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(1) Every pass-through entity with Montana source income is subject to the requirement in 15-30-3302, MCA, to file pass-through entity information returns. Most pass-through entities are subject to an annual filing requirement. In general, the status of a pass-through entity is the same as its status for federal income tax purposes. A pass-through entity falls into one of three categories:

(a) partnership;

(b) S corporation; or

(2) Disregarded entities with Montana source income, whose separate existence is disregarded for federal income tax purposes, are subject to the information return filing requirements in this rule, even though no filing requirement may be imposed in the IRC. Some disregarded entities are required to file information returns only on the happening of an event.

(3) Partnership and S corporation returns can be filed electronically through the joint federal/state program using Montana-approved e-filing tax software.

(4) Pass-through entity information returns can be filed on paper and mailed to:

Montana Department of Revenue

P.O. Box 8021

Helena, Montana 59604-8021.

(5) Rules for automatic extensions to file the information returns are provided for in ARM 42.9.301 and 42.9.401 for each type of pass-through entity. In addition, on written application, and for good cause shown, the department may grant additional extensions for the filing requirements provided in this subchapter.

(1) A pass-through entity required to file a Montana information return, as provided in ARM Title 42, chapter 9, is subject to a late-filing penalty if the return is not filed by the due date (including extensions).

(2) ARM 42.3.101 through 42.3.115 and 42.3.120 apply to requests for waiving penalties.

(3) For disregarded entities that do not have a tax year, the number of partners, shareholders, members, or other owners will be determined as of the preceding December 31.

(1) A partnership and S corporation with one or more nonresident individual, estate, or trust owners, during any part of a tax year for which an information return is required by this chapter, must for each nonresident individual, estate, or trust that receives a distributive share of Montana source income of $1,000 or more:

(a) file a composite return as provided in ARM 42.9.202 and include the nonresident individual, estate, or trust in the filing;

(b) obtain from the nonresident individual, estate, or trust and file Form PT-AGR (Montana Pass-Through Entity Owner Agreement). On Form PT-AGR, the owner agrees to timely file a Montana individual or fiduciary income tax return, to timely pay tax due, and to be subject to the state's tax collection jurisdiction; or

(c) remit an amount on the partner's or shareholder's behalf, determined as provided in (5), with the Pass-Through Entity Information Return, Forms CLT-4S or PR-1 and provide Montana Schedule K-1 to the nonresident individual, estate, or trust. The Montana Schedule K-1 must set forth the amount of withholding remitted to the department which can be used as a refundable credit against the tax liability of the nonresident individual, estate, or trust upon filing a Montana individual or fiduciary income tax return.

(2) A disregarded entity with one or more nonresident individual, estate, or trust owners, during any part of a tax year for which an information return is required by this chapter, must for each nonresident individual, estate, or trust:

(a) obtain from the nonresident individual, estate, or trust and file Form PT-AGR (Montana Pass-Through Entity Owner Agreement). On Form PT-AGR, the owner agrees to timely file a Montana individual or fiduciary income tax return, to timely pay tax due, and to be subject to the state's tax collection jurisdiction; or

(b) remit an amount on the partner or shareholder's behalf, determined as provided in (5), with Form DER-1, Disregarded Entity Information Return and provide Montana Schedule K-1 to the nonresident individual, estate, or trust. The Montana Schedule K-1 must set forth the amount of withholding remitted to the department which can be used as a refundable credit against the tax liability of the nonresident individual, estate, or trust upon filing a Montana individual or fiduciary income tax return.

(3) The pass-through entity is not required to file new agreements each year, but must file a currently effective agreement for each new nonresident individual, estate, or trust owner that does not elect to be included in a composite return or choose to have the pass-through entity remit tax on their behalf.

(4) A nonresident owner may file Form PT-AGR with the department directly. The nonresident owner must notify and provide a copy of the completed Form PT-AGR to the partnership, S corporation, or disregarded entity. The Form PT-AGR is due on or before the due date, including extensions, of the pass-through entity's return. If the nonresident owner files Form PT-AGR, the partnership, S corporation, or disregarded entity is still subject to the filing requirements as provided in (1).

(5) The amount that must be remitted by the due date described in (6) is the highest marginal rate in effect under 15-30-2103, MCA, multiplied by the share of Montana source income of the nonresident individual, estate, or trust reflected on the pass-through entity's information return.

(6) The due date for the remittance described in (1)(c) and (2)(b) is the due date of the entity's information return.

(7) If a pass-through entity fails to withhold on the distributive share of income reported to a nonresident individual, estate, or trust, as required under 15-30-3313, MCA, and the income that is subject to withholding is subsequently reported on the tax return of any owner for the correct tax year, and all applicable tax is paid, then the tax that the pass-through entity failed to withhold shall not be collected from the pass-through entity; however:

(a) such payment by the owner does not relieve the pass-through entity from liability for penalties, interest, or additions to the applicable tax because of its failure to deduct and withhold; and

(b) the pass-through entity will not be relieved under this rule from its liability for the amounts required to be withheld unless it demonstrates that the income tax against which the required withholdings may be credited has actually been reported and paid.

