Foreign corporate limited partners - separate accounting election

Article 9-A taxability due solely to holding a limited partner ownership interest in a limited partnership

A foreign corporation not otherwise subject to tax in New York State (NYS) under Article 9-A may become taxable due solely to holding an ownership interest in a limited partnership when:

it is a limited partner in such a partnership (other than a portfolio investment partnership);
it is engaged, directly or indirectly, in the participation or in the domination or control of all or any portion of the business activities or affairs of such partnership;
such partnership is doing business, employing capital, owning or leasing property, maintaining an office, or deriving receipts from activity, in NYS; and
it is not taxable under Article 33 or under the Article 9 franchise tax.

Note: If a partnership is required to file a NYS partnership return solely because it has a NYS resident partner (such as an individual, estate, or trust) but does not do business, employ capital, own or lease property, maintain an office, or derive receipts from activity in NYS, then a foreign corporate limited partner with an interest in that partnership is not subject to tax under Article 9-A based on that interest.

Separate accounting election

When the circumstances described above are met, a foreign corporation that is not included in a combined report may make a separate accounting election to calculate its tax bases by considering only its:

distributive share of each partnership item of receipts, income, gain, loss, and deduction (including any addition or subtraction modifications); and
proportionate part of each partnership asset, liability, and partnership activity, of such limited partnership.

The election cannot be revoked and is binding with respect to that partnership interest for all future years that the circumstances described above are still met.

A corporate partner cannot make this election when it or any member of its affiliated group is engaged in a unitary business with the limited partnership.

Information

How to make the separate accounting election

A foreign corporation makes the separate accounting election on Form CT-60, Affiliated Entity Information Schedule, in Schedule B, Part 3. Form CT-60 must be signed and filed with Form CT-3, General Business Corporation Franchise Tax Return or Form CT-3-S, New York S Corporation Franchise Tax Return.

How to complete Form CT-3 when the separate accounting election is made

A foreign corporation calculates the business income base (Part 3), the capital base (Part 4), the fixed dollar minimum tax, and the business apportionment factor (Part 6) using only its distributive share of the limited partnership’s receipts, income, gain, loss, deduction, assets, liabilities, and activities. The limited partner does not report any of its own amounts.

Do not consider any gain or loss that is recognized from the sale of the interest in the limited partnership for which the election was made.

When the separate accounting election is in effect and the limited partner does not have access to all of the necessary information to properly complete Form CT-3

If a limited partner has made the separate accounting election and does not have the information necessary to calculate the tax bases and business apportionment factor as discussed above, the partner must treat the distributive share of such partnership’s items of income, gain, loss, and deduction as business income. In this case, the partner must show the starting point for the computation of the business income base but must make no modifications or adjustments to such amounts.

The starting point for the computation of business capital is the partnership interest, without adjustments. Apportion these business income and business capital amounts 100% to New York State. Report a business apportionment factor of 100% by reporting, on Form CT-3, Part 6, line 55, a New York State receipts amount (column A) equal to the distributive share of such limited partnership’s Everywhere receipts (column B).

How to complete Form CT-3 if the separate accounting election is in effect for multiple partnerships

If the separate accounting election is in effect for multiple limited partnership interests and the limited partner has no limited partnership interests for which the election has not been made:

