Connecticut Summary of Add Back and Exceptions to Add Back of Interest and Intangible Expenses

Summary of Add Back and Exceptions to Add Back of Interest and Intangible Expenses
CT-1120AB, 2016 Summary of Add Back and Exceptions to Add Back of Interest and Intangible Expenses
Department of Revenue Services
State of Connecticut
(Rev. 12/16)

Form CT-1120AB
Summary of Add Back and Exceptions to Add Back
of Interest and Intangible Expenses

For Income Year Beginning: _______________________, _______, and Ending: __________________________ , ________ .
Corporation name

Connecticut Tax Registration Number

Complete this form in blue or black ink only.
Form CT-1120AB, Summary of Add Back and Exceptions to Add Back of Interest and Intangible Expenses, must be completed by each
corporation that paid, accrued, or incurred interest expenses to a related member or intangible expenses and costs, and interest expenses
and costs related to intangibles to a related member. See Special Notice 2003(22), Interest Expense Add Back.
To be entitled to an exception from the add back of expenses and a corresponding deduction from net income, the taxpayer must complete
and attach this form to Form CT-1120, Corporation Business Tax Return.
Failure to complete Form CT-1120AB and attach all supporting documentation will result in a disallowance of the exception(s).

Part I - Required Add Back
All interest expenses and intangible expenses and costs that are paid, accrued, or incurred to a related member must be added back to
income and may be subtracted if any one or more of the statutory exceptions are met.
A - Interest Expenses Add Back
Total interest expenses paid to a related member: Do not include any interest expense and
costs related to intangibles. Enter amount here and on Form CT-1120, Schedule D, Line 4. ....

1.

00

1. Intangible expenses and costs paid to a related member. .........................................................

1.

00

2. Interest expenses and costs related to the intangible property. .................................................

2.

00

3. Total: Add Line 1 and Line 2. Enter here and on Form CT-1120, Schedule D, Line 5. ..................

3.

00

1.

B - Total Intangible Expenses Add Back

Part II - Exceptions to Add Back
A - Exceptions to Interest Expenses Add Back
1. Enter amount from Part III, Schedule A, Line 6.
Enter here and on Form CT-1120, Schedule D, Line 15. ...........................................................

1.

2. Enter amount from Part III, Schedule B, Line 1.
Enter here and on Form CT-1120, Schedule D, Line 16. ...........................................................

2.

3. Enter amount from Part III, Schedule C, Line 5 or Schedule D, Line 5.
Enter here and on Form CT-1120, Schedule D, Line 17. ...........................................................

3.

4. Total Exceptions: Add Lines 1 through 3 and enter total here. ................................................

4.

00
00
00
00

B - Exceptions to Intangible Expenses Add Back
1. Enter amount from Part IV, Schedule A, Line 5 or Schedule B, Line 3.
Enter here and on Form CT-1120, Schedule D, Line 18. ...........................................................

1.

00

Part III - Exceptions to Interest Expenses Add Back
Schedule A - Exception for Interest Paid, Accrued, or Incurred to a Related Member That is Taxed at a Similar Rate in This State,
in Another State, or in a Foreign Nation
The exception only applies to transactions with a related member when that related member files on a separate company basis in
another state.
This exception does not apply to transactions with a related member when the related member:

•Files in another jurisdiction with the taxpayer on a combined, consolidated, or unitary basis which results in the interest expense of
the taxpayer and the interest income of the related member being offset or eliminated;

•Has a net operating loss; or
•Pays tax on a basis other than net income including but not limited to a gross receipts tax, capital base tax, or a business and
occupational tax.
A. Can the taxpayer establish by clear and convincing evidence that a principal purpose of the payment of interest to a related
member was not to avoid the payment of taxes due under Chapter 208 of the Connecticut General Statutes?  Yes  No
B. Was the interest that the taxpayer paid to a related member paid according to a written contract that reflects an arm’s length rate
of interest and sets forth the terms of the loan?  Yes  No
If the answers to both questions above are Yes, attach a copy of pertinent parts of the contract that support this exception, provide
related member’s information in Question C, and complete Lines 1 through 6.
Failure to provide the requested information will result in a denial of the exception.
C. Related Member Information
Name of Related Member

Federal Employer ID Number (FEIN)

Fiscal period of related member

Date of written contract
M

M

D

D

Y

Y

Y

Y

Name of state or foreign nation in which the related member is subject to a tax on net income

1. Enter the amount of deductible interest added back by taxpayer and paid to a related member.

1.

2. Amount of interest income included in the measure of net income of the related member
subject to tax in Connecticut, another state, or in a foreign nation .............................................

2.

