Current through Register Vol. 50, No. 9, March 1, 2024
RELATES TO:
KRS
141.0401,
141.120(9),
141.121(3),
141.201,
141.901
NECESSITY, FUNCTION, AND CONFORMITY:
KRS
131.130(1) authorizes the
department to promulgate administrative regulations to administer and enforce
Kentucky's tax laws.
KRS
141.050(4) requires the
Department of Revenue to promulgate administrative regulations and rules
necessary for the proper administration of KRS Chapter 141. This administrative
regulation establishes terms, forms, and procedures required for the
implementation of
KRS
141.201, with respect to elective
consolidated returns.
Section 1.
Definitions.
(1) "Affiliated group" is
defined by
KRS
141.201(2)(a).
(2) "Common parent corporation" means the
member of an affiliated group:
(a) That
directly owns stock meeting the requirements of Section 1504(a)(2) of the
Internal Revenue Code,
26
U.S.C. 1504(a)(2), in at
least one (1) other member of the affiliated group; and
(b) Whose stock is not owned directly by any
other member of the affiliated group as required by Section 1504(a)(2) of the
Internal Revenue Code,
26
U.S.C. 1504(a)(2).
(3) "Consolidated return" is
defined by
KRS
141.201(2)(b).
(4) "Election period" is defined by
KRS
141.201(2)(e).
(5) "Exempt from taxation" means the
corporations listed in
KRS
141.040(1)(a) for taxable
years beginning prior to January 1, 2021 and
KRS
141.040(1)(b) for taxable
years beginning on or after January 1, 2021.
(6) "Provider" is defined by
KRS
141.121(1)(e).
Section 2. Election to File a Consolidated
Return.
(1) General rule.
(a) An election to file a consolidated return
shall be made by the common parent corporation on behalf of all members of the
affiliated group by filing "Election to File Consolidated Kentucky Corporation
Income and Limited Liability Entity Tax Return", Form 722. The Form 722 shall
be attached to the return beginning with the initial election year and for each
year thereafter for which the election is effective. The initial election, and
all subsequent elections shall be made on or before the date prescribed by
KRS
141.160 for filing the return, or as extended
pursuant to
KRS
141.170, for the first taxable year for which
each forty-eight (48) month election is made.
(b) If an "Election to File Consolidated
Kentucky Corporation Income and Limited Liability Entity Tax Return", Form 722,
is not filed within the period prescribed by paragraph (a) of this subsection,
an affiliated group shall be deemed not to have made an
election.
(2) Taxable
years following an election period.
(a) The
filing of a consolidated return on or before the date prescribed by
KRS
141.160 for filing the return, or as extended
pursuant to
KRS
141.170 for the first taxable year that
begins after the expiration of an election period, shall not:
1. Constitute a new election to file a
consolidated return; or
2.
Establish a new election period.
(b) The cessation of the existence of an
affiliated group shall constitute the expiration of the election
period.
(3) Effect of an
election.
(a) An election to file a
consolidated return shall be an irrevocable election binding on both the
department and the affiliated group for the election period.
(b) The administrative provisions of 26
C.F.R. 1.1502-75(a) to (c) shall not apply for Kentucky purposes.
Section 3. Corporations
Included in a Consolidated Return.
(1) If a
consolidated federal return is filed. If a member of the affiliated group
electing to file a consolidated Kentucky return pursuant to Section 2 of this
administrative regulation is included in a consolidated federal return for the
taxable year, the Kentucky return shall include the corporations that:
(a) Were included in the consolidated federal
return for the taxable year; and
(b) Are not exempt from taxation.
(2) If a consolidated federal
return is not filed. If no member of an affiliated group electing to file a
consolidated Kentucky return pursuant to Section 2 of this administrative
regulation is included in a consolidated federal return for the taxable year,
the Kentucky return shall include the members of the affiliated group that are
not exempt from taxation.
Section
4. Deferred Intercompany Transactions. If, during a year when a
separate or combined return was filed, a gain or loss on a deferred
intercompany transaction was deferred for federal purposes, and was not
deferred for Kentucky purposes, the gain or loss, when recognized for federal
purposes, shall be adjusted for Kentucky purposes to reflect the prior
reporting of the transaction.
Section
5. Consolidated Return Filing. An affiliated group that includes
one.
(1) or more members that are providers
and other members that are not providers, shall utilize two (2) apportionment
factor calculations.
(1) Income of
members of an affiliated group that are providers shall be combined and
apportioned using a three (3) factor formula in accordance with
KRS
141.121(3) and
KRS
141.901.
(2) Income of members of an affiliated group
that are not providers shall be combined and apportioned using a single
receipts factor formula in accordance with
KRS
141.120(9).
(3) The apportioned income of provider
members and non-provider members of an affiliated group shall then be
consolidated and reported on the Kentucky corporation income and limited
liability entity tax return of the affiliated group.
Section 6. Limited Liability Entity Tax on a
Consolidated Return. The receipts used to compute the limited liability entity
tax are provided pursuant to
KRS
141.0401(1).
STATUTORY AUTHORITY:
KRS
131.130,
141.050