Kentucky Single Member LLC Individually Owned Income and LLET Return Instructions

Single Member LLC Individually Owned Income and LLET Return Instructions
Form 725 Instructions
INSTRUCTIONS

725
Commonwealth of Kentucky
Department of Revenue

KENTUCKY SINGLE MEMBER LLC
INDIVIDUALLY OWNED INCOME
AND LLET RETURN

2023

PURPOSE OF INSTRUCTIONS

HOW TO OBTAIN ADDITIONAL FORMS

These instructions have been designed for a single member limited
liability company (single member LLC) whose single member is an
individual, estate, trust, or general partnership. A single member
LLC is an entity that affords its member, through function of the
laws of this state or laws recognized by this state, protection from
general liability for actions of the entity. A single member LLC is
required by law to file a Kentucky Single Member LLC Individually
Owned Income and LLET Return (Form 725).

Forms and instructions are available at all Kentucky Taxpayer Service
Centers (see page 15). They may also be obtained by writing FORMS,
Department of Revenue, 501 High Street, Station 23B, Frankfort, KY
40601, or by calling 502–564–3658. Forms can be downloaded from
www.revenue.ky.gov .

KENTUCKY TAX LAW CHANGES
Enacted by the 2023 Regular Session of the Kentucky
General Assembly
Internal Revenue Code (IRC) Update—House Bill (HB)
360 updated the Internal Revenue Code reference date to
December 31, 2022, for taxable years beginning on or after
January 1, 2023.
Treatment of Research and Experimental (R&E)
Expenses—The update to the IRC conformity date means
that, for taxable years beginning on or after January 1,
2023, Kentucky conforms to the IRC Section 174 changes
requiring taxpayers to capitalize and amortize R&E
expenses rather than deduct them.
Treatment of Restaurant Revitalization Grants—For
tax years beginning on or after January 1, 2020, but before
March 11, 2023, HB 360 provides that Kentucky will treat
Restaurant Revitalization Grants in the same manner as the
IRS. This means that the grants are not included in gross
income and expenses paid for by funds from the grants are
fully deductible.
Pass–Through Entity Tax and Tax Credit— HB 5
established a new Section of KRS Chapter 141 allowing
an authorized person to make an annual election to have
the income tax under KRS 141.020 imposed at the entity
level. To make the election for a taxable year beginning
on or after January 1, 2022, but before January 1, 2023,
an authorized person must file Form 740-PTET or Form
740-PTET-ELECT. The election for this taxable year must
be made after March 31, 2023, but before August 31, 2024.
For taxable years beginning on or after January 1, 2023,
an authorized person must file Form 740-PTET or Form
740-PTET-ELECT to make the election. The election must

be made at any time during the taxable year or after the end
of the taxable year. If the election is made after the end of
the taxable year, it must be made by:
•	

The 15th day of the fourth month after the close of the
taxable year, or

•	

The extended due date if an extension is filed.

Once the election has been made for a taxable year, it is
irrevocable and binding upon all entity owners. Under the
election, the income tax will be calculated at the passthrough entity level. The tax is based upon the ordinary
income and separately stated items of income calculated
under KRS 141.206.
Tax Credit Changes:
Pass–Through Entity Tax Credit—HB 5 also established
a 100% refundable pass-through entity tax credit. This
credit may be claimed on a return filed by an entity owner
against the tax imposed under KRS 141.020 and is based
on the entity owner’s proportionate share of income from
the pass-through entity.
Distilled Spirits Tax Credit—HB 5 modified the distilled
spirits (DS) tax credit, which provides for a credit against
LLET and income tax of up to 100% of the property tax
timely paid on distilled spirits inventory. Changes to this tax
credit will not impact the 2023 tax year.
Decontamination Tax Credit—HB 360 reduced the
amount of anticipated qualifying expenditures per property
to $6 million from $10 million and capped the total credit to
be awarded at $30 million for fiscal years 2022-2023 and
2023-2024.

Page 1 of 16

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Kentucky Entertainment Incentive (KEI) Tax Credit—
House Bill 303 made various changes to the KEI tax credit,
allocating $25 million for approved continuous production
film companies and clarifying that payroll expenditures of
loan-out entities can be included in the credit calculation.
Wage Assessments—HB 303 modified the wage
assessment language in the tax credit provisions that utilize
wage assessments to bring it in line with the reduction in the
individual income tax rate.
Kentucky Revised Statutes—Kentucky Revised Statutes are
referred to in these instructions as “KRS” and can be found online
at legislature.ky.gov/Law/Statutes/Pages/default.aspx .
Ke n t u c k y   A d m i n i s t r a t i v e   R e g u l a t i o n s — Ke n t u c k y
Administrative Regulations are referred to in these
instructions as “KAR” and can be found online at
legislature.ky.gov/Law/kar/Pages/default.aspx

CURRENT YEAR INTEREST RATE
Pursuant to KRS 131.183, the 2024 tax interest rate has been set
at 9 percent  (9%). The rate charged by the Kentucky Department
of Revenue on unpaid taxes is 11 percent  (11%) and when interest
is due on a refund, the rate is 7 percent  (7%).

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KENTUCKY FORM CHANGES
New:
Form 740–PTET—Created to allow an electing passthrough entity to report the amount of income.
Form PTET–CR—Created to allow an electing passthrough entity to report to each of its partners, members,
or shareholders their proportionate share of the income
tax paid by the entity. The PTET-CR must be filed with the
partner’s, member’s, or shareholder’s return to claim the
PTET credit.
Form KPTET–V—Payment voucher created for electing
pass-through entities that choose to pay the PTE Tax with
a paper check.
Form 740 PTET–ES—Created to allow an electing passthrough entity to report estimated PTE tax payments.
NOTE: Estimated payments are not required for tax years
beginning on or after January 1, 2022, but before January
1, 2024.
Form 740 PTET–EXT—Created to allow an electing passthrough entity to request a six-month extension and make
a payment.
Form 740 PTET–ELECT—Created to allow for making an
election to pay income tax at the entity level.

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Page 3 of 16

Helpful Tips for Electronic Filing and Paying
•	

Mandatory E-File and E-Pay if Gross Receipts ≥ $1,000,000—For tax years beginning on or after October 1, 2021, corporations
and pass-through entities are required to file and submit payments electronically if their federal gross receipts are one million dollars
($1,000,000) or greater. This applies to Forms 720, 720U, PTE, 725, and 740NP-WH.

•	

If your return or payment is rejected for an invalid Kentucky Corporation/LLET Account Number or Federal Employer Identification
Number (FEIN), please complete Form 20A100, "Declaration of Representative," and contact our Registration Section at 502-5643306 for instructions on how to obtain an account number.

•	

A person, taxpayer, or tax preparer required to electronically file a return, report, or statement may request a waiver as authorized
by KRS 131.250(2). Form 8948 (K-C): Request for Waiver of Electronic Filing Requirement must be submitted via e-mail to
[email protected] or [email protected] for approval before filing
on paper. A copy of the approved form must be attached to the paper-filed return.

•	

Online Payment Options— Visit www.revenue.ky.gov for details on how to electronically pay your tax. To make payments, the
FEIN is required along with the Kentucky Corporation/LLET six (6)-digit account number.

•	

Payment by Check—If an electronic payment is not possible, a Form KBR-V is required when submitting a paper check for payment
of the tax due on electronically filed and paper-filed returns.

•	

Direct debit is an option for electronically filed forms; however, direct deposit is not.

