Who is required to file a partnership tax return?Back to top
If you are a partnership that is required to file a federal Form 1065 or 1065-B and you have Minnesota gross income, you must file Minnesota Form M3, Partnership Return.
The entire share of an entity’s income is taxed to the partner/member, whether or not it is actually distributed. Each partner/member must include their share of income on their tax return. However, the minimum fee is paid by the entity.
Do I need a Minnesota tax ID number as well as a federal ID number?Back to top
Where can I get Form M3?Back to top
The department no longer prints most business tax forms and instructions, including those for partnership tax.
If I cannot pay on time what are the penalties?Back to top
A 6 percent late payment penalty will be assessed on any tax not paid by the regular due date.
If you file your return after the regular due date with a balance due, an additional 5 percent penalty will be assessed on the unpaid tax.
There is also a late filing penalty if you file after the extended due date and owe tax. The late filing penalty is 5 percent of any tax not paid by the regular due date.
Interest also accrues on the unpaid tax and penalties.
Do partners have to add back their share of the minimum fee to their income?Back to top
Only partners that are C corporations must add their share of the partnership’s minimum fee back to their income. In a tiered structure, the pro rata share of the minimum fee is passed through the intervening tiers to any ultimate C corporation partner. Report the C corporation and partnership partner’s share of the minimum fee on Schedule KPC.
Does Schedule KPI have to be issued if there are no nonresident individual partners and no modifications or credits passed through to the partners?Back to top
No. Schedule KPI is a supplemental schedule intended to give partners needed information to complete their Minnesota individual income tax returns. If there are no modifications or credits, you do not need to issue Schedule KPI to your individual partners who are Minnesota residents. Nonresident partners will need the information from Schedule KPI to complete their Form M1.
What do I do with the factors information on Schedule KPC?Back to top
A Schedule KPC is used by corporate and partnership partners in completing their entity returns.
The factors information at the bottom of the Schedule KPC you received from the partnership should always be completed. How the partner uses the factor information when completing the corporation or partnership return depends on the relationship with the partnership — if it is a unitary or non-unitary relationship.
Information regarding the unitary relationship is found in Minnesota Statutes, 290.17, Subd 4. "Unitary business," is activities or operations which result in a flow of value between two or more entities. Unity is presumed when there is unity of ownership, operation and use, evidenced by centralized management, purchasing, advertising, accounting or other controlled interaction. However, absence of these centralized activities will not necessarily evidence a non-unitary business. Unity is also presumed when business activities or operations are of mutual benefit, dependent upon or contributory to one another.
The entire income of a unitary business is subject to apportionment. If the partner and partnership have a unitary relationship, the factors information provided by the partnership to the partner will become part of the M3A completed for the partner's own corporation or partnership return. If the partner has its own property, payroll and sales figures, the flow-through factors will be added to them; if the partner has a unitary relationship with a number of partnerships, the flow-through factors from all partnerships the partner has a unitary relationship with will be added together to determine the partner's factors for M3A. The apportionment ratio calculated on the partner's M3A is then multiplied by the entire income of the partner to determine the income apportioned to Minnesota.
If the relationship is not unitary, the factors of the partnership do NOT become part of the factors of the partner. The apportionment ratio of the partnership is multiplied by the K-1. This is the Minnesota portion of the K-1 income to the partner.
You can call the partnership and ask them for their Minnesota apportionment percentage, or calculate it. The apportionment ratio of the partnership can be determined by the partner using the factors information provided on the Schedule KPC—since the information is the partner's proportionate share of all the partnership's factors, if they are entered on a M3A by themselves the apportionment ratio calculated would be that of the partnership issuing the KPC.
What information should I enter into the box for the “FEIN/SSN of partner ultimately taxed” on the Schedule KPC or KPI? Why is this information required?Back to top
Enter the information associated with this partnership and partner. If the partner is a one-member LLC or grantor trust, enter the federal ID or Social Security number of the partner who is ultimately taxed for Minnesota purposes. For example, if the partner is a trust and has one beneficiary, enter the beneficiary’s Social Security number.
This information is required because there are many partners that do not file returns under their own ID number which makes it difficult to locate where the K1 information flows through to. Examples of these types of partners would include single member LLCs disregarded for the purpose of income tax or corporations filed under the ID number of a parent corporation on a unitary return. Therefore, this box needs to be completed so we can determine which ID number the information is reported under without sending correspondence to the partner.
How do I pay electronically?
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If you’re paying by Internet or phone, you’ll need your Minnesota tax ID number, password and bank routing and account numbers. Note: If you’re using the system for the first time and you need a temporary password, call Registration Services at 651-282-5225 before you log in.