HOME    SEARCH    ABOUT US    CONTACT US    HELP   
           
Montana Administrative Register Notice 42-2-941 No. 19   10/15/2015    
Prev Next

 

BEFORE THE DEPARTMENT OF REVENUE

OF THE STATE OF MONTANA

 

In the matter of the adoption of New Rules I and II and the amendment of ARM 42.9.101, 42.9.102, 42.9.103, 42.9.104, 42.9.105, 42.9.106, 42.9.501, 42.9.510, and 42.9.520 pertaining to pass-through entities

)

)

)

)

)

)

NOTICE OF PUBLIC HEARING ON PROPOSED ADOPTION AND AMENDMENT

 

TO: All Concerned Persons

 

1. On November 4, 2015, at 9 a.m., the Department of Revenue will hold a public hearing in the Third Floor Reception Area Conference Room of the Sam W. Mitchell Building, located at 125 North Roberts, Helena, Montana, to consider the proposed adoption and amendment of the above-stated rules. The conference room is most readily accessed by entering through the east doors of the building facing Sanders Street.

 

2. The Department of Revenue will make reasonable accommodations for persons with disabilities who wish to participate in this public hearing or need an alternative accessible format of this notice. If you require an accommodation, advise the department of the nature of the accommodation needed, no later than 5 p.m. on October 26, 2015. Contact Laurie Logan, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-7905; fax (406) 444-3696; or e-mail lalogan@mt.gov.

 

3. The rules proposed to be adopted provide as follows:

 

NEW RULE I INACTIVE PASS-THROUGH ENTITIES (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.

 

AUTH:  15-1-201, 15-30-2620, 15-31-501, MCA

IMP: 15-30-3302, 15-31-101, MCA

 

REASON: The department proposes adopting New Rule I to assist the department in determining the business purpose and filing requirements of registered limited liability companies and partnerships. The Montana Secretary of State provides the department with information regarding newly registered entities. However, the department often needs additional information to determine if an entity is engaged in business in the state of Montana. The information provided will also support other department processes that assist the taxpayer in reviving or dissolving entities previously registered with the Secretary of State.

 

NEW RULE II PARTNERS, SHAREHOLDERS, MANAGERS, AND MEMBERS WHO ARE TAX-EXEMPT ENTITIES (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;

(c) its actual activities; and

(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;

(c) a copy of the by-laws; and

(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.

 

AUTH: 15-30-2620, 15-31-501, MCA

IMP: 15-30-3313, 15-30-2151, 15-31-101, 15-31-102, MCA

 

REASON: The department proposes adopting New Rule II to provide guidance to pass-through entities and their partners, shareholders, managers, or members who are classified as tax-exempt. The proposed rule provides a process for a partner, shareholder, manager, or member who is classified as tax-exempt to submit an application to the department to affirm tax-exempt status. The proposed rule is not intended to provide for an exemption from pass-through withholding on tax-exempt entities, but rather to provide a standard by which the department may consider an entity in compliance with their filing obligations.

 

4. The rules proposed to be amended provide as follows, new matter underlined, deleted matter interlined:

 

42.9.101 DEFINITIONS The following definitions apply to this chapter:

(1) and (2) remain the same.

(3) "Other nonresident entity" means an entity, organization, or account whose principal place of business or administration is located outside the state of Montana that has not elected, for tax purposes, to be treated as a disregarded entity, partnership, or corporation, and is not an estate or trust.

(3)(4) A participant's "share "Share of a partnership's or S corporation's income" is means the aggregate of his, her, or its a participant's share of the pass-through entity's income, gain, loss, or deduction, or item of income, gain, loss, or deduction.

 

AUTH: 15-30-2620, 15-30-3312, MCA

IMP: 15-30-3311, 15-30-3312, 15-30-3313, MCA

 

REASON: The department proposes amending ARM 42.9.101 to define "other nonresident entity" because the term encompasses all other nonresident entities not addressed specifically in ARM Title 42, chapter 9. Defining this term will provide helpful guidance for pass-through entities using the rules in this chapter.

The department further proposes amending the definition in newly numbered (4) to properly format the language as a definition.

 

42.9.102 PASS-THROUGH ENTITY INFORMATION RETURNS (1) and (2) remain the same.

(3) remains the same but is renumbered (4).