•	

To determine which forms are supported by your software, please consult with the company that develops your software.

Filing Tips and Checkpoints
The following list of filing tips is provided for your convenience to
help ensure that returns are processed accurately and promptly. To
avoid processing problems, please note the following:

•	

Extensions—Extensions are for extending the filing date only;
late payment penalties and interest apply to payments made
after the original due date.

•	

Account Closure—There are different requirements for the
Secretary of State and the Department of Revenue when
ceasing operations and closing an account. It is advised
that you consult with both agencies when closing a business
account.

•	

•	

Account Number/FEIN—Always ensure the correct Kentucky
Corporation/LLET account number and FEIN is used on the
return being filed.

Schedule A— Do not check the box on Schedule A ,
Apportionment and Allocation, indicating the use of an
alternative allocation and apportionment formula if the single
member LLC has not received written approval from the
Department of Revenue. If written approval has been received,
a copy of the letter from the Department of Revenue must be
attached to the return when filed.

•	

Incorrect Year Forms—Returns submitted on the wrong year
form, on or before the due date, will be accepted as timely filed,
but will require the return to be submitted on the correct year
form before the return can be processed.

•	

Additional errors that delay processing:

•	

Payments—If making payment by check, place payments on
the front of the return so that they are clearly visible. Do not
leave check stubs attached to checks. Check stubs will delay
the machines that sort incoming mail, which causes longer
processing times.

•	

Estimated Payments—Make estimated payments on a timely
basis to avoid penalty.

•	

EFT Payments—When making EFT payments online, use
the taxable year ending, NOT the due date of the payment.

•	

Form KBR-V—Form KBR-V is a payment voucher for
e-filed returns and for payments submitted separately
for paper filed returns. It is NOT an extension form.
To extend a filing date, use Form 720EXT, Extension of Time
to File Kentucky Corporation/LLET Return.

¡	 Incorrect form submitted
¡	 Incorrect tax exemption code
¡	 Incomplete information
¡	 Missing forms or schedules
¡	 Incorrect taxable year end
¡	 Failure to include payment of tax due with the return
¡	 Omitting Form 720EXT when paying with an extension

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INSTRUCTIONS

Tax Treatment of an Individually Owned Single Member Limited
Liability Company and the Individual Owner

4.	 Once logged in, launch the Kentucky Business One Stop
	App.

For taxable years beginning on or after January 1, 2007, a limited
liability company that affords its single member, through function
of the laws of this state or laws recognized by this state, protection
from general liability for actions of the entity is classified as a limited
liability pass–through entity per KRS 141.010(22). For taxable years
beginning on or after January 1, 2007, an annual limited liability
entity tax (LLET) must be paid by every corporation and every
limited liability pass–through entity doing business in Kentucky
on all Kentucky gross receipts or Kentucky gross profits per KRS
141.0401(2), unless specifically excluded. See LLET exemption
codes on page 7 of these instructions.
A single member LLC whose single member is an individual, estate,
trust, or general partnership must file a Kentucky Single Member LLC
Individually Owned Income and LLET Return (Form 725).
A resident or nonresident individual single member is entitled to a
nonrefundable LLET credit against tax imposed by KRS 141.020
(Kentucky individual income tax). The nonrefundable LLET credit
allowed a member is the LLET for the current year after the
subtraction of any credits identified in KRS 141.0205 and reduced
by $175. The credit allowed a member may be applied to the
income tax assessed on income from the single member LLC. Any
remaining credit from the single member LLC will be disallowed.
KRS 141.0401(3)

Kentucky Tax Registration Application— Prior to doing
business in Kentucky, each entity should complete a Kentucky Tax
Registration Application, Form 10A100, to register for a Kentucky
Corporation/LLET Account Number. This account number will be
used for filing returns and remitting the corporation income tax per
KRS 141.040 and LLET per KRS 141.0401.
Register your business online at http://onestop.ky.gov using the
One Stop Business Services link.
1.	

Go to onestop.ky.gov .

2.	 Click on Dashboard Login.
3.	 Welcome to the Kentucky Online Gateway. If you do not already
have an account, click on Create An Account. Once a user
account has been created, an email will be sent to you with
further instructions to activate the account and login. You must
use the activation link in the email prior to logging in to your
account.

•	

If your business needs to register with both the Secretary
of State and the Department of Revenue or only needs to
register with the Department of Revenue, use the Register
My Business option to register for tax accounts and your
Commonwealth Business Identifier (CBI).

•	

If the business is already registered with the Secretary of
State and you do not already have access to the business
on your Dashboard, choose the Link My Business
option. Enter the Commonwealth Business Identifier (CBI),
Security Token, and Business Name exactly as it appears
on your Kentucky articles of organization/incorporation,
your Kentucky Certificate of Authority, or your CBI letter
(including all punctuation) and link your business, click
Send Invite and follow the instructions sent to your email
to register for tax accounts.

The Link My Business option will require you to name at least one
“One-Stop Portal Business Administrator” (for example, the
business owner or representative).
	

GENERAL INFORMATION
Internal Revenue Code Reference Date— Kentucky’s Internal
Revenue Code (IRC) reference date is December 31, 2022,
exclusive of any amendments made subsequent to that date, other
than amendments that extend provisions in effect on December 31,
2022, that would otherwise terminate, for purposes of computing
corporation and individual income tax, except for depreciation
differences per KRS 141.0101. KRS 141.010(21)

Page 4 of 16

Note: The administrator can then delegate access to other
individuals—for example, an attorney, accountant, or manager.
The administrator also determines the appropriate authority
level for delegates to make changes—this could range from
filing annual reports with the Secretary of State’s office,
changing the business address, or filing and paying taxes. Only
the One Stop business administrator(s) can grant, approve,
withdraw, or revoke access to the business.

5.	 Once you have linked your business, your business name
and CBI number will appear in the My Businesses box on the
dashboard, click on the CBI number, once your business loads,
click on the Tax Administration tab to register for accounts.
	

The paper application is available by calling the Department
of Revenue, Division of Registration at 502– 5 6 4 –
3306, or can be downloaded at www.revenue.ky.gov
(click on Find a Form, and search for 10A100). The
application may be faxed to 502–227–0772 or e–mailed to
	[email protected].
Who Must File—Kentucky Single Member LLC
LLET—The limitations imposed and protections provided by the
United States Constitution or Pub. L. No. 86–272 do not apply to
the limited liability entity tax imposed by KRS 141.0401. A Kentucky
Single Member LLC Individually Owned Income and LLET Return
(Form 725) must be filed by every single member limited liability
company (single member LLC) whose single member is an
individual, estate, trust, or general partnership: (a) organized under
the laws of this state; (b) having its commercial domicile in this
state; (c) owning or leasing property in this state; (d) having one or
more individuals performing services in this state; (e) maintaining
an interest in a pass–through entity doing business in this state;
(f) deriving income from or attributable to sources within this state,
including deriving income directly or indirectly from a trust doing
business in this state, or deriving income directly or indirectly from
a single member limited liability company that is doing business in
this state and is disregarded as an entity separate from its single
member for federal income tax purposes; or (g) directing activities