3. Enter the taxable income before apportionment and before application of net operating losses
of the related member in Connecticut, in another state, or in a foreign nation. ..........................

3.

4. Enter the tax paid by the related member in Connecticut, in another state, or in a foreign nation.
(Do not include tax paid in a unitary state or in a state in which a combined return is filed.) ........

4.

5. Divide Line 4 by Line 3 ...............................................................................................................

5.

6. Exception amount: If Line 5 is equal to or greater than 4.5% (.045), enter the amount from
Line 1 here and on Part II A, Line 1. Otherwise enter “0.” ..........................................................

6.

00
00
00
00
0.
00

If claiming this exception for transactions with more than one related member, complete the above schedule for each related
member and enter the total for all related members on Part II A, Line 1.

Form CT-1120AB (Rev. 12/16)

Page 2 of 6

Schedule B - Unreasonable Exception
A. Has the taxpayer received written confirmation from the Commissioner of Revenue Services (the Commissioner) that the
adjustments required under Conn. Gen. Stat. §12-218d are unreasonable?  Yes  No
If the answer to Question A above is Yes, enter the letter date: __________________________ and complete Line 1, below.
If the answer to Question A above is No, answer Question B.
B. Can the taxpayer establish by clear and convincing evidence that the required add back of interest paid, accrued, or incurred to a
related member is unreasonable?  Yes  No
If the answer to Question B above is Yes, the taxpayer must complete Questions C through H in their entirety and provide the
requested information.
Failure to answer every question in Part III, Schedule B and to provide
the requested information will result in a denial of the exception.
Provide a description of the business purpose of each loan which includes:

C.



The date the loan originated;



The relevant terms of the loan;



An explanation of how the principal was transferred;



The dates interest payments were made; and



The tax jurisdictions in which the related member filed or will file its corporate income tax returns.

D. Was the interest that the taxpayer paid to a related member paid according to a written contract or contracts signed by both the
taxpayer and related member?  Yes  No
E. Did the taxpayer enter into the written contract or contracts after corporate changes that were undertaken based, in whole or in
part, on advice relating to the reduction of state taxes?  Yes  No
Were the written contract or contracts:

F.



Negotiated at arm’s length? ..............................................................................................................  Yes



Signed by both the taxpayer and related member? ..........................................................................  Yes




No




No







No

No

Did the written contract or contracts relate to a:

G.



Related member’s acquisition of the taxpayer? ................................................................................  Yes





Cash management program? ...........................................................................................................  Yes

No

Was the interest payment made to a related member that:




Had net operating losses (NOLs) that offset the interest income received?.....................................  Yes


H.



Received a dividend from the taxpayer in the form of a debt instrument?........................................  Yes





Filed or will file in a state or states that calculate the corporate income tax on a unitary basis? ......  Yes





Filed or will file in a state that does not subject the interest income to tax? .....................................  Yes





Paid or will pay dividends (directly or indirectly) to the taxpayer? ....................................................  Yes

1. Exception amount: Enter here and on Part II A, Line 2. ...........................................................

Form CT-1120AB (Rev. 12/16)

1.

No
No
No
No

00

Page 3 of 6

Schedule C - Exception for Certain Related Members That are Insurance Companies
A. Can the taxpayer establish by clear and convincing evidence that a principal purpose of the payment of interest to a related member
was not to avoid the payment of taxes due under Chapter 208 of the Connecticut General Statutes?
 Yes  No
B. Was the interest that the taxpayer paid to a related member paid according to a written contract or contracts that reflects an arm’s
length rate of interest and sets forth the terms of the loan?  Yes  No
Is the related member that received the interest income a company subject to tax under Chapter 207 of the Connecticut
C. General Statutes or subject to a tax in another state that is comparable to the tax under Chapter 207 of the Connecticut
General Statutes?  Yes  No
If the answers to Question A, B, and C above are Yes, complete the following schedule.
If the answers to Question A, B, or C above are No, the taxpayer does not qualify for this exception.
Name of Related Member

FEIN

Contract Date

State in Which
Taxes Were Paid

Amount Deducted

1.

00

2.

00

3.

00

4.

00

5.

00

Total: Enter here and on Part II A, Line 3. ................................................................................................

Schedule D - Exception for Interest Paid to a Related Member Located in a Country With Which the U.S. Has a Comprehensive
Income Tax Treaty
A. Was any interest paid, accrued, or incurred to a related member in a foreign nation which has in force a comprehensive income
tax treaty with the United States?  Yes  No
If the answer to Question A above is Yes, complete the following schedule:
Name of Related Member

Name of Foreign Nation

Description of Treaty

Amount Deducted

1.

00

2.

00

3.

00

4.

