Foreign corporate limited partners - separate accounting election

Information on this page applies to a corporate partner’s tax years beginning on or after January 1, 2015.

Article 9-A taxability due solely to holding a limited partner ownership interest in a limited partnership (20 NYCRR 1-3.2(a)(6) and (7))

In certain instances, a foreign corporation can be subject to tax in New York State (NYS) under Article 9-A due solely to holding a limited partner ownership interest in a limited partnership that is doing business, employing capital, owning or leasing property, maintaining an office, or deriving receipts from activity, in NYS. This situation arises when you are a foreign corporation, and:

you are a limited partner in a partnership (other than a portfolio investment partnership);
you are 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;
you would not be taxable under Article 9-A were it not for your interest in such partnership; and
you are not taxable under Article 33 or under the Article 9 franchise tax.

Separate accounting election (20 NYCRR 3-13.5)

When the circumstances described above are met, a foreign corporation that is not required, or permitted, to file on a combined basis for Article 9-A purposes may elect to compute its tax bases by taking into account only its distributive share of each partnership item of receipts, income, gain, loss, and deduction (including any addition or subtraction modifications related thereto) and its proportionate part of each partnership asset, liability, and partnership activity, of such limited partnership. A corporate partner can’t make this election for a limited partnership that is engaged in a unitary business with the corporate partner or any member of the corporate partner’s affiliated group.

Note: If a partnership is required to file a NYS partnership return, but is not doing business, employing capital, owning or leasing property, maintaining an office, or deriving receipts from activity, in NYS (when, for example, the partnership has a NYS partnership return filing requirement only because it has a NYS resident partner that is an individual, estate, or trust), then having an interest in that partnership would not subject a foreign corporate limited partner to tax under Article 9-A, and the separate accounting election would not be applicable with respect to that partnership.

Information

How to make the separate accounting election

The separate accounting election is made by the foreign corporate limited partner at the time of filing Form CT-3, General Business Corporation Franchise Tax Return, or Form CT-3-S, New York S Corporation Franchise Tax Return, and is not revocable.

For its tax years beginning before January 1, 2017, a foreign corporation makes the separate accounting election, with respect to a limited partnership, by attaching a statement to Form CT-3 or Form CT-3-S indicating that the separate accounting election is being made and providing the name and EIN of the limited partnership for which the election is being made.

For its tax years beginning on or after January 1, 2017, a foreign corporation makes the separate accounting election, with respect to a limited partnership, 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 or Form CT-3-S.

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

If you file Form CT-3 and you have made the separate accounting election for a limited partnership that is doing business, employing capital, owning or leasing property, maintaining an office, or deriving receipts from activity, in NYS, you do not report any of your own items of receipts, income, gain, loss, deduction, assets, liabilities, or activities on Form CT-3 when computing your tax bases. Instead, you compute your tax bases by reporting only your distributive share or proportionate part of receipts, income, gain, loss, deduction, assets, liabilities, and activities of such limited partnership.

In the situation described above, only your distributive share of items used in the computation of business income and proportionate part of items used in the computation of business capital, flowing through to you from such limited partnership, is reported on your Form CT-3, Part 3, Part 4, and Part 5. Business income and business capital amounts so computed are then apportioned to NYS using a business apportionment factor that is computed by completing Form CT-3, Part 6, using only your distributive share of such limited partnership’s receipts, net income, net gains, and other items, that must be included in the numerator and denominator of the business apportionment fraction in accordance with Tax Law §210-A and the applicable regulations.

Note that receipts, net income, net gains, and other items must be sourced, and the amounts allowed in the business apportionment factor must be determined, in accordance with Article 9-A sourcing rules set forth in Tax Law §210-A. Include in the numerator and denominator of the business apportionment fraction only your share of the receipts, net income, net gains (not less than zero), and other applicable items described in Tax Law §210-A that are earned by the partnership in the regular course of business and included in business income, determined without regard to the amount subtracted on Form CT-3, Part 3, line 6 (subtraction modification for qualified banks), and without regard to any amount from investment capital that is determined to exceed the 8% of ENI limitation on gross investment income (see Form CT-3.1).

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

If you file Form CT-3-S and you have made the separate accounting election for a limited partnership that is doing business, employing capital, owning or leasing property, maintaining an office, or deriving receipts from activity, in NYS, you do not report any of your own items of receipts, net income, net gains, and other items on Form CT-3-S when computing your fixed dollar minimum tax base and business apportionment factor. Instead, you compute such tax base and business apportionment factor by using only your distributive share or proportionate part of receipts, net income, net gains, activities and other items of such limited partnership.

In the situation described above, only your distributive share of receipts, net income, net gains, and other items (including all nonseparately computed income and loss, and all separately stated items of income and loss), flowing through to you from such limited partnership, is reported on your Form CT-3-S, Part 3, and used to compute your business apportionment factor and to compute your NYS receipts amount used to determine your fixed dollar minimum tax in Part 2 of Form CT-3-S.

Note that when completing Form CT-3-S, Part 3, you include all receipts, net income, net gains and other items flowing through to you from such limited partnership (including nonseparately computed income and loss, and separately stated items of income and loss), even if there are amounts that would have qualified as investment income or other exempt income for an Article 9-A, New York C corporation filer. All such receipts, net income, net gains, and other items are included in the business apportionment fraction in accordance with Article 9-A sourcing rules set forth in Tax Law §210-A and the applicable regulations.

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

If you have made the separate accounting election with respect to a limited partnership, and you do not have the information necessary to compute your tax bases and business apportionment factor as discussed above, you must treat your distributive share of such partnership’s items of income, gain, loss, and deduction as business income and your interest in such partnership as business capital. In this case, a Form CT-3 filer would apportion such business income and business capital entirely to NYS. Form CT-3 filers and Form CT-3-S filers would report a business apportionment factor of 100% by reporting, on line 54 of Form CT-3, Part 6, or Form CT-3-S, Part 3, a New York Receipts amount (column A) equal to their distributive share of such limited partnership’s Everywhere Receipts (column B). Form CT-3-S filers would compute their fixed dollar minimum tax in Part 2 of Form CT-3-S using that New York Receipts amount.

Failure to correctly complete the Computation of the business apportionment factor section of your franchise tax return

It is generally not acceptable to report a zero value, write “none”, or leave the field blank for the Everywhere Receipts reported on line 54 of Column B in the Computation of the business apportionment factor section of your return (in Part 6 of your Form CT-3, or Part 3 of your Form CT-3-S). If the Tax Department receives a tax return that does not have the Computation of the business apportionment factor section properly completed, it will, in certain instances, compute a business apportionment factor of 100% and adjust the tax due accordingly. A bill for any tax due resulting from this adjustment will be sent to the corporation. If you received such a bill, you must either pay the additional tax due amount, or amend your franchise tax return to properly compute your business apportionment factor and the tax due amount.

Separate accounting election for multiple partnerships

For the 2015 and 2016 tax years, if a taxpayer is utilizing the separate accounting election for multiple partnerships, it must contact the Tax Department at: tax.sm.CorporationTax.SeparateAccountingElection@tax.ny.gov.

The email must include the name of the taxpayer that is making the elections and its employer identification number (EIN). A Tax Department representative will respond directly to the email with instructions on how to file.

For tax years 2017 and after, see the instructions to Form CT-3 or Form CT-3-S.

For more information see:

Corporate Tax Reform 2015
Corporate Tax Reform FAQs
Corporation tax forms and instructions (current year) or (prior years and periods)

Updated: February 23, 2022