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at Kentucky customers for the purpose of selling them goods or
services. KRS 141.010(13), KRS 141.0401, and KRS 141.206
Disregarded Entities—A single member LLC owned by an
individual, estate, trust, or general partnership is treated in the
same manner as it is treated for federal income tax purposes.
Consequently, an individual, estate, trust, or general partnership filing
a Kentucky tax return will include the activity of any single member
LLC when filing the applicable Kentucky return. However, a single
member LLC is classified as a limited liability pass–through entity per
KRS 141.010(22) and is subject to the limited liability entity tax per
KRS 141.0401(2). A single member LLC whose single member is an
individual, estate, trust, or general partnership must file a Kentucky
Single Member LLC Individually Owned Income and LLET Return
(Form 725) to report and pay any LLET that is due. All disregarded
entities included in the return should be listed on the Schedule DE
and attached to the return. KRS 141.010(13) and KRS 141.200(10)
Pass–through Entity—A single member LLC owned by an
individual, estate, trust, or general partnership that is doing business
in Kentucky solely as a partner or member in a pass–through
entity will file Form 725 per KRS 141.010, KRS 141.0401, and
KRS 141.206. (See Schedule A—Apportionment and Allocation
Instructions.)
Nonresident Withholding Return (Form 740NP–WH)
A partner or member that is a pass-through entity is not subject to
withholding. ‘Pass-through entity’ is defined by KRS 141.010(28).
KRS 141.206(4) provides that every pass–through entity required
to file a return under KRS 141.206(1), except publicly traded
partnerships defined in KRS 141.0401(6)(a)18. and (b)14., must
withhold Kentucky income tax on the distributive share, whether
distributed or undistributed, of each nonresident individual partner,
member, or shareholder. Withholding is at the highest rate provided
in KRS 141.020.
Withholding will not be required if: the partner, member, or
shareholder is exempt from withholding per KRS 141.206(6)(a). If a
pass-through entity demonstrates to the department that a partner,
member, or shareholder has filed an appropriate tax return for the
prior year with the department, then the pass-through entity shall
not be required to withhold on that partner, member, or shareholder
for the current year unless the exemption from withholding has been
revoked pursuant to KRS 141.206(6)(b).

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A pass-through entity required to withhold and file a return on
Kentucky income tax per KRS 141.206 must make estimated
tax payments if required by KRS 141.206(5). If the pass-through
entity is required to make estimated tax payments use Form
740NP-WH-ES (Kentucky Estimated Tax Voucher).
The reporting of a nonresident individual’s net distributive share
income and withholding on Form 740NP–WH at the rate of 4.5%
(.045) will satisfy the filing requirements of KRS 141.180 for a
nonresident individual partner, member, or shareholder whose
only Kentucky source income is net distributive share income. The
partners’, members’, or shareholders’ distributive share of income
must include all items of income or deduction used to compute
adjusted gross income on the Kentucky return that are passed
through to the partner, member, or shareholder by the pass–through
entity, including but not limited to interest, dividends, capital gains
or losses, guaranteed payments, and rents (KRS 141.206(8)). The
nonresident individual partner, member, or shareholder may file a
Kentucky Individual Income Tax Return Nonresident or Part–Year
Resident (Form 740–NP) or a Kentucky Fiduciary Income Tax
Return (Form 741) to take advantage of the credits and deductions.
A pass–through entity must file Form 740NP–WH and complete
a Form PTE–WH for each nonresident individual partner,
member, or shareholder. Form 740NP‑WH with a copy of
each Form PTE–WH must be filed and paid with the Kentucky
Department of Revenue by the 15th day of the fourth month
following the close of the taxable period. Provide two copies
of Form PTE‑WH to each partner, member, or shareholder.
Required Forms and Information—A single member LLC must
enter all applicable information on Form 725, enclose a schedule for
each line item or line item instruction which states “attach schedule,”
and include the following Kentucky forms or schedules, if applicable:
Kentucky Forms and Schedules
1.	 Kentucky Single Member LLC Individually Owned Income and
LLET Return (Form 725)
2.	 Apportionment and Allocation (Schedule A)
3.	 Limited Liability Entity Tax—Continuation Sheet (Schedule L–C)
4.	 Tax Credit Summary Schedule (Schedule TCS)
5.	 Disregarded Entity Schedule, if applicable (Schedule DE)

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Required Federal Form and Schedules
All single member LLC entities must provide a copy of the following
federal forms submitted to the Internal Revenue Service. Not every
form below applies to every individually owned single member LLC.
Only attach the forms and schedules that apply to your company’s
specific tax situation.
1. 	Form 1040, 1041, or 1065 (all pages)
2. 	Schedule C—Profit or Loss from Business
3. 	Schedule D—Capital Gains and (Losses)
4. 	Schedule E—Supplemental Income and (Loss)
5. 	Schedule F—Profit or (Loss) from Farming
6.	 Form 4562—Depreciation and Amortization (if required to be
filed)
7.	 Form 4797—Sales of Business Property
8.	 Form 4835—Farm Rental Income and Expenses
Electronic Funds Transfer (EFT)—The Department of Revenue
accepts electronically filed Corporation Income Tax/Limited
Liability Entity Tax estimated tax voucher payments and extension
payments for corporation income tax and limited liability entity tax.
Before paying by EFT, the single member LLC must have a valid
six-digit Kentucky Corporation/LLET Account Number and have
registered with the Department of Revenue to pay using EFT. Using
an incorrect account number, such as an account number for
withholding or sales and use tax, may result in the payment
being credited to another taxpayer’s account. When making
EFT payments online, use the taxable year ending, NOT the due
date of the payment.
For more information contact the Department of Revenue at 800839-4137 or 502-564-6020. The EFT registration form is available
at www.revenue.ky.gov .
Accounting Procedures—Kentucky income tax law requires a
taxpayer to report income on the same calendar or fiscal year and
to use the same methods of accounting required for federal income
tax purposes. Any federally approved change in accounting periods
or methods must be reported to the Department of Revenue. Check
the applicable box on page 1, Item E and attach a copy of the federal
approval to the return when filed. KRS 141.140
Mailing/Payment—Only include payment for LLET.
Mail the return with payment to:
	
	

Kentucky Department of Revenue
Frankfort, Kentucky 40620-0021

Make the check(s) payable to the Kentucky State Treasurer.
Mail returns with no tax due or refund requests to:
	
	

