CCH Axcess Tax

Federal Notes and Features

FS Codes

Kentucky income for the Kentucky Partnership returns is calculated from information entered for the federal return. As noted below, use FS codes to prepare the Kentucky partnership return when differences exist between federal and Kentucky amounts.

Use FS and State code entries for interest and dividends, gains and losses, installment sales, like kind exchanges, rents, farm/4835 other Schedule K items, and passthrough items for Kentucky. Entries in the FS and State fields are treated as follows:

FS	State	Action
Blank	Blank	Carries to federal and all state returns
F	Blank	Carries to federal but not state
S	Blank	Carries to all state returns
F	KY	Carries to federal and the Kentucky return
S	KY	Carries only to the Kentucky return

Automatic Adjustments

The following items from the federal return do not require additional entries for the Kentucky return:

Interest on U.S. Obligations
Municipal Bond Interest from States Other than Kentucky
Work Opportunity Credit Wage Reduction
Rental and Farm Income (Losses)
Schedule K Distributive Share Items
State Taxes based on Income
State Tax Refunds based on Income

U.S. Obligations

Interest on obligations of the United States are excluded from the computation of Kentucky partnership income.

Municipal Bond Interest

Kentucky includes municipal bond interest from sources outside the state, in Kentucky income. Municipal bond interest with a State Code other than KY carries to the Kentucky Schedule K Interest Income line.

Be sure to identify the source of municipal bond interest by entering the source of interest in the State code box. We assume that interest originates in the state entered in the State Code field on Federal General Category, Basic Data Worksheet, General Section if the State code box on the Federal Income/Deductions - Interest or Dividends worksheets is blank. if the State code box on federal Income/Deductions Category, Interest Income Worksheet is blank.

Federal Work Opportunity Credit

Wages or salaries eligible for the Federal Work Opportunity Credit not deducted on the federal return are carried to Kentucky Form 765 as an adjustment decreasing federal income.

Income (Loss) from Rental Activities

Form 8825, Rental Real Estate Income, is prepared from entries on federal Income/Deductions Category, Rent and Royalty Worksheet.

A detailed statement is prepared of the income or loss from other rentals (coded C on federal Income/Deductions Category, Rent and Royalty Worksheet and royalties. The total carries to either the "Income from other rental activity" line or the "Royalty Income" line on Kentucky Schedule K.

Schedule K Distributive Share Items

Other Income, Other Deductions, Other Portfolio Income and Deductions Related to Portfolio Income

Other income, other deductions (including miscellaneous itemized deductions and state and local taxes for 1065-B), portfolio income, other tax-exempt income, nondeductible expenses, Section 59(e)(2) expenditures, and deductions related to portfolio income carry to Kentucky Schedule K. Each entry is allocated to the Kentucky Schedule K-1 from entries on federal Income/Deductions Category, Other Schedule K Items Worksheet.

If the Classification Code box is left blank, the item is treated as Other Income. Supporting statements are prepared for Schedules K and K-1 for other income, other deductions, portfolio income, and deductions related to portfolio income. Use FS and State codes for these items. See federal instructions for more information.

Other Information

The federal return reports many individual items in the 'Other' section of the Federal Schedules K and K-1. Kentucky does not have similar lines. To optionally report any of these amounts already reported on the federal return, use federal Income/Deductions Category, Other Schedule K Items Worksheet, Other Information Section. Be sure to enter S in the FS code box and KY in the State code box so that the amounts will not be reported twice on the federal or other state returns.

Items to include on this line include, but are not limited to:

Interest on U.S. Obligations
Tax exempt Kentucky municipal interest
Information needed to compute the depletion deduction
Qualified exploratory costs
Section 179 recapture
Commercial Revitalization Deduction from Rental Activities
Nontaxable dividends
Nondeductible expenses
Distributions of money or property

These items can be specially allocated with a partner number or a ratio identification number. If no special allocations are entered, the regular profit and loss sharing ratio is used. Supporting statements are prepared for other information for Kentucky Schedules K and K-1.

Tax Accrual

State taxes computed on the Kentucky return for the Economic Development Projects, and city taxes for Louisville and Lexington, carry to page 1 of the federal return when a 1 or a 2 is entered in the State and City Tax Accrual Option box in the Processing Options section of federal General Category, Return Options Worksheet, Calculation Options Section. Under option 1, the tax accrues to the federal balance sheet, under option 2, it does not.

Options 3 and 4 parallel the first two options as to the accrual to the balance sheet - the difference being that with these options, the accrued tax expense carries to the rental schedule instead of page 1 of the federal return.

When using the tax accrual option, no entry is required on federal Income/Deductions Category, Trade or Business Worksheet, State and City Taxes and Licenses Section for state taxes computed in the current year return.

Note: Refer to federal instructions regarding the State Accrual Options, for additional information. When you do not choose a State Tax Accrual Option, we do not carry state taxes to the federal return or the balance sheet.

State Income Taxes - Expense and Refunds

Kentucky does not allow a deduction for any state taxes based on income. Therefore, all entries for state tax expense based on income are carried to the Kentucky return as an addition to federal income, and all entries for state refunds based on income are carried to the Kentucky return as a subtraction from federal income. Also added back to ordinary income are state income taxes that accrue to the federal return.

State income taxes NOT based on income and all city taxes are allowed on the Kentucky return and no adjustment is made for these amounts.

Final and Amended Schedules K-1

The Schedules K-1 are designated as final or amended if the same partner's federal Schedule K-1 is final or amended. In addition, if the Kentucky return is final or amended, all Schedules K-1 are designated as final or amended. Use federal Common State Category, Generic State Schedule K-1 Information Worksheet to override these defaults, or to designate a Schedule K-1 separately.

Schedule K-1 Suppression

Use federal Partners Category, General Options Worksheet, Schedules K-1 Print Options Section to suppress all state Schedules K-1. Refer to the federal instructions regarding Suppress Schedules K-1 Print Code.

Schedule K-1 Statement Suppression

Use federal General Category, Return Options Worksheet to suppress supporting statements for the Kentucky Schedules K-1. Refer to the federal instructions regarding the Suppress Schedule K-1 Statements Code.

Partners' Percentages for Printing Purposes Only

If the partners' percentages on the Kentucky Schedule K-1 are different from the partners' percentages on the federal Schedule K-1, use federal Common State Category, Generic State Schedule K-1 Information Worksheet to enter state percentages.

Enter KY in the state code box. Use either ratio ID reference, direct text input, or optional text.

Note: These percentages override Kentucky Schedule K-1 percentage fields for printing purposes only. Allocations are not affected by print-only ratios or percentages.