(4)(3) Partnership and S corporation returns can also be filed electronically through the Taxpayer Access Point (TAP) on the Department of Revenue's web site at revenue.mt.gov or the joint federal/state program using Montana-approved e-filing tax software vendors.

(5) remains the same.

 

AUTH: 15-1-201, 15-30-2620, 15-31-501, MCA

IMP: 15-30-2602, 15-30-2603, 15-30-2616, 15-30-3302, 15-30-3311, 15-30-3312, 15-31-101, 15-31-111, MCA

 

REASON: The department proposes amending ARM 42.9.102 to remove the Taxpayer Access Point (TAP) as an electronic filing option for partnerships and S corporations, due to low usage of this filing option. Less than 0.5 percent of the returns filed by partnerships and S corporations in tax years 2011 and 2012 were filed using TAP and the filing of pass-through returns through TAP was discontinued beginning with the 2013 tax year. Usage of this electronic filing option was too low to justify programming and testing costs associated with maintaining this feature.

The department further proposes reversing the order of (3) and (4) to improve the language flow of the rule.

 

42.9.103 LATE-FILE PENALTY FOR PASS-THROUGH ENTITIES (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) The late-filing penalty is calculated by multiplying $10 times the number of the pass-through entity's partners, shareholders, members, or other owners at the close of the tax year for each month or fraction of each month the information return is not filed, not to exceed five months. For example, if a pass-through entity had 20 members at the close of its tax year and filed its information return six months after it was due, the late-filing penalty would be $1,000 ($10 x 20 x 5)

(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.

(3) The late-filing penalty described in (2) is not imposed on certain small pass-through entities. If the pass-through entity has ten or fewer partners, shareholders, members, or other owners, the penalty will not be imposed if the pass-through entity demonstrates that:

(a) each of the partners, shareholders, members, or other owners is an individual, an estate of a deceased individual, or a C corporation;

(b) each partner, shareholder, member, or other owner has filed any required tax return or report with the department by the due date (including extensions) for the return or report; and

(c) each partner, shareholder, member, or other owner paid all taxes when due.

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

 

AUTH: 15-1-201, 15-30-2620, 15-31-501, MCA

IMP: 15-30-2602, 15-30-2603, 15-30-3302, 15-30-3311, 15-30-3312, 15-31-101, 15-31-111, MCA

 

REASON: The department conducted a review of ARM 42.9.103 and concluded that the method for calculating the late filing penalty for pass-through entities is adequately described in statute and therefore proposes striking the duplicative language from the rule.

 

42.9.104 CONSENT, COMPOSITE RETURN, OR WITHHOLDING FOR PARTNERS, SHAREHOLDERS, MANAGERS, AND MEMBERS WHO ARE NONRESIDENT INDIVIDUALS, ESTATES, OR TRUSTS (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) through (6) remain the same.

(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.

(7) remains the same, but is renumbered (8).

 

AUTH: 15-30-2620, 15-30-3313, MCA

IMP: 15-30-3312, 15-30-3313, MCA

 

REASON: The department proposes amending ARM 42.9.104 to implement Senate Bill (SB) 386, L. 2015, which established a de minimis standard for pass-through entities that are required to withhold on an owner that is a nonresident individual, estate, or trust.

The department proposes to establish first, that a pass-through entity may not be assessed withholding under certain conditions and second, that penalties and interest may still be the responsibility of the pass-through entity for failure to withhold when required to do so.

Section 15-30-3313, MCA, requires a pass-through entity to withhold income tax on behalf of its owners unless a waiver from this requirement has been granted or the owner has elected to be included in a composite return. Several entities who do not meet the exceptions fail to withhold when they would otherwise be required to do so, including those entities that have been specifically notified in writing of their withholding requirement.

The department further proposes adding 15-30-3313, MCA, as rulemaking authority for the rule based on the enactment of SB 386, which added rulemaking provisions to the statute.

 

42.9.105 CONSENT, COMPOSITE RETURN, OR WITHHOLDING FOR PARTNERS, SHAREHOLDERS, MANAGERS, AND MEMBERS THAT ARE FOREIGN C CORPORATIONS (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 corporate license tax or corporate 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 corporation license tax return or 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 corporate license tax or corporate 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 corporation license tax return or 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) remains the same.

(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

(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.

(7) remains the same, but is renumbered (8).