(8) A publicly traded partnership as defined in section 7704(b) of the IRC, that is treated as a partnership for federal purposes, is exempt from the requirements in (1) for tax years beginning after December 31, 2008, if certain information is provided to the department. This information includes the name, address, taxpayer identification number, and Montana source income of each partner that had an interest in the partnership during the tax year. This information must be provided in an electronic format approved by the department.

(1) A partnership with one or more foreign C corporation or other nonresident entity owners, during any part of a tax year for which an information return is required by this chapter, must for each foreign C corporation, or other nonresident entity, that receives a distributive share of Montana source income of $1,000 or more:

(a) file a composite return as provided in ARM 42.9.202 and include the foreign C corporation or other nonresident entity in the filing;

(b) obtain from the foreign C corporation or other nonresident entity and file Form PT-AGR (Montana Pass-Through Entity Owner Agreement). On Form PT-AGR, the owner agrees to timely file a Montana income tax return, to timely pay tax due, and to be subject to the state's tax collection jurisdiction; or

(c) remit an amount on the foreign C corporation's or other nonresident entity's behalf, determined as provided in (5), with the Pass-Through Entity's Information Return, Form PR-1 or Form CLT-4S and provide Montana Schedule K-1 to the foreign C corporation or other nonresident entity. The Montana Schedule K-1 must set forth the amount of withholding remitted to the department which can be used as a withholding payment against the tax liability of the foreign C corporation or other nonresident entity, upon filing a Montana income tax return.

(2) A disregarded entity with one or more foreign C corporation or other nonresident entity owners, during any part of a tax year for which an information return is required by this chapter, must for each foreign C corporation or other nonresident entity:

(a) obtain from the foreign C corporation or other nonresident entity and file Form PT-AGR (Montana Pass-Through Entity Owner Agreement). On Form PT-AGR, the owner agrees to timely file a Montana income tax return, to timely pay tax due, and to be subject to the state's tax collection jurisdiction on the Montana pass-through entity owner tax agreement, Form PT-AGR, Montana Pass-Through Entity Owner Tax Agreement; or

(b) remit an amount on the foreign C corporation's or other nonresident entity's account, determined as provided in (5), with the Form DER-1, Disregarded Entity Information Return and provide Montana Schedule K-1 to the foreign C corporation or other nonresident entity. The Montana Schedule K-1 must set forth the amount of withholding remitted to the department which can be used as a withholding payment against the tax liability of the foreign C corporation or other nonresident entity upon filing a Montana income tax return.

(3) The pass-through entity is not required to file new agreements each year, but must file a currently effective agreement for each new foreign C corporation or other nonresident entity owner that does not elect to be included in a composite return or choose to have the pass-through entity remit tax on their behalf.

(4) A foreign C corporation or other nonresident entity may file Form PT-AGR with the department directly. The foreign C corporation or other nonresident entity must notify and provide a copy of the completed Form PT-AGR to the partnership, S corporation, or disregarded entity. The Form PT-AGR is due on or before the due date, including extensions, of the pass-through entity's return. If the foreign C corporation or other nonresident entity files Form PT-AGR, the partnership, S corporation, or disregarded entity is still subject to the filing requirements as provided in (1).

(5) The amount that must be remitted by the due date described in (6) is the tax rate in effect under 15-31-121, MCA, multiplied by the foreign C corporation's or other nonresident entity's share of Montana source income reflected on the pass-through entity's information return.

(6) The due date for the remittance described in (1)(c) and (2)(b) is the due date of the entity's information return.

(7) If a pass-through entity fails to withhold on the distributive share of income reported to a foreign C corporation or other nonresident entity, as required under 15-30-3313, MCA, and the income that is subject to withholding is subsequently reported on the tax return of any owner for the correct tax year and all applicable tax is paid, then the tax that the pass-through entity failed to withhold shall not be collected from the pass-through entity; however:

(a) such payment by the owner does not relieve the pass-through entity from liability for penalties, interest, or additions to the tax applicable because of its failure to deduct and withhold; and

(1) Except as provided in (2), (6), and (7), a first-tier pass-through entity with one or more owners that are also pass-through entities (second-tier pass-through entities), during any part of the tax year for which an information return is required by this chapter, must for each second-tier pass-through entity that receives a distributive share of Montana source income of $1,000 or more:

(a) file a composite return as provided in ARM 42.9.202 and include the second-tier pass-through entity in the filing; or

(b) do each of the following:

(i) remit to the department an amount equal to the highest marginal rate in effect under 15-30-2103, MCA, multiplied by the second-tier pass-through entity's share of Montana source income with the Forms CLT-4S, PR-1, or DER-1 Pass-Through Entity's Information Return; and

(ii) provide Montana Schedule K-1 to the second-tier pass-through entity setting forth the amount remitted to the department that may be claimed as a refundable credit against the Montana income tax liability of the owners who file individual, corporate income, or other income tax returns as explained in (8).

(2) The department may waive the requirements to remit tax or pay composite tax on behalf of a domestic second-tier pass-through entity for the current tax year, as set forth in (1), if the first-tier pass-through entity obtains from the domestic second-tier pass-through entity a completed Form PT-AGR and files it with the department by the due date of the first-tier pass-through entity's tax return, including extensions. On Form PT-AGR, the domestic second-tier pass-through entity owner must:

(a) provide the name, address, and social security or federal employer identification number of each of the domestic second-tier pass-through entity's partners, shareholders, members, or other owners;

(b) establish that the domestic second-tier pass-through entity's share of Montana source income should be fully accounted for in a resident individual, fiduciary, or corporate income tax return; and

(c) agree to notify the first-tier pass-through entity and the department if the ownership of the domestic second-tier pass-through entity and, if applicable, the ownership of any higher-tier pass-through entities changes.