Kentucky Department of Revenue
Frankfort, Kentucky 40618-0010

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Filing/Payment Date—A Kentucky Single Member LLC Individually
Owned Income and LLET Return must be filed and payment must
be made on or before the 15th day of the fourth month following
the close of the taxable year. KRS 141.160, KRS 141.220, and
103 KAR 15:050
If the filing/payment date falls on a Saturday, Sunday, or a legal
holiday, the filing/payment date is deemed to be on the next business
day. KRS 446.030
Kentucky Extensions—A six-month extension of time to file a
Kentucky Single Member LLC Individually Owned Income and
LLET Return (Form 725) may be obtained by filing Form 720EXT
or the Kentucky individual extension (40A102) by the original due
date of the return. Include a copy of Form 40A102 with the return
when filed. If a payment is made with an extension, Form 720EXT
must be used. For further information, see the instructions for Form
720EXT. 103 KAR 15:050
Federal Extension—A single member LLC granted an extension of
time for filing a federal income tax return will be granted the same
extension of time for filing a Kentucky Single Member LLC Individually
Owned Income and LLET Return for the same taxable year if a copy
of the federal Form 4868, Application for Automatic Extension of
Time to File U.S. Individual Income Tax Return, is attached to the
Kentucky return when it is filed. A copy of the federal extension
submitted after the return is filed does not constitute a valid
extension and late filing penalties will be assessed. A copy of
the federal Form 4868 should not be mailed to the Department of
Revenue before filing the return. 103 KAR 15:050
NOTE: An extension of time to file a return does not extend the
due date for payment of tax.
LLET Estimated Taxes
The Corporation Income/Limited Liability Entity Tax Estimated
Tax Voucher, Form 720-ES, is used to submit estimated tax
payments for LLET. See Electronic Funds Transfer (EFT). If the
single member LLC is required to make estimated LLET payments
and needs Form 720-ES vouchers, contact the Department of
Revenue at 502-564-3658.
Estimated Tax Payments—A single member LLC (Form 725)
must make estimated tax installments if its tax liability under KRS
141.0401 can reasonably be expected to exceed $5,000. Estimated
tax installments are required as follows:
If the estimated tax is reasonably expected to exceed $5,000, 25%
of the estimated tax must be paid by the 15th day of the 4th month,
15th day of the 6th month, 15th day of the 9th month, and the 15th
day of the 12th month of the tax year.
Recalculating Estimated Tax—If after the single member LLC
calculates and pays its estimated tax, it finds that its tax liability for
the year will be more or less than originally estimated, it may have
to recalculate its required installments. If earlier installments were
underpaid, the single member LLC may owe a penalty. An immediate
payment should be made to reduce the amount of penalty resulting
from the underpayment of earlier installments, whether caused by a
change in estimate, failure to make a payment, or a mistake.

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Penalty—Failure to make estimated installments, pay an estimated
installment in full, or pay estimated installments timely will result in an
addition to tax that will be considered a penalty under KRS 141.044.
The tax interest rate plus 2 percent identified under KRS 131.183
is the underpayment rate used to calculate the penalty. The entity
should use Form 2220-K to determine the penalty. KRS 141.044
and KRS 141.990
Amended Return—To correct Form 725 as originally filed,
file an amended Form 725 and check the appropriate box on
page 1, Item E.
Internal Revenue Service Audit Adjustments—An individual,
estate, trust, or general partnership that owns a Kentucky single
member LLC which has received final adjustments resulting from
an Internal Revenue Service audit must submit copies of the “final
determinations of the federal audit” within 180 days of the conclusion
of the federal audit. If audit adjustments were made that affect the
individually owned single member LLC’s LLET calculation, use Form
725 for reporting the federal audit adjustments, check the Amended
Return box, and attach the complete Revenue Agent Report (RAR).
Mail returns with federal audit adjustments (RAR) to:
	
	
	

Corporate Governmental Programs Section
P. O. Box 1074, Station 68
Frankfort, KY 40602-1074

Interest—Interest at the tax interest rate plus two percent is
applied to the LLET liability not paid by the date prescribed
by law for filing the return (determined without regard to
extensions thereof). See page 2 for the current year rate.
Penalties—Refer below.
Failure to file a Kentucky Single Member LLC Individually
Owned Income and LLET Return by the filing date including
extensions—2 percent of the tax due for each 30 days or fraction
thereof that the return is late (maximum 20 percent). The minimum
penalty is $10. KRS 131.180(1)
Failure to pay at least 75 percent of income tax and/or LLET
determined due by the payment due date —2 percent of the tax
due for each 30 days or fraction thereof that the payment is overdue
(maximum 20 percent). The minimum penalty is $10. KRS 131.180(2)
Failure to make estimated installments, pay an estimated
installment in full, or pay estimated installments timely—The
addition to tax is considered a penalty under KRS 141.044. The
underpayment rate is the tax interest rate plus 2 percent identified
under KRS 131.183. KRS 141.044
Failure or refusal to file a Kentucky Single Member LLC
Individually Owned Income and LLET Return or furnish
information requested in writing—5 percent of the tax assessed
for each 30 days or fraction thereof that the return is not filed or the
information is not submitted (maximum 50 percent). The minimum
penalty is $100. KRS 131.180(3)
Negligence—10 percent of the tax assessed. KRS 131.180(6)
Fraud—50 percent of the tax assessed. KRS 131.180(7)

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Cost of Collection Fees—Fee percentage determined per KRS
131.440(1)(a) on all taxes which become due and owing for any
reporting period, regardless of when due. These collection fees are
in addition to all other penalties provided by law. KRS 131.440(1)(a)
Records Retention—The Department of Revenue deems acceptable
virtually any records retention system which results in an essentially
unalterable method of records storage and retrieval, provided: (a)
authorized Department of Revenue personnel are granted access,
including any specialized equipment; (b) taxpayer maintains
adequate back–up; and (c) taxpayer maintains documentation to
verify the retention system is accurate and complete.
FORM 725 — SPECIFIC INSTRUCTIONS
Period Covered—File the 2023 return for calendar year 2023 and
fiscal years that begin in 2023. For a fiscal year, fill in the taxable
period beginning and ending at the top of Form 725.
NOTE: For 52/53 week filers, fill in the taxable period beginning
and ending dates as specified below:
•	 Begin on the first day of the calendar month beginning nearest
to the first day of the 52/53-week tax year.
•	 End on the last day of the calendar month ending nearest to the
last day of the 52/53-week tax year.
Item A—LLET Exemption Code
If the single member LLC is exempt from LLET, enter one of the
following two-digit codes in the space provided. Failure to include
a valid code will delay the processing of the tax return and
may result in a tax notice for assessment of tax, penalties, and
interest.
	
	 REASON

	CODE		
	

12	

	

13	

	

21	

REASON

A property or facility which has been certified as a
fluidized bed energy production facility as defined in
KRS 211.390.
An alcohol production facility as defined in KRS
247.910.
A qualified investment partnership as defined in KRS
141.206(14)(a).

Item B—Enter the federal identification number (FEIN) if the single
member LLC has obtained this number. Otherwise, enter the social
security number (SSN) of the single member owner.
Item C—Enter the six-digit Kentucky Corporation/LLET Account
Number on the applicable line at the top of each form and schedule
and on all checks and correspondence. This number was included
in correspondence received from the Department of Revenue at the
time of registration.
Using an incorrect account number, such as an account number
for withholding or sales and use tax, or the Kentucky Secretary
of State organization number, may result in the payment and/or
return being credited to another taxpayer’s account.

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If the Kentucky Corporation/LLET Account Number is not known,
complete Form 20A100, “Declaration of Representative”, and
contact Registration at 502–564–3306 for instructions on how
to obtain an account number.

•	

Short-Period Return—This return is for a period of less than one
year and is not an initial or final return. Check the applicable
box in Part IV—Explanation of Final Return and/or Short-Period
Return.

Name and Address—Print or type the name of the single member
LLC as set forth in the Articles of Organization. For the address,
include the suite, room, or other unit number after the street address.
If the U.S. Postal Service does not deliver mail to the street address
and the single member LLC has a P.O. box, enter the box number
instead of the street address.

•	

Amended Return—This is an amended tax return. Provide an
explanation of all changes in Part V-Explanation of Amended
Return Changes.

Change of Name—Check the box if the entity’s name has changed
since the filing of the prior year Kentucky tax return. Attach a
statement to the tax return providing the entity’s name reported on
the prior year Kentucky tax return.
Telephone Number—Enter the business telephone number of the
member signing this return.
Item D—3–Factor Apportionment Codes
If the entity is defined in KRS 141.121 and required to use three
(3)-factor apportionment, it must enter one of the following two-digit
codes in the space provided. These entities continue to use a three
(3)-factor apportionment formula as provided in KRS 141.901 for
tax years beginning on or after January 1, 2018.
Failure to include a valid code will delay the processing of the
tax return and may result in a tax notice for assessment of tax,
penalties, and interest.