 

AUTH: 15-30-2620, 15-30-3313, MCA

IMP: 15-30-3312, 15-30-3313, MCA

 

REASON: The department proposes amending ARM 42.9.105 to implement Senate Bill (SB) 386, L. 2015, which established a de minimis standard for pass-through entities that are required to withhold on an owner that is a foreign C corporation or other nonresident entity.

The department further proposes establishing first, that a pass-through entity may not be assessed withholding under certain conditions and second, that penalties and interest may still be the responsibility of the pass-through entity for failure to withhold when required to do so.

Section 15-30-3313, MCA, requires a pass-through entity to withhold income tax on behalf of its owners unless a waiver from this requirement has been granted or the owner has elected to be included in a composite return. Several entities who do not meet the exceptions fail to withhold when they would otherwise be required to do so, including those entities that have been specifically notified in writing of their withholding requirement.

The department further proposes adding 15-30-3313, MCA, as rulemaking authority for the rule based on the enactment of SB 386, which added rulemaking provisions to the statute.

 

42.9.106 COMPOSITE RETURN, WITHHOLDING, OR WAIVER FOR PARTNERS, SHAREHOLDERS, MANAGERS, AND MEMBERS THAT ARE SECOND-TIER PASS-THROUGH ENTITIES (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, corporation license, 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 the a domestic second-tier pass-through entity for the current tax year, as set forth in (1), if the first-tier pass-through entity:

(a) obtains from the domestic second-tier pass-through entity a completed Form PT-STM PT-AGR for the year and files it with the department at least 45 days before the original by the due date of the first-tier pass-through entity's tax return; and , 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 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.

(b) establishes to the satisfaction of the department that the second-tier pass-through entity's distributive share of Montana source income for the current year will be fully accounted for in individual income, corporation license, or other income tax returns filed with the state.

(3) The department will notify the first-tier pass-through entity of its decision to waive or not waive the requirement to file a composite return or remit within 30 days after receipt of the completed Form PT-STM. The department will generally waive the requirement if it can determine that all of the income for the three most recent tax years has been reported on timely filed tax returns and that all tax due under those returns has been paid.

(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) A second-tier pass-through entity may file Form PT-STM with the department directly. The second-tier pass-through entity must notify and provide a copy of the completed Form PT-STM to the first-tier pass-through entity. The Form PT-STM is due at least 45 days before the original due date of the first-tier pass-through entity's tax return. If the second-tier pass-through entity files Form PT-STM, the first-tier pass-through entity is still subject to the filing requirements as provided in (1) and (2).

(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) The department may grant a conditional waiver that lasts longer than one year on written request included with the Form PT-STM if, in addition to the conditions provided in (3), the first-tier pass-through entity:

(a) agrees to notify the department if the ownership of the second-tier pass-through entity and, if applicable, the ownership of any higher-tier pass-through entities changes;

(b) agrees to remit the amount provided under (1) within 60 days after notice from the department that the second-tier pass-through entity's distributive share was not fully accounted for on corporation license, individual income, or other tax returns filed with the department; and

(c) agrees to be subject to the personal jurisdiction of the state for the collection of the remittance.

(5) For the purposes of (2), (3), and (4), and pursuant to 15-30-3313, MCA, a "domestic second-tier pass-through entity" means a second-tier pass-through entity whose interest is entirely held, either directly or indirectly, by one or more resident individuals.

(6) The department's waiver is conditioned upon there being no change in material facts, including a change of ownership of the second-tier pass-through entity and, if applicable, the ownership of any higher-tier pass-through entity changes, and is automatically revoked on the happening of any such change.

(7) remains the same but is renumbered (6).

(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) remains the same.

(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.

(9) This rule is effective for tax years beginning after December 31, 2011.

 

AUTH: 15-1-201, 15-30-2620, 15-30-3313, MCA

IMP: 15-1-201, 15-30-2620, 15-30-3302, 15-30-3312, 15-30-3313, MCA

 

REASON: The department proposes amending ARM 42.9.106 to implement Senate Bill (SB) 386, L. 2015, which established a de minimis standard for first-tier pass-through entities that are required to withhold on an owner that is also a pass-through entity, and provides waiver provisions for first-tier pass-through entities whose income ultimately passes through to a publicly traded partnership or resident individuals.