00

5.

Total: Enter here and on Part II A, Line 3. ...............................................................................................

Form CT-1120AB (Rev. 12/16)

00

Page 4 of 6

Part IV - Intangible Expenses and Costs Paid to a Related Member As Provided in Conn. Gen. Stat. §12-218c
Did the taxpayer deduct intangible expenses and costs in connection with a transaction with a related member involving:

The

A.

direct or indirect acquisition, use, maintenance or management, ownership,
sale, exchange, or any other disposition of intangible property? ...................................  Yes


Factoring

Royalty,

transactions or discounting transactions? ......................................................  Yes

patents, technical and copyright fees? .............................................................  Yes


Licensing

fees? ..............................................................................................................  Yes






No
No
No
No

Did the taxpayer deduct directly or indirectly, interest expenses and costs in connection with a transaction with a related member
B. that involved the direct or indirect acquisition, maintenance, management, ownership, sale, exchange, or disposition of intangible
property?  Yes  No
If the answer to Question B above is Yes, the taxpayer must add back all intangible expenses and costs and interest expenses or
costs directly or indirectly related to the intangible property unless an exception in Schedule A or Schedule B can be claimed.
Failure to complete Part IV, Schedule A or Schedule B will result in a denial of the exception.
Schedule A - Exception for Intangible Expenses Paid to Unrelated Third-Party
A. Did the related member to whom the taxpayer paid the intangible expenses and costs, directly or indirectly pay the amount
deducted to an unrelated third-party during the same income year?  Yes  No
Can the corporation establish by a preponderance of evidence that the transaction giving rise to the intangible expenses and
B. costs between the corporation and the related member did not have as a principal purpose the avoidance of any portion of the
Corporation Business Tax.  Yes  No
If the answer to Question A above is Yes, provide documentation that supports this claim.
If the answers to Question A and Question B above are Yes, enter the following information:
Name of Related Member

Name of Unrelated Third-Party

Amount Deducted

1.

00

2.

00

3.

00

4.

00

5. Total: Enter here and on Part II B, Line 1. .........................................................................................

00

Form CT-1120AB (Rev. 12/16)

Page 5 of 6

Schedule B - Unreasonable Exception
A. Has the taxpayer received written confirmation from the Commissioner that the adjustments required under Conn. Gen. Stat.
§12-218c are unreasonable?  Yes  No
If the answer to Question A above is Yes, enter the letter date: __________________________ and complete Line 1, below.
If the answer to Question A above is No, answer Question B.
Can the taxpayer establish by clear and convincing evidence that the required add back of intangible expenses and costs paid,
B. accrued, or incurred to a related member and interest expenses or costs directly or indirectly related to the intangible property is
unreasonable?  Yes  No
If the answer to Question B above is Yes, the taxpayer must complete Questions C through H in their entirety and provide the
requested information.
Failure to answer every question in Part IV, Schedule B and to provide
the requested information will result in a denial of the exception.
Provide a description of the intangible expenses and costs, including the following information:

C.


The

date of the contract relating to the payment of intangible expenses and costs;


The

relevant terms of the contract relating to the payment of intangible expenses and costs;


An

explanation of how the intangible property was used in the taxpayer’s business;


The

dates the intangible expenses and costs were paid or incurred; and


The

tax jurisdictions in which the related member filed or will file its corporate income tax returns.

D. Did any entity, other than the related member, ever own the intangible property?



Yes



No

E. Were the intangible expenses and costs paid to a related member according to a written contract or contracts signed by both the
taxpayer and related member?  Yes  No
F. Did the taxpayer rely on a transfer pricing study to determine the amount of intangible expenses and costs?



Yes



No

Did the taxpayer enter into the contract or contracts relating to the payment of intangible expenses and
G. costs after corporate changes that were undertaken based, in whole or in part, on advice relating to the reduction
of state taxes?  Yes  No
Were the intangible expenses and costs paid to a related member that:

Has

NOLs that offset the intangible expenses and costs it received? .............................................  Yes

H. Filed or will file in a state or states that calculate the corporate income tax on a unitary basis? ......  Yes

Filed

or will file in a state that does not subject income from intangibles to tax? .............................  Yes


Paid

or will pay dividends (directly or indirectly) to the taxpayer? ...................................................  Yes






No
No
No
No

Total Exception Amount
1. Intangible expenses and costs paid to a related member. .........................................................

1.

00

2. Interest expenses and costs related to the intangible property. ..................................................

2.

00

3. Total: Add Line 1 and Line 2. Enter amount here and on Part II B, Line 1. ....................................

3.

00

Form CT-1120AB (Rev. 12/16)

Page 6 of 6