enter for line 2. Net rental real estate income (loss) ........................................... 14C below, total 14B below total 3. Other net rental income ........