(3) The department may revoke the waiver provided for in (2) if it determines that the partner, shareholder, member, or other owner no longer qualifies as a domestic second-tier pass-through entity. The department will notify the first-tier pass-through entity in writing of its requirement to withhold on the second-tier pass-through entity.

(4) The pass-through entity is not required to file new agreements each year, but must file a currently effective agreement for each new domestic second-tier pass-through entity owner that does not elect to be included in a composite return or choose to have the pass-through entity remit tax on their behalf.

(5) For the purposes of (2), (3), and (4), a "domestic second-tier pass-through entity" has the same meaning as provided in 15-30-3313, MCA.

(6) A publicly traded partnership as defined in section 7704(b) of the IRC, that is treated as a partnership for federal purposes, is exempt from the requirements in (1) for tax years beginning after December 31, 2008, if certain information is provided to the department. This information includes the name, address, taxpayer identification number, and Montana source income of each partner that had an interest in the partnership during the tax year. This information must be provided in an electronic format approved by the department.

(7) The exemption applicable to a publicly traded partnership (PTP), as described in (6), may be extended to a pass-through entity in which one or more PTPs has a direct or indirect majority interest in the income distributed by the pass-through entity. To receive a waiver, the pass-through entity must submit a written waiver request to the department at least 45 days before the original due date of the first-tier pass-through entity's tax return. Additional information is required if the following conditions exist:

(a) if the PTP is the second-tier partner, the PTP must be in compliance with filing requirements;

(b) if the PTP is not the second-tier partner, all tiers between the PTP and the first-tier entity must be in compliance with filing requirements, and the first-tier entity must provide the following documentation:

(i) an organizational chart;

(ii) all agreements that include information about ownership in the pass-through entity and special allocation; and

(c) a PTP must have an ultimate majority interest in the income distributed by the pass-through entity, to be determined on a case-by-case basis.

(8) The amount remitted by the first-tier pass-through entity on behalf of the second-tier pass-through entity is claimed as a refundable credit by the taxpayer who ultimately reports their distributive share of the second-tier pass-through entity's Montana source income. For example:

(a) a first-tier pass-through entity remitted tax on behalf of a second-tier pass-through entity, X. X has two owners, an individual and another pass-through entity, Y. The individual owner will report his or her distributive share of the remitted tax as a refundable credit on an individual Montana income tax return. The other owner, Y, will report Y's distributive amount of the remitted tax to its owner. Y has one owner, a trust. The trust will report its distributive share of the remitted tax as a refundable credit on its Montana income tax return for trusts and estates.

(9) If a pass-through entity fails to withhold on the distributive share of income reported to a second-tier pass-through entity, as required under 15-30-3313, MCA, and the income that is subject to withholding is reported on the tax return of any owner for the correct tax year and all applicable tax is paid, then the tax that the pass-through entity failed to withhold shall not be collected from the pass-through entity; however:

(a) such payment by the owner does not relieve the pass-through entity from liability for penalties, interest, or additions to the tax applicable because of its failure to deduct and withhold; and

(b) the pass-through entity will not be relieved under this rule from its liability of the amounts required to be withheld unless it demonstrates that the income tax against which the required withholdings may be credited has actually been reported and paid.

(1) A pass-through entity may have, in addition to income from its own operations or activities, income from one or more other pass-through entities. This rule describes how the pass-through entity must classify its income from its own operations or activities as apportionable or nonapportionable income and how it must report its income from other pass-through entities. For purposes of this rule, "operations income" means the income of a pass-through entity from its own operations or activities and "flow-through income" means its separately and nonseparately stated distributable share of income from other pass-through entities.

(2) Except as provided in (5), each pass-through entity has to separately determine whether its operations income is apportionable or nonapportionable income as those terms are defined in ARM 42.26.206. Once a pass-through entity determines the apportionable or nonapportionable character of its operations income, the entity must then determine what part of this apportionable and/or nonapportionable income is Montana source income. Except as provided in (5) and (6), the operations income retains its character as apportionable or nonapportionable income and as Montana source income regardless of how many other tiers of pass-through entities through which the income is passed.

(3) Except as provided in (5) and (6), flow-through income of a pass-through entity, determined as provided in (1), retains its character as apportionable and/or nonapportionable income and its character as Montana source income.

(4) An entity in a multi-tiered pass-through entity structure may have flow-through income sourced to Montana under the subsections of the definition of "Montana source income" in 15-30-2101, MCA, that address partnership or S corporation income derived from Montana activity or property, reportable on Montana Schedule K-1, and also operations income sourced to Montana as a result of its own business activity under other subsections of that definition of "Montana source income," such as net income from a business, profession, or farming activities carried on in the state. If this occurs the entity must allocate to Montana the flow-through income sourced to Montana and the entity must determine the portion of its operations income that is sourced to Montana as provided in (1) and allocate or apportion that Montana source income under the provisions of ARM 42.9.112.