The department proposes amending the rule to establish first, that a pass-through entity may not be assessed withholding under certain conditions and second, that penalties and interest may still be the responsibility of the pass-through entity for failure to withhold when required to do so.

Section 15-30-3313, MCA, requires a pass-through entity to withhold income tax on behalf of its owners unless a waiver from this requirement has been granted or the owner has elected to be included in a composite return. Several entities who do not meet the exceptions fail to withhold when they would otherwise be required to do so, including those entities that have been specifically notified in writing of their withholding requirement. Language was also added to establish a process for which a first-tier entity with a publicly traded partnership in its ownership structure may apply for a waiver. Due to the complex nature of these structures and the revolving interest of potentially hundreds and thousands of partners, a different approach is warranted in processing waiver requests meeting certain conditions.

The department also proposes requiring Form PT-AGR to be filed for any second-tier pass-through entity regardless of the owner's status as a resident or nonresident to provide a mechanism for the department to make the withholding requirement determination in order to effectively carry out the intent of the law.

The department further proposes striking existing (9) because its applicability is out of date, and proposes adding 15-30-3313, MCA, as rulemaking authority for the rule based on the enactment of SB 386, which added rulemaking provisions to the statute.

 

42.9.501 PASS-THROUGH ENTITY INFORMATION RETURNS FOR SINGLE-MEMBER LLC TREATED AS DISREGARDED ENTITY (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:

(a) the sole member is an individual who has been a full-year Montana resident during the applicable reporting period; and

(b) the single member LLC itself does not hold an interest in a pass-through entity.

(2) through (11) remain the same.

(12) See ARM 42.15.201 and 42.15.202 to determine the time for filing a short-period return.

(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) and (b) remain the same.

 

AUTH: 15-1-201, 15-30-2620, 15-30-3302, 15-31-501, MCA

IMP: 15-30-2602, 15-30-2603, 15-30-3302, 15-30-3311, 15-30-3312, 15-31-101, 15-31-111, MCA

 

REASON: The department proposes amending ARM 42.9.501 to clarify that for single-member LLCs the Form DER-1 is due by the due date of the owner's information return, including extensions.

The department proposes adding language to require Form DER-1 when any single-member LLC owns an interest in another pass-through entity. The information provided on Form DER-1 is necessary to determine compliance in complex pass-through structures. It is difficult for the department to make pass-through relationship connections in the absence of information returns. Requiring the Form DER-1, as in the situation set forth in (1) new (b), will provide the department with the information necessary to make the proper determinations in regard to pass-through withholding and estimates of pass-through returns.

The department further proposes striking existing (12) because it references two repealed rules.

 

42.9.510 PASS-THROUGH ENTITY INFORMATION RETURNS FOR PARTNERSHIPS ELECTING IRC 761 (1) Any entity that elected under IRC 761, on or before December 31, 2002, to be excluded from application of some or all of the partnership tax rules and that, on or after January 1, 2003, is either engaged in a trade, business, or occupation in the state, or owns real or tangible personal property located in the state, must file a Montana Disregarded Entity Information Return, Form DER-1, on or before August 31, 2003.

(2)(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 90 days after the date it makes the election 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) and (2) is subject to a late-filing penalty if:

(a) and (b) remain the same.

(4) Any entity required in (1) or (2) to file an information return must file a Montana Form DER-1, within 90 days of the date:

(a) its 761 election is changed or revoked for federal tax purposes;

(b) any capital or profit interest of any partner, member, or other owner is transferred, liquidated, or redeemed;

(c) it is dissolved, liquidated, merged, or consolidated with another entity;

(d) it sells substantially all its assets; and

(e) it files an application for a certificate of withdrawal with the Montana Secretary of State.

 

AUTH: 15-1-201, 15-30-2620, 15-30-3302, 15-31-501, MCA

IMP: 15-30-2602, 15-30-2603, 15-30-3302, 15-30-3311, 15-30-3312, 15-31-101, 15-31-111, MCA

 

REASON: The department proposes amending ARM 42.9.510 to clarify that the Form DER-1 is due annually from partnerships electing to be treated as disregarded entities under IRC section 761. Disregarded entities are subject to the withholding requirements outlined in 15-30-3313, MCA. This requirement cannot be fulfilled or enforced if a disregarded entity does not file annually. 

