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CCH Axcess Tax

Introduction to the Arizona Partnership Return

The Arizona partnership return is prepared for calendar, fiscal and short year partnerships. Entries from federal input and Arizona worksheets are used to prepare the following forms and schedules:

• Form 165, Arizona Partnership Return
• Schedule ACA, Air Carrier Apportionment
• Schedule MSP, Multistate Service Provider Election
• Arizona Schedule K-1 for Resident Partners
• Arizona Schedule K-1(NR) for Nonresident Partners and Resident or Nonresident Corporate Partners
• Arizona Form 120EXT, Application for Automatic Extension of Time to File
• Arizona Form 338, Credit for Investment in Qualified Small Businesses
• Arizona Form 342, Credit for Renewable Energy Industry
• Arizona Form 343, Renewable Energy Production Tax Credit
• Arizona Form 344, Solar Liquid Fuel Credit
• Arizona Form 345, Credit for New Employment

A copy of the federal return is attached for filing with the Arizona partnership return.

A composite return may be prepared on behalf of qualifying nonresident individual partners. Entries from federal input and Arizona worksheets are used to prepare the following forms and schedules:

• Arizona Form 140, NR Nonresident Personal Income Tax Return
• Arizona Form 204, Application for Filing Extension
• Arizona Form 140ES, Individual Estimated Tax Payment
• Worksheet for Computing Estimated Payments for Individuals
• Form 285, Arizona General Disclosure/Representation Authorization Form
• Arizona Composite Return Nonresident's Affidavit

Federal Input Notes and Features

Depreciation

Arizona did not adopt the bonus depreciation provisions of federal Job Creation and Worker Assistance Act of 2002 (JCWA), or federal Jobs Growth and Tax Relief Reconciliation Act of 2003 (JGTRRA), or the Gulf Opportunity Zone Act of 2005 (GO Zone). Any bonus depreciation that carries from the federal return must be eliminated. Arizona uses two lines to accomplish this adjustment:

• Add back on Form 165, Schedule A, line A1 all federal depreciation claimed AND
• Deduct on Form 165, Schedule B, line B1 Arizona depreciation calculated by methods allowable prior to 9/11/01

The depreciation adjustment is calculated on an asset by asset basis and included on federal Depreciation worksheet when the Pro Forma process has been completed. If the calculated depreciation adjustment for any asset or assets needs to be changed or the return was not created using the Pro Forma process, enter the Arizona depreciation on federal Depreciation worksheet. Other than differences due to JCWA and JGTRRA, entries on federal Depreciation worksheet are used by Arizona. To override system calculations for these depreciation adjustments, use the depreciation adjustment overrides on Arizona Income/Deductions worksheets.

Prior to 01/01/2013, Arizona had not adopted the increased IRC Section 179 expense provisions included in JGTRRA or GO Zone. Maximum allowable IRC Section 179 expense for Arizona purposes for years prior to 01/01/2013 was $25,000. Arizona requires the amount of IRC Section 179 expense deducted on the federal return in excess of $25,000 to be added back under ARS Section 43-1021.28. The amount added back may be subtracted in equal installments over a five year period under ARS Section 43-1022.30.

FS Codes

The Arizona partnership return starts from federal ordinary income. You are not required to use "FS" codes to prepare a Form 165. All income and expense amounts included on the federal input carry to the Arizona partnership return. The following items from the federal return or federal worksheets carry to Form 165. You do not need to make additional entries on the Arizona worksheets for these items:

• Non-Arizona Municipal Bond Interest
• Interest from U.S. Government Obligations
• Basic Partner Information

Arizona Special Allocations

Arizona uses federal Allocation / Apportionment worksheets to specially allocate Arizona distributive share items for nonresidents. All federal special allocation features (e.g., single entry of ratios, tiered allocation, and residual suppression) are available for Arizona purposes. Use federal Allocation Apportionment worksheet for the following Arizona special allocation codes:

For additional information concerning special allocations and the various special allocation methods, refer to the instructions for federal Allocation / Apportionment worksheets.

Municipal Bond Interest

Arizona includes municipal bond interest from sources outside the state in Arizona income. This interest carries to the Arizona partnership return as an addition to federal income. Indicate the source of the interest by entering the appropriate state code in the "state code" box on Interest Income worksheet.

The assumption is that interest originates in the state entered in the home "state code" box on federal Basic data worksheet if the "state" box on Interest Income worksheet is blank.

Resident and Nonresident Partners - Schedule K-1

Arizona Schedule K-1 or Schedule K-1(NR) is prepared for each partner as part of Form 165. Arizona Schedule K-1 is prepared for non-corporate resident partners only. Arizona Schedule K-1(NR) is prepared for all other partners. Arizona passes through the apportioned share of income and expenses to nonresident partners for income earned both within and outside the state.