(5) This rule does not apply to a partnership or disregarded entity whose operations are unitary with the business operations of a corporate partner or disregarded entity owner that is a C corporation whose apportionment factors are included in the computation of the C corporation's apportionment factors as provided in ARM 42.26.228.

(6) Nothing in this rule prevents the department from determining the apportionable or nonapportionable character of an entity's operations income or the Montana source character of its Montana flow-through income sourced to Montana.

(1) Except as provided in (3) and (4), foreign limited liability companies, foreign series limited liability companies, domestic limited liability companies, and domestic series limited liability companies qualified to do business in Montana and not required to file an information return under 15-30-3302, MCA, must submit an affidavit, on a form provided by the department, attesting that the limited liability company was not engaged in business in Montana during the reporting period.

(2) Foreign limited partnerships, foreign limited liability partnerships, domestic limited partnerships, and domestic limited liability partnerships qualified to do business in Montana and not required to file an information return under 15-30-3302, MCA, must submit an affidavit, on a form provided by the department, attesting that the limited partnership or limited liability partnership was not engaged in business in Montana during the reporting period.

(3) Any limited liability company organized solely to hold assets that does not claim a deduction under IRC section 212, for federal income tax purposes, is not required to submit an affidavit as set forth in (1) if, upon request from the department, the limited liability company provides a written statement describing the nature of its purpose.

(4) This rule does not apply to a limited liability company, limited partnership, or limited liability partnership that is treated as an association for federal income tax purposes and subject to the provisions outlined in Title 15, chapter 31, MCA.

(1) A pass-through entity is required to withhold tax on behalf of a partner, shareholder, manager, or member even if the partner, shareholder, manager, or member is not organized and operated for profit or is a stock bonus, pension, profit-sharing, or individual retirement plan. A partner, shareholder, manager, or member seeking the benefits of exemption from Montana filing and tax requirements must comply with all statutory requirements authorizing the classification claimed.

(2) In order to establish exemption status and thus be relieved of the duty of filing returns and paying tax based upon income received from a pass-through entity, each partner, shareholder, manager, or member claiming exemption must file an affidavit with the department showing:

(a) the character of the organization;

(b) the purpose it was organized for;

(d) the sources and the disposition of its income.

(3) Incorporated not-for-profit entities must file the affidavit required in (2) and include:

(a) a statement disclosing whether or not any of its income may inure to the benefit of any private shareholder or individual;

(b) a copy of the articles of incorporation;

(d) copies of the latest financial statements showing the assets, liabilities, receipts, and disbursements.

(4) Other unincorporated stock bonus, pension, profit-sharing, or individual retirement plans must file the affidavit required in (2) and include:

(a) documents relevant to the adoption and administration of the plan;

(b) copies of the latest financial summary or statements showing assets, liabilities, receipts, and disbursements; and

(c) a copy of any form the partner, shareholder, manager, or member is required to file with the IRS, if applicable. An example is federal Form 5500 Annual Return/Report of Employee Benefit Plan.

(5) In addition, if the IRS has granted the partner, shareholder, manager, or member exemption from the federal income tax, a certified copy of the exemption certificate or letter must also be filed.

(1) The department reports the details of audit adjustments resulting from an audit or other review of a pass-through entity's information return to the entity and the owners of the pass-through entity.

(2) The department reports the details of audit adjustments resulting from an audit or other review of a pass-through entity's composite tax return to the pass-through entity. The department does not report the details of audit adjustments to the eligible participants in the composite return because the pass-through entity is responsible for representing the eligible participants in appeals.

(3) If the audit adjustments resulting from an audit or other review of a pass-through entity's information return affect the Montana tax returns filed by the partners, shareholders, or other owners of the pass-through entity, then the department may adjust an owner's tax return to reflect the audit adjustments that passed through to the owner. If the department adjusts an owner's tax return, it will inform the owner of the details of the adjustments to its tax return, but the department will not report to the pass-through entity the details of the adjustments to the owner's tax return.

(4) If the audit adjustments resulting from an audit or other review of a pass-through entity's information return affect Montana tax returns that partners, shareholders, and other owners have not filed, the department may request that the owners file tax returns. If an owner does not file a tax return, the department may estimate the owner's tax liability in accordance with 15-30-2605, MCA. The department will not report the details of the owner's estimated tax liabilities to the pass-through entity.

(5) Except as provided in (6), for multi-tiered entity structures, the department will not report the details of audit adjustments resulting from an audit or other review of a pass-through entity's information return to a related entity, unless the related entity is an owner of the audited pass-through entity. For example:

(a) if an audit or other review of a first-tier entity results in an audit adjustment the department will report the details of the audit adjustments to the first-tier entity and the owners of the first-tier entity. However, the department will not report the details of the audit adjustments to the owners of the second-tier entity, the third-tier or any higher-tier entity.

(6) If a single member limited liability company that is considered a disregarded entity for federal tax purposes is an owner of the pass-through entity, the department may report the details of the audit adjustments directly to the disregarded entity's owner.