	REASON
	 CODE	

3–FACTOR APPORTIONMENT CODES

	

31	

Communications service as defined in KRS 136.602;

	

32	

Cable service as defined in KRS 136.602;

	

33	

Internet service as defined in 47 U.S.C. sec. 151; or

	

34	

Other (attach statement)

Item E—Check the applicable boxes.
•	

Initial Return—This is the single member LLC’s first time filing
a single member LLC return in Kentucky. Complete questions 1
and 2 of Schedule Q, Single Member Limited Liability Company
Questionnaire.

•	

Change of Accounting Period—The single member LLC
has changed its accounting period since it filed its prior year
Kentucky tax return. Attach a statement to the tax return showing
the single member’s taxable year end before the change and
its new taxable year end. If the single member received written
approval from the Internal Revenue Service to change its
taxable year, attach a copy of the letter.

•	

Qualified Investment Partnership—The single member LLC is
a qualified investment partnership per KRS 141.206(14)(a).

•	

Final Return—This is the single member LLC’s final Kentucky
tax return. Check the applicable box in Part IV–Explanation of
Final Return and/or Short-Period Return.

State of Organization—Enter the entity’s state of organization.
Date of Organization—Enter the entity’s date of organization.
Principal Business Activity in KY—Enter the entity’s principal
business activity in Kentucky.
North American Industrial Classification System (NAICS)—Enter
your six-digit NAICS code. To view a complete listing of NAICS codes,
visit the Census Bureau at www.census.gov/eos/www/naics .
Item F—Check the applicable box to indicate whether the single
member of the LLC is a Kentucky resident or non-resident. If the
single member is a non-resident, complete Form 740NP-WH and
refer to the instructions on page 5.
PART I—KENTUCKY NET DISTRIBUTABLE INCOME
Line 1—Enter the ordinary income (loss) adjusted to reflect the
differences in federal and Kentucky tax laws from the following
applicable schedules or forms: (1) Form 1040 for an individual;
(2) Form 1041 for an estate or trust; (3) Form 1065 for a general
partnership; and (4) Schedule(s) K-1. Attach Schedule C (Form
1040), Schedule F (Form 1040), Schedule E (Form 1040), Form
1065, Schedule(s) K-1, or other applicable forms or schedules to
the return.
Line 2—Enter the net income (loss) from rental real estate adjusted
to reflect the differences in federal and Kentucky tax laws from
the following applicable schedules or forms: (1) Form 1040 for an
individual; (2) Form 1041 for an estate or trust; (3) Form 1065 for
a general partnership; and (4) Schedule(s) K-1. Attach Schedule
E (Form 1040), Form 4835, Form 1065, Schedule(s) K-1, or other
applicable forms or schedules to the return.
Line 3—Enter the net income (loss) from other rental activities
adjusted to reflect the differences in federal and Kentucky tax laws
from the following applicable schedules or forms: (1) Form 1040 for
an individual; (2) Form 1041 for an estate or trust; (3) Form 1065
for a general partnership; and (4) Schedule(s) K-1. Attach Schedule
C (Form 1040), Schedule E (Form 1040), Form 1065, Schedule(s)
K-1, or other applicable forms or schedules to the return.
Line 4—Enter the interest income earned by the single member
LLC (attach schedule).
Line 5—Enter the dividend income earned by the single member
LLC (attach schedule).
Line 6—Enter the royalty income (loss) adjusted to reflect the
differences in federal and Kentucky tax laws from the following
applicable schedules or forms: (1) Form 1040 for an individual;
(2) Form 1041 for an estate or trust; (3) Form 1065 for a general
partnership; and (4) Schedule(s) K-1. Attach Schedule C (Form
1040), Schedule E (Form 1040), Form 1065, Schedule(s) K-1, or
other applicable forms or schedules to the return.

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Line 7—Enter the short-term and long-term capital gains (losses)
adjusted to reflect the differences in federal and Kentucky tax laws
from the following applicable schedules or forms: (1) Form 1040 for
an individual; (2) Form 1041 for an estate or trust; (3) Form 1065 for
a general partnership; and (4) Schedule(s) K-1. Attach Schedule D
(Form 1040), Schedule D (Form 1041), Schedule D (Form 1065),
Schedule(s) K-1, or other applicable forms or schedules to the return.

Line 8—Enter the total refundable tax credits from Schedule TCS,
Part IV, Line 4 (attach Schedule TCS).

Line 8—Enter the IRC §1231 gain (loss) adjusted to reflect the
differences in federal and Kentucky tax laws from the following
applicable schedules or forms: (1) Form 1040 for an individual;
(2) Form 1041 for an estate or trust; (3) Form 1065 for a general
partnership; and (4) Schedule(s) K-1. Attach Schedule 4797,
Schedule(s) K-1, or other applicable forms or schedules to the return.

Line 11—Enter the amount credited to 2023 from Form 725, Part II,
Line 18 of the 2022 tax return.

Line 9—Enter the total of any other income (attach schedule).
Line 10—Enter the total of deductions not included on Lines 1
through 9 (attach schedule). Enter as a positive amount.
Line 11—Enter the total of Lines 1 through 9 less Line 10.
Line 12—Enter 100 percent if the single member LLC is doing
business only in Kentucky or the percentage from Schedule A,
Part I, Line 3 if the single member LLC is doing business within
and without Kentucky. If the single member LLC is defined in KRS
141.121 and required to use a three (3)-factor apportionment, enter
the percentage from Schedule A, Part I, Line 12. Attach Schedule
A to Form 725.
For purposes of determining the income to enter on Line 2 of the
Kentucky Limited Liability Entity Tax Credit Worksheet included in
the instructions for Form 740–NP, multiply Line 11 by the percentage
on Line 12.

Line 9—Reserved for future use.
Line 10—Enter the amount of LLET paid with Form 720EXT,
Extension of Time to File Kentucky Corporation/LLET Return.

Line 12—Enter the LLET paid on the original return. This line is
used only when filing an amended return.
Line 13—Enter the LLET overpayment on the original return. This
line is used only when filing an amended return.
Line 14—Enter the Estimated Tax Penalty and attach Form 2220-K.
Line 15—If the total of Lines 6, 13, and 14 is greater than the total
of Lines 7 through 12, enter the difference on this line and pay the
amount due by the prescribed due date.
Note: For entities with tax due on project income carried from
Schedules KREDA-SP, KIDA-SP, KIRA-SP, KJDA-SP, KRA-SP,
KJRA‑SP, IEIA-SP, IEBA-SP, KBI-SP, and FON-SP, add the tax due
from specified credit schedule(s) to the tax due line.
Line 16—If the total of Lines 6, 13, and 14 is less than the total of
Lines 7 through 12, enter the difference on this line as a positive
number.
Line 17—If Line 16 reflects an overpayment, enter the portion of
Line 16 to be credited to 2023 LLET interest.

Note: If Form 8582–K is required, adjust the amount entered on
Line 11 to exclude any income, loss, deduction, or expense related
to a passive activity. If the amount on Line 7 (Net short–term and
long–term capital loss) is subject to a capital loss limitation, adjust
the amount entered on Line 11 to exclude the loss not allowed.

Line 18—If Line 16 reflects an overpayment, enter the portion of
Line 16 to be credited to 2023 LLET penalty.