Complete the front page of Form CT-3.
Complete Part 1, making sure to mark an X in the box for Section C, line 6.
Calculate the business income base (Part 3) and capital base (Part 4) per the following instructions.
1. Complete an individual pro forma Form CT-3 for each limited partnership for which the election was made. For each individual pro forma Form CT-3:
  1. Complete Part 3, lines 1 through 13, Part 4, lines 1 through 11, and Part 6 using only the distributive share of the limited partnership’s receipts, income, gain, loss, deduction, assets, liabilities, and activities.
  2. Multiply each partnership’s pro forma business income base, and pro forma capital base, by the pro forma business apportionment factor calculated for that limited partnership. Enter each result on the associated pro forma Form CT-3, Part 3, line 15 (for the business income base), and on the associated pro forma Form CT-3, Part 4, line 13 (for the capital base).
  3. For each pro forma business income base, complete the pro forma Form CT-3, Part 3, lines 16 through 19.
2. On the Form CT-3 that will be filed with New York State:
  1. Enter on Part 3, line 19, the total of all pro forma Forms CT-3, Part 3, line 19, counting negative amounts as zeros.
  2. Complete Part 3, line 20, and enter this amount on Part 2, line 1a.
  3. Enter on Part 4, line 13, the total of all pro forma Forms CT-3, Part 4, line 13, counting negative amounts as zeros.
  4. Complete Part 4, line 15, and enter this amount on Part 2, line 1b.
  5. Enter on Part 2, line 1c, the total of all pro forma Forms CT-3, Part 6, line 55, column A.
  6. Complete the remaining lines of Part 2.

Important: Make no entries on Part 6 of the Form CT-3 that will be filed with New York State.

How to complete Form CT-3-S when the separate accounting election is made

Report only the distributive share or proportionate part of partnership items (including all income and loss not calculated separately, and all separately stated items of income and loss), flowing through to the limited partner from such limited partnership, on their Form CT-3-S, Part 3, and use that distributive share to calculate:

the business apportionment factor; and
the New York State receipts amount used to determine their fixed dollar minimum tax on Form CT-3-S, Part 2.

Do not report any of the partner’s own items.

Do not consider any gain or loss that is recognized from the sale of the interest in the limited partnership for which the election was made.

When the separate accounting election is in effect and the limited partner does not have access to all of the necessary information to properly complete Form CT-3-S

If the partner has made the separate accounting election with respect to a limited partnership and does not have access to the information necessary to calculate the fixed dollar minimum tax base and business apportionment factor as discussed above, the partner must:

report a business apportionment factor of 100% by reporting on line 55 of Form CT-3-S, Part 3, a New York State receipts amount (column A) equal to the partner’s distributive share of such limited partnership’s Everywhere receipts amount (column B), then
calculate the fixed dollar minimum tax on Form CT-3-S, Part 2, using that New York State receipts amount.

How to complete Form CT-3-S if the separate accounting election is in effect for multiple partnerships

If the separate accounting election is in effect for multiple limited partnership interests and they have no limited partnership interests for which the election has not been made:

Complete the front page of Form CT-3-S, leaving line C blank.
Complete page 2, making sure to mark an X in the box on line O.
Complete all of Part 1 (Federal Form 1120S information).
Complete Part 2 (Computation of tax) as follows:
1. Complete an individual pro forma Form CT-3-S for each limited partnership for which the election was made. For each individual pro forma Form CT-3-S:
  1. Complete Part 3 using only their distributive share of the limited partnership’s receipts, net income, net gains, and other items that must be included in the numerator and denominator of the business apportionment factor.
  2. Add all pro forma Form CT-3-S, Part 3, line 55, column A amounts.
2. On the Form CT-3-S that will be filed with New York State:
  1. Enter on Part 2, line 22 the total of all pro forma Forms CT-3-S, Part 3, line 55, column A.
  2. Complete the remaining lines of Part 2 and all the applicable lines on page 6.
  3. File all pro forma Forms CT-3-S with the Form CT-3-S they file with New York State.

Important: Make no entries on Part 3 of the Form CT-3-S that will be filed with New York State.

The corporation must report to each shareholder the business apportionment factor calculated for each limited partnership for which the separate accounting election is in effect, as shown on the pro forma Forms CT-3-S, Part 3, line 56, as well as the shareholder’s distributive share of each separately and nonseparately stated item of income and loss from each such partnership.

For more information see:

Corporation tax forms and instructions (current year) or (prior years and periods)

Updated: December 13, 2024