(7) In multi-tiered entity structures, audit adjustments resulting from an audit or other review of a pass-through entity's tax return may affect the tax returns of entities and individuals that are not direct owners of the pass-through entity. If audit adjustments pass through to these indirect owners the department may:

(a) adjust the indirect owner's tax returns. If the department adjusts an indirect owner's tax return, then the department will notify the indirect owner of the adjustments to its tax return, but the department will not report the details of the pass-through entity's audit adjustments that passed through to the indirect owner. If the indirect owner wants the details of the audit adjustments that affected its return, the indirect owner will have to contact the pass-through entity that it owns an interest in for that information; or

(b) estimate the indirect owner's tax liability in accordance with 15-30-2605, MCA. If the department estimates an indirect owner's tax liability, the department will notify the indirect owner of the estimated tax liability. The department will not report the details of the pass-through entity's audit adjustments that passed through to the indirect owner. If the indirect owner wants the details of the audit adjustments that affected its return, the indirect owner will need to contact the pass-through entity that it owns an interest in for that information.

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(1) The department may revise any return of an entity if, in the opinion of the department, it is incorrect in any essential respect.

(2) If a revision to a pass-through entity's information return changes the owners' distributive share of Montana source income, gain, loss, deduction, or credit or item of income, gain, loss, deduction, or credit, the department will review the owners' tax returns and determine if additional tax is due. If additional tax is due, the department may assess tax, penalties, and interest as follows:

(a) if the additional tax, penalties, and interest are due on a return filed by an individual, trust, or estate, it may be assessed within:

(i) five years of when the return was filed, if it pertains to a tax period beginning before January 1, 2015; or

(ii) three years after the return was filed if it pertains to a tax period beginning after December 31, 2014; or

(b) if the additional tax, penalties, and interest are due on a return filed by a C corporation, it may be assessed within three years of when the return was filed.

(3) If a revision to a pass-through entity's composite return changes the amount of tax, penalties, and interest due on a composite return filed by the pass-through entity, the tax, penalties, and interest may be assessed within:

(a) five years of when the composite return was filed if it pertains to a tax period beginning before January 1, 2015; or

(b) three years after the return was filed if it pertains to a tax period beginning after December 31, 2014.

(4) For purposes of (2) and (3), any return filed before the original due date is considered to be filed on the original due date.

(5) If no return was filed by the taxpayer, the department may assess tax, penalties, and interest at any time.

(6) There are various circumstances under which the statute of limitations described in (2)(a) and (3) may be extended as provided in 15-30-2605, MCA. The statute of limitations described in (2)(b) may be extended as provided in 15-31-509, MCA.

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(1) For purposes of the reporting requirements for pass-through entities that have Montana apportionable or nonapportionable income and determining their Montana source income and Montana tax liability, the department adopts by reference the following rules contained in ARM Title 42, chapter 26 - Corporate Multistate Activities, subchapters:

(a) 1 - General Provisions;

(b) 2 - Income Allocation and Apportionment, except ARM 42.26.204, 42.26.228, 42.26.229, and 42.26.260;

(d) 6 - Railroads;

(e) 7 - Trucking;

(f) 8 - Airlines;

(g) 9 - Special Rules for Construction Contracts;

(h) 10 - Publishing Companies - Apportionment;

(i) 11 - Television and Radio Broadcasting;

(j) 12 - Telecommunication Services for Corporate Income Taxes; and

(k) 13 - Financial Institutions.

(2) The pass-through entity may petition for or the department may require an alternative method of reporting activity in the state as provided in 15-1-601, MCA.

(3) When applying the rules referred to in (1), the term "entity" replaces the term "corporation," and the provisions of Title 15, chapter 30, MCA, replace references to Title 15, chapter 31, MCA.

(4) The reporting requirements in ARM 42.9.107 are in addition to and not in lieu of any rules referred to in (1) and the provisions of the Multistate Tax Compact, as adopted in 15-1-601, MCA.

(5) A partnership whose operations are unitary with the business operations of a direct or indirect corporate partner and whose apportionment factors are included in the computation of that corporate partner's apportionment factors, pursuant to ARM 42.26.228, are considered a part of the corporate group for the purpose of applying the Finnigan Rule described in ARM 42.26.260.

(1) A partnership or S corporation may elect to file a composite tax return and pay a composite tax on behalf of all eligible participants who consent to be included in the filing.

(2) The partnership or S corporation filing a composite return must maintain and make available to the department, on request, a written power of attorney of each consenting, eligible participant authorizing it to file the composite return and act on the individual's behalf.

(3) Any assessments of additional tax, penalties, and interest are the responsibility of the entity filing the composite return and will be based on the entity's total liability. Any additional assessment will be based on the total liability of the composite return.

(4) The entity or its representative must represent the eligible participants in any appeals, claims for refunds, hearings, or court proceedings in any matter relating to the filing of the composite return.

(5) Eligible participants who are nonresident individuals, estates, trusts, or foreign C corporations, and consent to be included in a composite filing, are consenting to such filing in lieu of filing a Montana income or corporate license tax return. The department will not accept Montana income or corporate license tax returns filed by an eligible participant for any tax year the eligible participant made a composite election.

(6) Eligible participants who are second-tier pass-through entities and consent to be included in a composite filing are consenting to such filing in lieu of filing a Montana partnership or S corporation information and composite tax return. The department will not accept Montana partnership or S corporation information and composite tax returns filed by an eligible participant for any tax year the eligible participant made a composite election.

(1) The Montana composite income tax return is due on or before the due date (including extensions) of the entity's information return provided in ARM 42.9.301 and 42.9.401. Extension of the date for filing the composite return does not extend the date for paying the composite tax. Interest and a late payment penalty accrue from the original due date of the return.