PART II—LLET COMPUTATION

Line 20—If Line 16 reflects an overpayment, enter the portion of
Line 16 to be refunded (Line 16 less Lines 17 through 19).

Line 1—Enter the amount from Schedule L, Section E, Line 1.
Line 2—Enter the sum of all tax credit recapture amounts from
Schedule RC–R, Line 12, Form 8874(K)-B, Line 3, and/or Schedule
DS, page 2, Line 10. Attach Schedule RC–R, Form 8874(K)-B,
and/or Schedule DS.

Line 19—If Line 16 reflects an overpayment, enter the portion of
Line 16 to be credited to 2024 LLET.

PART III—LLET CREDIT FOR MEMBER
Line 1—Enter the LLET paid from Part II, the total of Lines 4 and 6.
Line 2—Minimum tax $175.

Line 3—Enter the total of Lines 1 and 2.

Line 3—Enter Line 1 less Line 2.

Line 4—Enter the nonrefundable LLET credit from Kentucky
Schedule(s) K–1. Copies of Kentucky Schedule(s) K–1 must be
attached to the tax return in order to claim the credit.

PART IV—EXPLANATION OF FINAL RETURN AND/OR
SHORT–PERIOD RETURN

Line 5—Enter the total nonrefundable tax credits from Schedule
TCS, Part III, Column E, Line 1 (attach Schedule TCS).
Line 6—Enter the greater of Line 3 less Lines 4 and 5, or $175
minimum.
Line 7—Enter the total estimated LLET payments made for the
taxable year. Do not include the amount credited from the prior year.

If a final return and/or short-period return is being filed, check the
box next to the reason why the return was filed. If the box for Other
is checked, please provide details in the space provided.
PART V—EXPLANATION OF AMENDED RETURN CHANGES
If an amended return is being filed, please provide a detailed
explanation for any return changes in the space provided. If additional
space is needed, attach a supporting statement.

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SCHEDULE Q—Answer all applicable questions on Schedule Q.

Line 5—Enter gross profits, Line 2 less Line 4.

SCHEDULE L—LIMITED LIABILITY ENTITY TAX COMPUTATION

Section B—Computation of TOTAL Gross Receipts and Gross
Profits

Purpose of Schedule—Schedule L, Limited Liability Entity Tax
Computation, is used to compute the limited liability entity tax
(LLET) per KRS 141.0401(2). Kentucky gross receipts, Kentucky
gross profits, total gross receipts from all sources, and total gross
profits from all sources must be completed per KRS 141.0401(1).
See the line-by-line instructions below.
Short-Period Computation of LLET—For short-period returns,
annualizing gross receipts or gross profits is not permitted. A
minimum of $175 is due per taxable year. Taxable year is defined
as the period for which the return is made. KRS 141.010(36)
SPECIFIC LINE INSTRUCTIONS
Check box—If the entity is required to attach Schedule L-C, check
the box.
Section A—Computation of Kentucky Gross Receipts and
Gross Profits
If the single member LLC filing the tax return is a partner, member, or
shareholder of a pass through entity, as defined in KRS 141.010(28),
doing business in Kentucky, complete Schedule L-C and enter
the total amounts from Schedule L-C, Section A, Lines 2 and 5 on
Schedule L, Section A, Lines 2 and 5; and the total amounts from
Schedule L-C, Section B, Lines 1 and 3 on Schedule L, Section B,
Lines 1 and 3, and continue to Schedule L, Sections C, D, and E.
If the amount in Section B, Line 1 or 3 is $3,000,000 or less, STOP
and enter $175 in Section E, Line 1.
Line 1(a)—Enter Kentucky gross receipts less returns and
allowances. Gross receipts includes, but is not limited to, sales,
rent, proceeds from the sale of real and tangible personal property,
interest, and dividends.

Line 1—Enter adjusted gross receipts. Gross receipts includes,
but is not limited to, sales, rent, proceeds from the sale of real and
tangible personal property, interest, and dividends.
Line 2—Enter the total cost of goods sold from Schedule COGS,
Column B, Line 8.
Line 3—Enter gross profits, Line 1 less Line 2.
Section C—Computation of Gross Receipts LLET
Line 1—If gross receipts from all sources (Section B, Line 1)
are greater than $3,000,000, but less than $6,000,000, enter the
following: (Section A, Line 2 x 0.00095) – ($2,850 x (($6,000,000
– Section A, Line 2) / $3,000,000)), but in no case shall the result
be less than zero.
Line 2—If gross receipts from all sources (Section B, Line 1) are
$6,000,000 or greater, enter the following: Section A, Line 2 x
0.00095.
Line 3—Enter the amount from Line 1 or Line 2.
Section D—Computation of Gross Profits LLET
Line 1—If gross profits from all sources (Section B, Line 3) are
greater than $3,000,000, but less than $6,000,000, enter the
following: (Section A, Line 5 x 0.0075) – ($22,500 x (($6,000,000
– Section A, Line 5) / $3,000,000)), but in no case shall the result
be less than zero.
Line 2—If gross profits from all sources (Section B, Line 3) are
$6,000,000 or greater, enter the following: Section A, Line 5 x 0.0075.

Line 1(b)—Enter Kentucky gross receipts allocable to a “qualified
exempt organization” as defined in KRS 141.0401(7).

Line 3—Enter the amount from Line 1 or Line 2.

Line 2—Enter adjusted gross receipts, Line 1(a) less Line 1(b).

Section E—Computation of LLET

Line 3(a)—Enter the Kentucky cost of goods sold from Schedule
COGS, Column A, line 8. For any activity other than manufacturing,
producing, reselling, retailing, or wholesaling, no costs can be
claimed. KRS 141.0401(1)(d)

Line 1—Enter the lesser of Section C, Line 3 or Section D, Line
3 here and on Page 2, Part II, line 1. If less than $175, enter the
minimum of $175 here and on page 2, Part II, Line 1.

Line 3(b)—Enter the Kentucky cost of goods sold associated with
the gross receipts allocable to a “qualified exempt organization” as
defined in KRS 141.0401(7).
Line 4—Enter adjusted cost of goods sold, Line 3(a) less Line 3(b).

Signature—Form 725 must be signed by an owner
(member). Failure by an owner (member) to sign the
return, to complete all applicable lines on any required Kentucky
form, to attach all applicable schedules, including copies of federal
forms, or to complete all information on the questionnaire will delay
the processing of tax returns.