Be sure to indicate the partner's state of residency on federal Partner data worksheet in the "state code" box. If the entry is anything other than "AZ", the partner is treated as an Arizona nonresident. If this box is left blank, the partner is assumed to be a resident of all states in the return. In addition, make an entry in the "entity code" box on Partner data worksheet. If this box is left blank, the partner is assumed to be an individual.

Application for Extension

Arizona Form 120EXT, "Application for Automatic Extension of Time To File", is produced when the partnership return will be filed after its original due date. This form can be requested by using any of the following methods:

1. Select the option "X to Produce all state extensions" on federal Extensions worksheet. Arizona must be indicated as the home state, in the "state code" box on federal General/Basic Data worksheet, or there must be at least one entry on Arizona Basic Data worksheet.
2. Enter "AZ" in the "state code" box on federal Extensions worksheet. Arizona must be identified as the home state, in the "state code" box on General/Basic Data worksheet, or there must be at least one entry on Arizona Basic Data worksheet.
3. Use federal Extensions worksheet, to enter information onto Arizona Form 120EXT.
4. Use government view overrides to enter information directly onto Arizona Form 120EXT.

Arizona also accepts a copy of the federal extension. Enter an "X" on State Extension Information section of the federal Extensions worksheet , to produce an Arizona copy of the federal extension.

Final and Amended K-1s

Arizona Schedules K-1 are designated as final or amended if the same partner's federal Schedule K-1 is final or amended. If the Arizona partnership return is filed as final or amended, all the Arizona Schedules K-1 are designated as final or amended. Enter an override for these defaults on Arizona Basic Data worksheet. On a partner by partner basis, enter an override on the Other State Information section of the federal Common State worksheet.

State Common Data

The State Common Data Forms provide a centralized location to create state returns and to enter data common to all states and cities. Following is a description of each series of input forms and how they interact, when processing an Arizona return.

State/City Generation Forms

A state or city return may simply be processed by selecting the states or cities to be included with the federal return on the State/City Generation worksheet under the Common State category. No additional entries on state/city input forms are required. This provides a centralized location to manage either single or multistate returns.

To delete a state or city from the return after it has been created and processed using the State/City Generation forms, uncheck the applicable field on these forms and use the Delete State feature in the Edit menu.

General Information Forms

These forms are used to enter data common to all state and city returns. They provide a centralized location and generic format to simplify entering state and city data. Not all state and city data are contained here. Fields which are unique or not shared by a group of entities are still located on unique state and city input forms.

When using these forms, an entity is mandatory in the State/City Code field. Presence of data on this form will NOT create a state or city return. These may only be created in two ways:

State Tax Payments

Use the State Tax Payments worksheet under the Payment/Penalty category to enter estimated tax payments, withheld amounts, and various other tax payments for Arizona. An entry in the State Code field is mandatory. Not all fields apply to all states. Once an entry of "AZ" is made in this field, the program will allow access to only those fields which are applicable to Arizona. Presence of data on this form will NOT create a state return.

Taxes Paid Based on Income and/or Not Based on Income: If the taxpayer is a Cash Basis taxpayer, entries in the columns for Taxes Based on Income and/or Not Based on Income will be carried to the Taxes and Licenses deduction line on page 1 of the federal return. The program identifies the taxpayer as Cash Basis if the accounting method is identified as cash on the General Information section of the Basic Data worksheet and the State Tax Accrual option has NOT been selected on the Calculation Option section of the Return Options worksheet. Entries here will also be used by Arizona in arriving at the applicable state tax deductions and/or addbacks to federal income. Any entries on the Taxes and Licenses section of the Business worksheet will be in addition to your entries in these fields. Enter in the field entitled Suppress Carrying of Detailed State/City Tax Payments for Cash Basis Taxpayers on the Processing Options section of the Return Option worksheet or by selecting the same option in the Return Configuration Set to override the treatment of the detailed state and city tax payments. The treatment of the detailed state and city tax payments can also be suppressed on a state by state basis by making an entry on the State Tax Payments section of the Payments/Penalties worksheet in the field entitled, "Suppress Carry".

Penalty and Interest Forms

Late payment interest information is entered on the State Interest Rate Overrides worksheet under the Payment/Penalty category. Enter "AZ" in the field entitled State/City. An entry in the State/City field is mandatory. Not all fields apply to all states. The program will allow access to only those fields which are applicable to the state entered in the State/City field. Presence of data on this form will NOT create a state return.

Footnotes

Supporting statements may be created using the Federal and State Footnotes section of the federal General Notes worksheet. Using the FS code, State code and State/City use boxes, the user can choose the returns to which the created statements will be attached. Enter 'S' for FS code and 'AZ' for state code to have the statement print only behind the Arizona return(s). If a footnote should only be attached to the AZ 140 NR and not to the AZ 165, enter this footnote on a separate Federal and State Footnotes section of the federal General Notes worksheet with 'S' for FS code, 'AZ' for State code, and with a '1' in the State / City use box.