(2) The composite return must include the name, address, social security or federal employer identification number, ownership interest in the entity that is used to calculate the owner's distributive share of income, and composite return liability of each consenting eligible participant included in the filing.

(1) The composite tax, required to be remitted to the department with the composite tax return, is the sum of each electing eligible participant's composite tax liability.

(2) A participant's composite tax liability is assessed on the participant's share of the entity's federal income, adjusted according to 15-30-3312, MCA, and multiplied by the composite tax ratio. To determine a participant's composite tax liability, the entity must use the five-step calculation in (3).

(3) The composite return liability of each eligible consenting participant is calculated as follows:

(a) compute the entity's composite tax ratio, used to determine the Montana portion of the tax, by:

(i) calculating the entity's federal income;

(ii) calculating the entity's Montana source income;

(A) if the entity is only doing business in Montana, the entity's Montana source income is the net taxable income after Montana additions and deductions to income as allowed in 15-30-3302, MCA; or

(B) if the entity is engaged in multistate business, the entity's Montana source income is determined as provided in ARM 42.9.107; and

(iii) dividing the entity's Montana source income by the entity's federal income from all sources;

(b) compute each participant's share of federal income by multiplying the entity's federal income by the ratio of the participant's distributive share of Montana source income over the entity's total Montana source income;

(c) subtract the allowable standard deduction for a single individual and one exemption allowance from each participant's share of federal taxable income to obtain each participant's adjusted share of federal income;

(d) apply the rates specified in 15-31-121, MCA, for C corporations and the rates specified in 15-30-2103, MCA, for all other eligible participants on each participant's adjusted share of federal income to obtain the amount of tentative tax used to determine the Montana composite tax; and

(e) compute each participant's Montana composite tax liability by multiplying the tentative tax on the participant's share of federal income determined in (d) by the composite tax ratio computed in (a).

(4) Examples of the computations in (3) are as follows:

(a) Example 1a. Composite tax ratio: Assume a partnership's federal income from all sources (as reported on Form PR-1, line 15) is $60,000 and the partnership's Montana source income (as reported on Form PR-1, line 21) is $20,000. The composite tax ratio is $20,000/$60,000 = 33.333333%.

(b) Example 1b. Participant's share of federal income: Assume that the partnership in Example 1a. has one electing eligible participant in the composite tax return, an individual. To determine the electing partnership's share of federal taxable income, multiply the entity's federal income (as reported on Form PR-1, line 15) by the ratio of the participant's distributive share of Montana source income (as reported on the participant's Montana Schedule K-1, part 2) over the entity's total Montana source income (Form PR-1, line 21). Assume the participant's share of Montana source income is $10,000.

Participant's share of Montana source income	$10,000
Divide by total Montana source income (Form PR-1, line 21)	÷ $20,000
Ratio of participant's share of Montana source income over the entity's total Montana source income	50%
Multiply by the partnership's federal income from all sources (Form PR-1, line 15)	x $60,000
Participant's share of federal income	$30,000

(c) Example 1c. Participant's share of adjusted federal income: Reduce the electing partner's distributive share of federal income from all sources by the allowable standard deduction for a single individual and one exemption allowance.

Electing partner's distributive share of federal income	$30,000
Standard deduction	($ 4,460)
Exemption allowance	($ 2,380)
Participant's share of adjusted federal taxable income	$23,160

(d) Example 1d. Participant's tentative tax: Using the tax rates in 15-30-2103, MCA, assume the tax is $1,043.

(e) Example 1e. Participant's Montana composite tax liability: Multiply the resulting tentative tax by the composite tax ratio determined in Example 1a.

Tax on the distributive share of federal income	$1,043
Composite tax ratio (from Example 1a.)	x 33.333333%
Total Montana composite tax liability	$348

(5) Tax credits may not be claimed against composite tax.

(6) Separately stated deductions subjected to election or limitation on the participant's federal income tax return cannot be subtracted from the participant's share of the federal income for the purpose of calculating composite tax.

(7) When shareholders and partners elect to be included in the composite return, the entity must apply their share of mineral royalty tax withheld on mineral rights paid to the entity, and their share of pass-through withholding paid on behalf of the entity, to the composite tax liability.

(8) The entity is required to make quarterly estimated tax payments as prescribed by 15-30-2512, MCA, on the total composite tax liability as computed in (1).

(9) For the purposes of this rule, "federal income" means an entity's income from all sources as determined for federal income tax purposes.

(1) Net operating losses pass through to the individual shareholders and partners and are not available for carryover or carryback on the entity return. When these shareholders and partners elect to be included in the composite return, they lose their ability to use their distributive share of the net operating losses.

(1) Every partnership that has Montana source income must file a Form PR-1, Montana Partnership Information and Composite Tax Return, on or before the 15th day of the third month following the close of its annual accounting period.

(2) A six-month extension of time to file a partnership return is automatically allowed if any tax, penalties, and interest due are paid on or before the date the return is filed.