The department further proposes striking (1) because its applicability is out of date, and proposes striking (4) because it no longer applies with the proposed amendment to newly numbered (1), which removes the 90-day language.

 

42.9.520 PASS-THROUGH ENTITY INFORMATION RETURNS FOR QUALIFIED SUBCHAPTER S SUBSIDIARIES (1) Any corporation described in IRC 1361(b)(3), for which an election to treat the corporation as a qualified subchapter S subsidiary was made on or before December 31, 2002, and that on or after January 1, 2003, is either engaged in a trade, business, or occupation in the state, or owns real or tangible personal property located in the state, must file a Montana Disregarded Entity Information Return, Form DER-1, on or before August 31, 2003.

(2)(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 90 days after the election is made 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) and (2) is subject to a late-filing penalty if:

(a) and (b) remain the same.

(4) Any corporation required in (1) or (2) to file an information return must file a Montana Form DER-1, within 90 days of the date:

(a) its qualified subchapter S subsidiary status is changed or revoked for federal tax purposes;

(b) its stock is transferred or redeemed;

(c) it is dissolved, liquidated, merged, or consolidated with another entity;

(d) it sells substantially all its assets; and

(e) it files an application for a certificate of withdrawal with the Montana Secretary of State.

 

AUTH: 15-1-201, 15-30-2620, 15-30-3302, 15-31-501, MCA

IMP: 15-30-2602, 15-30-2603, 15-30-3302, 15-30-3311, 15-30-3312, 15-31-101, 15-31-111, MCA

 

REASON: The department proposes amending ARM 42.9.520 to clarify that the Form DER-1 is due annually from corporations electing to be treated as a qualified subchapter S subsidiary under section 1361(b)(3) of the IRC. Disregarded entities are subject to the withholding requirements outlined in 15-30-3313, MCA. This requirement cannot be fulfilled or enforced if a disregarded entity does not file annually.

The department further proposes striking existing (1) because its applicability is out of date, and proposes striking (4) because it no longer applies with the proposed amendment to newly numbered (1), which removes the 90-day language.

 

5. Concerned persons may submit their data, views, or arguments, either orally or in writing, at the hearing. Written data, views, or arguments may also be submitted to: Laurie Logan, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-7905; fax (406) 444-3696; or e-mail lalogan@mt.gov and must be received no later than November 16, 2015.

 

6. Laurie Logan, Department of Revenue, Director's Office, has been designated to preside over and conduct this hearing.

 

7. The Department of Revenue maintains a list of interested persons who wish to receive notices of rulemaking actions proposed by this agency. Persons who wish to have their name added to the list shall make a written request that includes the name and e-mail or mailing address of the person to receive notices and specifies that the person wishes to receive notice regarding a particular subject matter or matters. Notices will be sent by e-mail unless a mailing preference is noted in the request. A written request may be mailed or delivered to the person in 5 above or faxed to the office at (406) 444-3696, or may be made by completing a request form at any rules hearing held by the Department of Revenue.

 

8. An electronic copy of this notice is available on the department's web site at revenue.mt.gov/rules. The department strives to make the electronic copy of this notice conform to the official version of the notice, as printed in the Montana Administrative Register, but advises all concerned persons that in the event of a discrepancy between the official printed text of the notice and the electronic version of the notice, only the official printed text will be considered. While the department also strives to keep its web site accessible at all times, in some instances it may be temporarily unavailable due to system maintenance or technical problems.

 

9. The bill sponsor contact requirements of 2-4-302, MCA, apply and have been fulfilled. The primary sponsor of Senate Bill 386, Senator Jill Cohenour, was contacted by letter on June 2, 2015 and September 18, 2015.

 

10. With regard to the requirements of 2-4-111, MCA, the department has determined that the adoption of New Rule I and the amendment of ARM 42.9.501, 42.9.510, and 42.9.520 will directly impact some small businesses. The adoption and amendment of the remaining rules in this notice will not significantly and directly impact small businesses. The department's full impact analysis is available at revenue.mt.gov/rules or upon request from the person in 5.

 

 

/s/ Laurie Logan                          /s/ Mike Kadas

Laurie Logan                               Mike Kadas

Rule Reviewer                             Director of Revenue

         

Certified to the Secretary of State October 5, 2015

 

 

 

 

Home  |   Search  |   About Us  |   Contact Us  |   Help  |   Disclaimer  |   Privacy & Security