-

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Tax Credit Summary Schedule

Page 11 of 16

Schedule TCS is used by single member LLCs to apply tax credits for entities subject to the limited liability entity tax (LLET) imposed by KRS
141.0401. Taxpayer as used in this section refers to the single member LLC.
Economic Development Tax Credits—This section is completed
only if a limited liability pass-through entity has been approved for
one or more of the credits authorized by the: (1) Metropolitan College
Consortium (MCC – KRS 141.381); (2) Kentucky Small Business
Tax Credit Program (KSBTC – KRS 141.384); (3) Kentucky Selling
Farmers Tax Credit (KSFTC – KRS 141.3841); or (4) Skills Training
Investment Credit Act (STICA – KRS 154.12).
A limited liability pass-through entity must not enter income or LLET
tax credits on Schedule TCS from:
•	 Kentucky Rural Economic Development Act (KREDA – KRS
154.22)
•	 Kentucky Industrial Development Act (KIDA – KRS 154.28)
•	 Kentucky Jobs Retention Agreement (KJRA – KRS 154.25)
•	 Kentucky Industrial Revitalization Act (KIRA – KRS 154.26)
•	 Kentucky Jobs Development Act (KJDA – KRS 154.24)
•	 Kentucky Business Investment Program (KBI – KRS 154.32)
•	 Kentucky Reinvestment Act (KRA – KRS 154.34)
•	 Incentives for Energy Independence Act (IEIA – KRS 154.27)
•	 Incentives for Energy-related Business Act (IEBA – KRS
154.27)
•	 Farming Operation Networking Project (FON – KRS 141.412)
A limited liability pass-through entity must file Schedules KREDASP, KIDA-SP, KJRA-SP, KIRA-SP, KJDA-SP, KBI-SP, KRA-SP,
IEIA-SP, IEBA-SP, or FON-SP to compute the tax credits for these
programs.
To claim the STICA or MCC credit, a copy of the tax credit
certification(s) received from Bluegrass State Skills Corporation
reflecting the amount of credit awarded must be attached to
the tax return. The credit for either the STICA or MCC must be
claimed on the tax return filed for the taxable year during which
the final authorizing resolution is adopted by Bluegrass State Skills
Corporation. The STICA credit not used during the year in which
the final authorizing resolution is adopted by Bluegrass State Skills
Corporation may be carried forward three successive years; the
MCC credit not used during the year in which the final authorizing
resolution is adopted by Bluegrass State Skills Corporation may be
carried forward to tax years ending before April 15, 2027. If a STICA
or MCC credit is being carried forward from a prior year, attach a
schedule reflecting the original credit available, the amount of the
credit used each year, and the balance of the credit.
To claim the KSBTC and KSFTC credit, a copy of the tax credit
notification received from Kentucky Economic Development
Finance Authority (KEDFA) reflecting the amount of credit awarded
must be attached to the tax return. The credit for the KSBTC and
KSFTC must be claimed on the tax return for the taxable year during
which the credit was approved by KEDFA. The tax credit not used
during the year of approval by KEDFA may be carried forward up
to five years. If a KSBTC or KSFTC credit is being carried forward
from a prior year, attach a schedule reflecting the original credit
available, the amount of the credit used each year, and the balance
of the credit.
Economic development tax credits are allowed against the taxes
imposed by KRS 141.020 or KRS 141.040 and KRS 141.0401.
Information regarding the approval process for these credits may be
obtained from the Cabinet for Economic Development, Department
for Financial Incentives (telephone: 502-564-4554) or Bluegrass
State Skills Corporation (telephone: 502-564-2021)

Nonrefundable Tax Credits
Farming Operation Networking Tax Credit—A qualified farming
operation which has a farm operation networking project approved
by the Cabinet for Economic Development per KRS 141.410 to
KRS 141.414 is allowed a credit against the taxes imposed by
KRS 141.040 or KRS 141.020 and KRS 141.0401 attributable to
the project per KRS 141.412. The annual tax credit is available for
the first five (5) years that the farming operation is involved in the
networking project. The annual tax credit is equal to the approved
costs incurred by the qualified farming operation during the tax
year and must not exceed the income, Kentucky gross profits, or
Kentucky gross receipts of the qualified farming operation generated
by or arising out of the qualified farming operation's participation in
a networking project. Schedule FON must be attached to the tax
return claiming the credit. KRS 141.412
Unemployment Tax Credit—If a taxpayer hired a Kentucky
resident classified as unemployed for at least 60 days and the
resident remains in the employ of the taxpayer for 180 consecutive
days during the tax year (a qualified person), the taxpayer may be
entitled to the unemployment tax credit against the taxes imposed by
KRS 141.020 or KRS 141.040 and KRS 141.0401. For each qualified
person, a one–time nonrefundable credit of $100 may be claimed.
The period of unemployment must be certified by the Education
and Workforce Development Cabinet, Department of Workforce
Investment, Office of Employment and Training, Frankfort, KY, and
a copy of the certification must be maintained by the taxpayer. For
certification questions, call 502-564-7456. Schedule UTC must be
attached to the return claiming this credit. KRS 141.065
Recycling/Composting Tax Credit—A taxpayer that purchases
recycling and/or composting equipment to be used exclusively
in Kentucky for recycling or composting post–consumer waste
materials may be entitled to a nonrefundable credit against the taxes
imposed by KRS 141.020 or KRS 141.040 and KRS 141.0401 in an
amount equal to 50 percent of the installed cost of the equipment.
Application for this credit must be made on Schedule RC and a
copy of the schedule reflecting the amount of credit approved by
the Department of Revenue must be attached to the tax return on
which the credit is claimed. The amount of this credit claimed for
the tax year may not exceed 25 percent of the total tax liability and
cannot exceed 10 percent of the credit approved in the first year
of eligibility.
For taxable years beginning after December 31, 2019, a taxpayer
that purchases recycling and/or composting equipment to be used
exclusively in Kentucky for recycling or composting post -consumer
waste material that qualifies as a Major Recycling Project is
entitled to a nonrefundable credit against the taxes imposed by
KRS 141.020 or KRS 141.040 and KRS 141.0401. The credit is an
amount equal to 25 percent of the installed cost of the recycling or
composting equipment. The amount of credit claimed in a taxable
year subsequent to the taxable year during which the recycling
equipment is purchased shall not exceed seventy-five percent
(75%) of the total of each tax liability, which would be otherwise
due for that taxable year. To qualify, the taxpayer must: (1) invest
more than $10,000,000; (2) have at least 400 full-time employees
with an average hourly wage of more than 300% of the federal
minimum wage; and (3) have plant and equipment costing at least
$500,000,000.
A taxpayer is entitled to claim the recycling credits in KRS 141.390(2)
(a) and (b), but cannot claim both for the same recycling and/or
composting equipment. KRS 141.390

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Tax Credit Summary Schedule

Kentucky Investment Fund Tax Credit—A taxpayer which makes
a cash contribution to an investment fund approved by KEDFA per
KRS 154.20–250 to KRS 154.20–284 is entitled to a nonrefundable
credit equal to 40 percent of the investor’s proportional ownership
share of all qualified investments made by the investment fund
and verified by the authority. The credit may be applied against
the taxes imposed by KRS 141.020 or 141.040, 141.0401, 136.320,
136.300, 136.310, 136.330, 136.505, and 304.3–270. A copy of
the notification from KEDFA reflecting the amount of credit
granted and the year in which the credit may first be claimed
must be attached to the tax return claiming this credit.
The tax credit amount that may be claimed by an investor in any
tax year must not exceed 50 percent of the initial aggregate credit
amount approved by the authority for the investment fund which is
proportionally available to the investor. Example: An investor with a
10 percent investment in a fund which has been approved for a total
credit to all investors of $400,000 is limited to $20,000 maximum
credit in any given year ($400,000 x 10% x 50%).
If the amount of credit that may be claimed in any tax year exceeds
the tax liabilities, the excess credit may be carried forward, but the
carryforward of any excess tax credit will not increase the limitation
that may be claimed in any tax year. Any credit not used in 15
years, including the year in which the credit may first be claimed,
will be lost.
Information regarding the approval process for these credits may be
obtained from the Cabinet for Economic Development, Department
of Financial Incentives at 502–564–4554.
KRS 141.068
Qualified Research Facility Tax Credit—A taxpayer is entitled to
a credit against the taxes imposed by KRS 141.020 or KRS 141.040
and KRS 141.0401 of 5 percent of the qualified costs of constructing,
remodeling, expanding, and equipping facilities in Kentucky for
“qualified research.” Any unused credit may be carried forward 10
years. Schedule QR, Qualified Research Facility Tax Credit, must
be attached to the tax return on which this credit is claimed. Federal
Form 6765, Credit for Increasing Research Activities, must also be
attached if applicable. See instructions for Schedule QR for more
information regarding this credit. KRS 141.395
GED Incentive Tax Credit—A taxpayer is entitled to a credit against
the taxes imposed by KRS 141.020 or KRS 141.040 and KRS
141.0401. The credit reflected on this line must equal the sum of
the credits reflected on the attached GED–Incentive Program Final
Reports. This credit may be claimed only in the year during which
the learning contract was completed and unused portions of the
credit may not be carried forward or back. For information regarding
the program, contact the Education and Workforce Development
Cabinet, Kentucky Adult Education, Council on Postsecondary
Education at 502-573-5114. The GED–Incentive Program Final
Report (DAEL–31) for each employee that completed a learning
contract during the tax year must be attached to the tax return
claiming the credit. KRS 151B.402
Voluntary Environmental Remediation Tax Credit—The
taxpayer must have an agreed order and be approved by the
Energy and Environment Cabinet per KRS 224.1–514. Maximum
tax credit allowed to be claimed per taxable year is 25 percent of
the approved credit. This credit may be claimed against the taxes
imposed by KRS 141.020 or KRS 141.040 and KRS 141.0401.
For more information regarding credit for voluntary environmental
remediation property, contact the Energy and Environment Cabinet
at 502–564–6716. Schedule VERB must be attached to the tax
return claiming this credit. KRS 141.418