(3) A partnership required to file a Montana partnership information return is subject to a late-filing penalty if:

(a) the Montana partnership information return is not filed by the due date (including extensions);

(b) a copy of the partnership's federal partnership return is not filed with the Montana partnership information return; or

(i) name, address, and social security or federal identification number of each partner;

(ii) the partnership's Montana source income;

(iii) each partner's distributive share of Montana source income, gain, loss, deduction, or credit or items of income, gain, loss, deduction, or credit; and

(iv) each partner's distributive share of income, gain, loss, deduction, or credit, or item of income, gain, loss, deduction, or credit from all sources.

(1) Effective for tax years beginning after December 31, 2013, a partnership having more than 100 partners over the course of its tax year must electronically file a Montana Partnership Information and Composite Return (Form PR-1), using department-approved e-filing tax software.

(2) For purposes of this rule, the more than 100-partner threshold shall be considered satisfied if a partnership, on any one day over the course of the year, has more than 100 partners. For example:

(a) Partnership A has 95 partners on January 1, 2014. On April 1, 2014, ten new partners acquire partnership interests in Partnership A so that there are 105 total partners. On August 1, 2014, one of Partnership A's partners acquired the interests of ten partners which reduced the total number of partners to 95. Partnership A must file its Form PR-1 electronically because over the course of the tax year, the partnership had more than 100 partners.

(3) A partnership may request a waiver of the electronic filing requirement if the partnership can demonstrate that compliance with the requirement would cause an undue hardship.

(4) To request a waiver, the partnership must complete and timely submit a Partnership e-File Waiver Request form to the department along with the required supporting information as detailed on the form at least 30 days prior to the partnership's return due date including extensions. Examples of the supporting information include, but are not limited to, a description of the hardship, the incremental costs, and the steps to be taken to ensure the partnership's ability to file future returns electronically.

(5) A waiver request may not be submitted with the partnership's return or with a request for an extension for filing the partnership's return.

(6) Within 25 days after receipt of a waiver request provided for in (3), the department shall either approve or deny the request.

(1) Except as provided in (2) and (3), guaranteed payments made to individual partners pursuant to section 707 of the Internal Revenue Code, 26 U.S.C. 707, are sourced to Montana based upon the Montana apportionment factor of the partnership. For example:

(a) A nonresident taxpayer's federal adjusted gross income includes three hundred thousand dollars ($300,000) of guaranteed payments for a designated use of capital received from a partnership that has a fifty percent (50%) Montana apportionment factor. One hundred and fifty thousand dollars ($150,000) of the guaranteed payments are included in the partner's gross income from Montana sources based on the apportionment factor of the partnership.

(2) Guaranteed payments made to a retired partner, per 4 U.S.C., section 114(b)(1)(I), are sourced to the recipient's state of domicile.

(3) Guaranteed payments made to an individual partner as compensation for services are sourced to Montana if the services provided by the individual partner are performed in the state. For example:

(a) A nonresident taxpayer's federal adjusted gross income includes five thousand dollars ($5,000) of guaranteed payments for services performed outside of Montana received from a partnership that has a fifty percent (50%) Montana apportionment factor. None of the guaranteed payments are included in the partner's gross income from Montana sources because the services were performed outside of Montana.

(b) A nonresident taxpayer's federal adjusted gross income includes five thousand dollars ($5,000) of guaranteed payments for services performed in Montana received from a partnership that has a fifty percent (50%) Montana apportionment factor. All of the guaranteed payments are included in the partner's gross income from Montana sources because the services were performed in Montana.

(1) Every S corporation that has Montana source income must file a Form CLT-4S, Montana S Corporation and Composite Information Return, on or before the 15th day of the third month following the close of its annual accounting period.

(2) A six-month extension of time to file an S corporation return is automatically allowed if any tax, penalties, and interest due are paid on or before the date the return is filed.

(3) An S corporation required to file a Montana S corporation information return is subject to a late filing penalty if:

(a) the Montana S corporation information return is not filed by the due date (including extensions);

(b) a copy of the S corporation's federal return is not filed with the Montana S corporation information return; or

(i) name, address, and social security or federal identification number of each shareholder;

(ii) the S corporation's Montana source income;

(iii) each shareholder's pro rata share of separately and nonseparately stated Montana source income, gain, loss, deduction, or credit, or item of income, gain, loss, deduction, or credit; and

(iv) each shareholder's pro rata share of separately and nonseparately stated income, gain, loss, deduction, or credit, or item of income, gain, loss, deduction, or credit from all sources.

(1) An S corporation shareholder's income is that income included in federal adjusted gross income plus:

(a) an amount equal to the federal tax on capital gains and the minimum tax paid by the corporation times the shareholder's percentage of ownership;

(b) an amount equal to the excess net passive federal income tax paid by the corporation times the shareholder's percentage of ownership; and

(c) all other amounts equal to federal taxes paid by the corporation that reduce the shareholder's distribution of the net S corporation income.

(1) Any single-member limited liability company (LLC) treated as a disregarded entity that has Montana source income, whether formed in Montana or in another state or country, must file a Montana Disregarded Entity Information Return, Form DER-1, as provided in this rule unless the sole member is an individual who has been a full-year Montana resident during the applicable reporting period.

(2) If the single member of the LLC is a C corporation, the LLC must file the return on or before the 15th day of the third month following the close of the C corporation's annual accounting period.

(3) If the single member of the LLC is an S corporation, the LLC must file the return on or before the 15th day of the third month following the close of the S corporation's annual accounting period.

