SUMMARY

QUESTION: A request has been received for a written agreement with the Department concerning the method by which income gain, loss, and deductions of each partner subject to tax and the partnership in general are required to be reported to the Department of Revenue. Additionally, the partnership seeks agreement as to the method of reporting the names and addresses of all partners subject to Florida corporate income tax, and the partners’ distributive share of the partnership’s apportionment factors.

ANSWER - Based on the Facts Below: The agreement between the taxpayer and the Department states that the various partnerships will meet their partnership return requirement by attaching the federal form 1065 along with a spreadsheet summary of the partner’s federal information and Florida information for adjustments to taxable income, and apportionment information. The summary information will also include schedules that provide details and explanations of the partnership’s federal and Florida amounts, along with the partner’s federal form K-1’s.

July 20, 2007

Re: Technical Assistance Advisement 07C1-004 Corporate Income Tax Request for Written Agreement for Partnership Information Section 220.22(2), F.S. Rules 12C-1.021, 12C-1.022(2)(e), 12C-1.022(6)(a), (d), and (e), F.A.C. XXX (hereinafter referred to as “Taxpayer”)

Dear :

Your letter dated XX, requests a Technical Assistance Advisement relating to flow-through entities (partnerships and limited liability companies classified as partnerships for income tax purposes) allowing for a reduction in the volume of paper attached to the Florida partnership return, form F-1065, pursuant to the requirement that a taxpayer attach “a complete federal return.” This response to your request constitutes a Technical Assistance Advisement under Chapter 12-11, Florida Administrative Code, and is issued under the authority of s. 213.22, Florida Statutes.

The request is for various pass-through or flow-through entities consisting of partnerships and limited liability companies classified as partnerships for federal income tax purposes. The pass- through entities consist of XXX, with each XXX comprised of several partnerships, each serving different financing and investment purposes. A number of individuals own the underlying XXX through a tier of partnerships that are owned by multiple entities. Due to the nature of the partnerships, the federal partnership return has several parts, which include the federal form 1065, other forms, schedules, and attachments, the K-1 schedule, and K-1 attachments.

The request notes that the voluminous returns are difficult, time consuming, and expensive to assemble, mail, and store. It is noted in the request that if the reduction in forms is granted, there will be savings for both the state and the taxpayer. It is requested that the State of Florida accept a reduction in the volume of paper needed to satisfy the requirement that all federal forms and schedules be attached to the state return. The taxpayer assures the Department that any and all information not supplied with the Florida partnership return is readily available and will be provided upon request.

The request provides five different options or choices for reporting the partnership information. The five different scenarios range from providing only the federal form 1065, to attaching only the federal form 1065 along with spreadsheet summary of the partner’s federal information, providing the federal form 1065 and spreadsheet summary along with schedules that provide details or explanations of the partnership federal amounts, to providing only the federal form 1065 and partners’ federal form K-1s, to finally providing all forms and schedules only on a CD or other electronic media. It is stated in the request that the partnership has no direct activities, operations, assets or employees in the State of Florida, and is strictly a pass-through entity that owns, and holds interests in other pass-through partnerships or entities that actually have activities and operations in real estate investments within and without Florida. The partnerships that are the subject of this request take state sourced income reported to them by such other pass- through entities, and allocate the reported income among their investors (partners) based on their ownership percentage.

LEGAL AUTHORITY

Section 220.22(2), Florida Statutes, states:

(2) Every Florida partnership having any partner subject to tax under this code, shall make an information return setting forth: (a) All items of income, gain, loss, and deduction; (b) The names and addresses of all partners subject to tax hereunder who would be entitled to share in the net income of the partnership if distributed; (c) The amount and proportion of the distributive share of each partner-taxpayer; and (d) Such other pertinent information as the department may by form or regulation prescribe.

Rule 12C-1.021(1), F.A.C., provides the general record keeping requirements for filing a Florida corporate return, and the corporate partners of a Florida partnership are required to maintain such records as to meet those requirements that are necessary to verify amounts included in the Florida corporate return for the computation of the Florida net income and corporate income tax liability. The instructions to Florida form F-1065 were revised in 2004 and no longer require the attachment of federal form 1065 to be included along with the Florida F-1065 partnership information return. Supplemental data to support Florida modifications to federal taxable income and determination of the Florida apportionment fraction is also required. Rule 12C-1.022(6), F.A.C., provides the detail as to the information to be submitted and the various forms required. The rule states in pertinent part the following;

(a) Every Florida partnership having any partner subject to the Florida Income Tax Code is required to make an information return. A Florida partnership is a partnership, as defined in s. 220.03(1)(s), F.S., having income apportionable or allocated to Florida. A partner subject to the Florida Income Tax Code includes a taxpayer, as defined in s. 220.03(1)(aa), F.S., and any corporation subject to the tax solely by virtue of its membership in a Florida partnership. * * * (e) Form F-1065 is used to determine the Florida partnership income adjustment; to report the names and addresses of all partners subject to tax under Chapter 220, F.S., who are entitled to share in the net income of the partnership; and to distribute to each partner subject to the tax its share of the Florida partnership income adjustment and its share of the apportionment factors of the partnership or joint venture. (e.s.)

These are the basic reporting rules for partnership information. Information regarding who are the partners subject to Florida corporate tax must be provided, information as to each partner’s distributive share of taxable income (s. 220.13(2), F.S.), adjustments to taxable income (ss. 220.13(1)(a) and (b), F.S.), and apportionment factors for property, payroll, and sales (s. 220.15, F.S.). The instructions to the Florida F-1065 no longer require the submission as an attachment the Federal form 1065. Detailed schedules that itemize items of state taxes, the elements of foreign dividends, detailed descriptions of nonbusiness income are not needed. The apportionment amounts for each partner can be supplied in summary schedules in total raw numbers can be provided, however, for sales income some breakdown by specific elements of sales, rents, royalties, etc., needs to be provided.

CONCLUSION

The taxpayer provides five different options for reporting the partnership information to the state of Florida. The Department can only agree to the utilization of Option 3, which states that the federal form 1065 be attached with a spreadsheet showing the partner’s federal information, with the additional Florida summary information for Florida additions and subtractions to taxable income and the apportionment factors. Based on the estimate of pages required, it seems that approximately 150 to 200 pages will be required. However, any and all information necessary to determine the proper amounts of federal taxable income, adjustments to such income, apportionment factors, and any other data required to make a proper determination of Florida net income and Florida corporate income tax liability must be available at all times for the proper administration of the Florida corporate income tax.

This response constitutes a Technical Assistance Advisement under s. 213.22, F.S., which is binding on the Department only under the facts and circumstances described in the request for this advice as specified in s. 213.22, F.S. Our response is based on those facts and the specific situation summarized above. You are advised that subsequent statutory or administrative rule changes or judicial interpretations of the statutes or rules upon which this advice is based may subject similar future transactions to a different treatment than expressed in this response.

You are further advised that this response and your request are public records under Chapter 119, F.S., which are subject to disclosure to the public under the conditions of s. 213.22, F.S. Your name, address, and any other details which might lead to identification of the taxpayer must be deleted by the Department before disclosure. In an effort to protect the confidentiality of such information, we request you notify the undersigned in writing within 15 days of any deletions you wish made to the request or the response.

Sincerely,

Harry A. Baucom Technical Assistance and Dispute Resolution

HAB/kh

Record ID 30136