Page 12 of 16

Biodiesel Tax Credit—Producers and blenders of biodiesel
and producers of renewable diesel are entitled to a tax credit
against the taxes imposed by KRS 141.020 or KRS 141.040 and
KRS 141.0401. The taxpayer must file a claim for biodiesel credit
with the Department of Revenue by January 15 each year for
biodiesel produced or blended and the renewable diesel produced
in the previous calendar year. The department will issue a credit
certification (Schedule BIO) to the taxpayer by April 15. The credit
certification must be attached to the tax return claiming this credit.
KRS 141.423 and 103 KAR 15:140
Clean Coal Incentive Tax Credit—Effective for tax years ending
on or after December 31, 2006, a nonrefundable, nontransferable
credit against taxes imposed by KRS 136.120, KRS 141.020, or
KRS 141.040 and KRS 141.0401 will be allowed for a clean coal
facility. Per KRS 141.428, a clean coal facility means an electric
generation facility beginning commercial operation on or after
January 1, 2005, at a cost greater than $150 million that is located
in the Commonwealth of Kentucky and is certified by the Energy
and Environment Cabinet as reducing emissions of pollutants
released during generation of electricity through the use of clean
coal equipment and technologies. The amount of the credit is $2
per ton of eligible coal purchased that is used to generate electric
power at a certified clean coal facility, except that no credit will be
allowed if the eligible coal has been used to generate a credit under
KRS 141.0405 for the taxpayer, parent, or subsidiary. KRS 141.428
Ethanol Tax Credit—Producers of ethanol are entitled to a tax
credit against the taxes imposed by KRS 141.020 or KRS 141.040
and KRS 141.0401. The taxpayer must file a claim for ethanol credit
with the Department of Revenue by January 15 each year for ethanol
produced in the previous calendar year. The department will issue
a credit certification (Schedule ETH) to the taxpayer by April 15.
The credit certification must be attached to the tax return claiming
this credit. KRS 141.4242 and 103 KAR 15:110
Cellulosic Ethanol Tax Credit—Producers of cellulosic ethanol
are entitled to a tax credit against the taxes imposed by KRS
141.020 or KRS 141.040 and KRS 141.0401. The taxpayer must
file a claim for cellulosic ethanol credit with the Department of
Revenue by January 15 each year for cellulosic ethanol produced
in the previous calendar year. The department will issue a credit
certification (Schedule CELL) to the taxpayer by April 15. The credit
certification must be attached to the tax return claiming this credit.
KRS 141.4244 and 103 KAR 15:120
Railroad Maintenance and Improvement Tax Credit—For tax
years beginning on or after January 1, 2010, an owner of any Class
II railroad or Class III railroad located in Kentucky or any person who
transports property using the rail facilities of a Class II railroad or
Class III railroad located in Kentucky or furnishes railroad–related
property or services to a Class II railroad or Class III railroad located
in Kentucky, but only with respect to miles of railroad track assigned
to the person by a Class II railroad or Class III railroad, is entitled to
a nonrefundable credit against taxes imposed by KRS 141.020 or
KRS 141.040 and KRS 141.0401 in an amount equal to fifty percent
of the qualified expenditures paid or incurred to maintain or improve
railroads located in Kentucky, including roadbeds, bridges, and
related structures, that are owned or leased as of January 1, 2008,
by a Class II or Class III railroad.
The credit allowed must not exceed the product of $3,500
multiplied by the sum of: (1) The number of miles of railroad
track in Kentucky owned or leased by the eligible taxpayer as
of the close of the taxable year; and (2) The number of miles of
railroad track in Kentucky assigned to the eligible taxpayer by
a Class II railroad or Class III railroad which owns or leases the
railroad track as of the close of the taxable year. Attach Schedule
RR-I to the return when claiming this credit. KRS 141.385

725
(2023)

Tax Credit Summary Schedule

Railroad Expansion Tax Credit—For tax years beginning on or
after January 1, 2010: (a) a corporation that owns fossil energy
resources subject to tax under KRS 143.020 or KRS 143A.020
or biomass resources and transports these resources using rail
facilities; or (b) a railway company subject to tax under KRS 136.120
that serves a corporation that owns fossil energy resources subject
to tax under KRS 143.020 or KRS 143A.020 or biomass resources
is entitled to a nonrefundable tax credit against taxes imposed under
KRS 141.040 and KRS 141.0401 equal to twenty–five percent of the
expenditures paid or incurred by the corporation or railway company
to expand or upgrade railroad track, including roadbeds, bridges,
and related track structures, to accommodate the transport of fossil
energy resources or biomass resources.
The credit amount approved for a calendar year for all taxpayers
under KRS 141.386 is limited to $1 million. If the total amount of
approved credit exceeds $1 million, the department will determine
the amount of credit each corporation and railroad company receives
by multiplying $1 million by a fraction, the numerator of which is the
amount of approved credit for a corporation or railway company
and the denominator of which is the total approved credit for all
corporations and railway companies.
Each corporation or railway company eligible for the credit must file
Schedule RR-E by the fifteenth day of the first month following the
close of the preceding calendar year. The department will determine
the amount of the approved credit and issue a credit certificate
to the corporation or railway company by the fifteenth day of the
third month following the close of the calendar year. KRS 141.386
ENDOW Kentucky Tax Credit—A taxpayer making an endowment
gift to a permanent endowment fund of a qualified community
foundation, county-specific component fund, or affiliate community
foundation, which has been certified under KRS 147A.325, is entitled
to a tax credit equal to twenty percent (20%) of the endowment gift,
not to exceed $10,000. The nonrefundable tax credit is allowed
against the taxes imposed by KRS 141.020 or KRS 141.040 and
KRS 141.0401 and if not used in the year the tax credit is awarded,
may be carried forward for a period not to exceed five years. The
department will issue a credit certification (Schedule ENDOW) to a
taxpayer upon receiving proof that the endowment g