(4) If the single member of the LLC is a qualified subchapter S subsidiary, the LLC must file the return on or before the due date of the parent S corporation's information return.

(5) If the single member of the LLC is a real estate investment trust (REIT), the LLC must file the return on or before the 15th day of the third month after the close of the REIT's annual accounting period.

(6) If the single member of the LLC is a qualified REIT subsidiary, the LLC must file the return on or before the due date of the parent REIT's information return.

(7) If the single member of the LLC is an individual, estate, or non-grantor trust, the LLC must file the return on or before the 15th day of the fourth month following the close of the annual accounting period of the individual, estate, or trust.

(8) If the single member of the LLC is a partnership, the LLC must file the return on or before the 15th day of the third month following the close of the partnership's annual accounting period.

(9) If the single member of the LLC is a real estate mortgage investment conduit (REMIC), the LLC must file the return on or before the 15th day of the fourth month after the close of the REMIC's annual accounting period.

(10) If the single member of the LLC is a partnership that elected under IRC 761 to be excluded from some or all of the partnership tax rules, the LLC must file the return on or before April 15.

(11) If the single member of the LLC is not described in (1) through (10), the LLC must file the return on or before August 31.

(12) An LLC required to file an information return, as provided for in (1) through (11), may obtain an automatic extension of time to file its information return if its owner has qualified for an extension of time to file a return. The extended due date is the same as the owner's federal extended due date. The LLC is allowed an automatic extension to file its information return for up to six months if the owner is not required to file a federal information return.

(13) An LLC required to file an information return, as provided for in (1) through (11), is subject to a late-filing penalty if:

(a) the Montana disregarded entity information return is not filed by the due date (including extensions); or

(b) a return is filed that does not include all of the following information:

(i) name, address, and social security or federal identification number of each member or other owner during the tax period;

(ii) the LLC's employer identification number, if any;

(iii) any assumed business name(s) the LLC has registered with the Montana Secretary of State, under which it conducts any trade, business, or occupation in the state, or under which it holds title to any real or tangible personal property in the state;

(iv) the state, country, and date of formation of the LLC and, if the LLC was formed in another state or country, the date the LLC registered with the Secretary of State; and

(v) the LLC's Montana source income, gain, loss, deduction, or credit.

(1) Gain on the sale of an interest in a single member limited liability company (LLC) that is a disregarded entity is sourced to Montana as if the single member LLC did not exist and the assets of the LLC are owned directly by the sole member (or sole member and spouse, if applicable). The following example illustrates how this rule is applied:

(a) Nonresident individual C is the sole member of LLC D. LLC D is a single member LLC that is disregarded as a separate entity for tax purposes. LLC D's only asset is rental property located in Montana. If nonresident individual C sells his interest in LLC D, the transaction is sourced to Montana in the same way that the gain would be sourced if C owned LLC D's assets directly and sold them.

(1) Any entity that has Montana source income, that elects under IRC 761 to be excluded from application of some or all of the partnership tax rules on or after January 1, 2003, must file a Montana Form DER-1 on or before the 15th day of the fourth month following the close of the annual accounting period of the owners.

(2) An entity required to file an information return provided in (1) can obtain an automatic extension of time to file its information return if its owner has qualified for extension of time to file a return. The extended due date is the same as the owner's federal extended due date. The entity is allowed an automatic extension to file its information return of up to six months if the owners are not required to file a federal information return.

(3) A disregarded entity required to file the information returns provided in (1) is subject to a late-filing penalty if:

(a) the Montana disregarded entity information return is not filed by the due date (including extensions); or

(b) a return is filed that does not include all of the following information:

(i) name, address, and social security or federal identification number of each partner, member, or other owner;

(ii) the date of the election and the internal revenue district (or service center serving the district) where the election was filed;

(iii) any assumed business name(s) the disregarded entity has registered with the Montana Secretary of State, under which it conducts any trade, business, or occupation in the state, or under which it holds title to any real or tangible personal property in the state; and

(iv) if the disregarded entity is a limited liability company, limited liability partnership, limited partnership, or any other unincorporated entity formed under the laws of Montana or any other state or country, the state, county, and date of formation.

(1) Any corporation described in IRC 1361(b)(3) whose parent elects to treat as a qualified subchapter S subsidiary on or after January 1, 2003, and that has Montana source income, must file a Montana Form DER-1 on or before the 15th day of the third month following the close of the parent S corporation's annual accounting period.

(2) A corporation required to file an information return provided in (1) can obtain an automatic extension of time to file its information return if its owner has qualified for an extension of time to file a return. The extended due date is the same as the owner's federal extended due date. The corporation is allowed an automatic extension to file its information return of up to six months if the owner is not required to file a federal information return.

(3) A corporation required to file the information returns provided in (1) is subject to a late-filing penalty if:

(a) the Montana disregarded entity information return is not filed by the due date (including extensions); or

(b) a return is filed that does not include all of the following information:

(i) name, address, and federal identification number of its S corporation parent;

(ii) the date of the election and the internal revenue district (or service center serving the district) where the election was filed;

(iii) any assumed business name(s) the qualified subchapter S subsidiary has registered with the Montana Secretary of State, under which it conducts any trade, business, or occupation in the state, or under which it holds title to any real or tangible personal property in the state; and

(iv) the state, country, and date of its incorporation.