Commonly Asked Questions
What authority does Kentucky use for what is required?
Taxpayers can find information on Kentucky requirements in the Kentucky Revised Statutes (KRS) and the Kentucky Administrative Regulations (KAR). Web site: http://www.lrc.ky.gov/Law.htm
For tax years beginning in 2007, is the Kentucky Limited Liability Entity tax (LLET) an add-back to determine Kentucky taxable income?
The tax imposed by KRS 141.0401 is a tax imposed on those entities with limited liability in the state of Kentucky and not an income tax. Therefore, the Limited Liability Entity tax paid is not an add-back to determine Kentucky Taxable income; it is deductible for Kentucky and Federal purposes.
Is there a Kentucky Power-of-Attorney form?
Yes, Kentucky Form 20A100 can authorize certain professionals to represent taxpayers with the Department of Revenue. Federal Form 2848 is also accepted.
Could Homeowner’s Associations possibly owe corporation income tax (they are excluded from LLET at this time)?
Yes. It may happen that even though the Association may not owe Federal Corporation Income Tax (Federal form 1120H), the company may owe Kentucky Corporation Income Tax because of the differences between Federal and Kentucky tax law. This is rare, but it could occur.
I am preparing my company’s federal Form 1099 information for the Federal Government. Does Kentucky need the ‘state’ copy of these documents?
At this time the Kentucky Department of Revenue does not require federal Form 1099 ‘state’ copies to be filed for corporation tax purposes. It is recommended that copies be kept in the taxpayers records should the Department need to make a reference to them.
I am preparing my company’s Form 990, Return of Organization Exempt From Income Tax, for the Federal Government (a non-profit/501(c) company). Does Kentucky need a copy of this form sent in for Kentucky reporting purposes?
A copy does not have to be filed with the Kentucky Department of Revenue. However, the Kentucky Attorney General’s office requires a copy of Form 990 to be filed with its office for any non-profits soliciting in the state. (See KRS 367.657)
Does a valid extension stop any interest or penalty for late payment?
No, per KRS 131.180(2) extensions are for filing the return at a later time up to six months, but payments are due on or before the original due date of the taxpayers return.
What are the proper steps in closing a corporation to avoid later problems and billings?
When the return is filed clearly mark the box as a final return. For the return to be accepted as final the corporation should attach a balance sheet reflecting zero assets. The final Corporation Income and Limited Liability Entity taxes must be paid with the return. The corporation must also timely close their account with the Secretary of State by filing Articles of Dissolution.
Are expenses related to nontaxable income deductible in determining Kentucky net income?
No, KRS 141.010(13)(d) states that any deduction allowed under Chapter 1 of the Internal Revenue Code must be reduced by the expenses related to the general stewardship of the assets that produced the non-business or nontaxable income. Actual expenses are preferred, however several approved formulas can be found in Regulation 103 KAR 16:060.
Does a return have to be filed if the business was registered with the Secretary of State for name reservation only?
A name reservation allows a company to pay a fee to reserve a name before starting a business. No legal entity exists at the point that a name reservation is done; therefore, the company is not registered with the Secretary of State or considered to be “doing business” in the state of Kentucky per KRS 141.010(25)(a) and does not need to file a return with the Department of Revenue. If and when a legal entity is incorporated or organized in Kentucky under that reserved name, it will have a filing requirement with the Department of Revenue.
Does a return have to be filed when a business was registered with the Secretary of State for only a week or a month?
Yes, when a company is registered with the Secretary of State, they are considered to be “doing business” in the state of Kentucky per KRS 141.010(25)(a) and are therefore required to file a tax return for the year that the company registers. A foreign corporation registered with the Secretary of State may not be required to file a return if they did not actively conduct any business during the year. The Department of Revenue may ask for a signed statement from a responsible party in the business to confirm no activity in Kentucky during the given tax year. Foreign corporations register because there may be potential for business in the State of Kentucky.
If I’ve already filed a return on the wrong form, does another return need to be filed?
Yes, a taxpayer should file a return on the correct form type and file an Amended return to void the tax return filed on the incorrect form type. Taxes paid with the incorrect form type may be transferred to the correct form type upon written request by the taxpayer.
Can I get a Kentucky account number for a client?
The best way to access company account numbers is via KY One Stop. However this information can be provided via telephone if a cross-reference (usually a FEIN) is given to establish the caller’s connection to the company. The Department of Revenue is limited on the information that can be given out over the phone because of confidentiality.
IRS Revision of Form SS-4
The Internal Revenue Service has revised Form SS-4, Application for Employer Identification Number (EIN), to clearly identify the applicant’s true owner. In the past, applicants were asked to provide the "name of a principal officer, general partner, grantor, owner or trustor" in box 7a of the EIN application form. While that information is appropriate for businesses that are publicly traded or registered with the Securities and Exchange Commission, there are cases in which a "nominee" is used, which prevents the IRS from gathering appropriate information on entity ownership and may also facilitate tax non-compliance by entities and their owners. Clearly identifying an entity’s true owner makes it difficult for taxpayers to conceal their income and assets.
The form has been revised to request the name of the "responsible party,” who is the person who can control, manage, or direct the entity and the disposition of the entity’s funds and assets. The SS-4 must be signed by an individual with the authority to legally bind the entity; therefore, it cannot be signed by a nominee.
Entities that used nominees on their applications in the past should consider updating the information shown on the original application. There is no form available for updating information on previous applications; instead the entity should send a letter to IRS. Information on how to do this is included in the "Updating Incorrect Business Entity Information" link.