Kentucky Corporation and Pass-Through Entity Related Party Expense Questionnaire

Corporation and Pass-Through Entity Related Party Expense Questionnaire
Form 41A802
41A802 (06-16)
Commonwealth of Kentucky
DEPARTMENT OF REVENUE

Taxable Year Ending

CORPORATION AND PASS-THROUGH ENTITY
RELATED PARTY EXPENSE QUESTIONNAIRE

	

__ __/__ __
Mo.  Yr.

KRS 141.205 and 103 KAR 16:230
Name of Entity	
Federal Identification Number	
		

__ __ __ __ __ __ __ __ __

Kentucky Corporation/LLET
Account Number (if applicable)

__ __ __ __ __ __

The information included in this questionnaire will be used by the Department of Revenue in determining whether
intangible expense, intangible interest expense or management fees have been properly deducted from or added
back to federal taxable (ordinary) income in your Kentucky tax return for the above taxable year.

PART I – REQUIRED ADD BACK

All intangible expenses, intangible interest expenses and management fees that are paid, accrued or incurred to a related member must be added
back to income unless one or more of the statutory exceptions are met.

Section A — Intangible Expenses
	1.	Total intangible expenses paid to a related member: Do not include any interest
		 expense or costs related to intangible interest expense...................................................... 	1	

00

	 Section B — Intangible Interest Expenses
	1.	Total intangible interest expenses paid to a related member............................................. 	1	

00

	 Section C — Management Fees
	1.	Total management fees paid to a related member............................................................... 	1	

00

	 Section D — Total Required Add Back
	 1.	 Add Section A, line 1, Section B, line 1 and Section C, line 1. Enter here........................... 	1	

00

PART II – EXCEPTIONS TO ADD BACK

Section A — Exceptions to Expenses
	 1.	 Enter amount from Part III, Section A, line 6.......................................................................... 	1	
	2.	 Enter amount from Part III, Section B, line 5.......................................................................... 	2	
	3.	 Enter amount from Part III, Section C, line 5.......................................................................... 	3	
	4.	 Enter amount from Part III, Section D, line 1.......................................................................... 	4	
	5.	 Enter amount from Part III, Section E, line 1.......................................................................... 	5	
	6.	 Total Exceptions: Add lines 1 through 5 and enter here....................................................... 	6	

00
00
00
00
00
00

	 Section B — Total Related Party Cost Add Back After Exceptions
	 1.	 Total: Part I, Section D, line 1 less Part II, Section A, line 6................................................... 	1	

00

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Commonwealth of Kentucky
DEPARTMENT OF REVENUE

PART III – DETAIL OF EXCEPTIONS TO ADD BACK

Section A — Exception for intangible expenses, intangible interest expenses and management fees paid to
related members that are included in the same consolidated Kentucky corporation income tax return for this
taxable year.
Name of Related Member

Federal Identification
Number

Amount
Deducted

Kentucky Corp./LLET
Account Number

	1.				
	2.				
	3.				
	4.				
	5.				
	6.	 Total of lines 1 through 5. Enter here and on PART II, Section A, line 1			

00
00
00
00
00
00

Section B — Exception for intangible expenses, intangible interest expenses and management fees paid to related
members who are subject to tax in their state of domicile.
	A.	
		
		
		
	B.	
		
		
		
		
	C.	
		
		

Were any intangible expenses, intangible interest expenses or management fees paid,
accrued or incurred 	to a recipient where the expense or payment was subject to, in the
related member’s state of commercial domicile, a net income tax, or a franchise tax
measured by, in whole or in part, net income?		
Is the recipient engaged in substantial business activities separate and apart from the
acquisition, use, licensing, management, ownership, sale, exchange, or any other
disposition of intangible property, or in the financing of related members, as
evidenced by the maintenance of permanent office space and full-time employees
dedicated to the maintenance and protection of intangible property?	
Is the transaction giving rise to the intangible expenses, intangible interest expenses
or management fees between the taxpayer and the recipient made at a commercially
reasonable rate and at terms comparable to an arm’s length transaction?	

¨ Yes  ¨ No

¨ Yes  ¨ No
¨ Yes  ¨ No

If the answers to Questions A, B and C above are all “Yes,” attach a copy of recipient’s tax return filed in its state of
commercial domicile (proprietary information may be redacted), and a copy of pertinent parts of the contract or other
documentation that support this exception. Failure to provide the tax return and pertinent parts of the contract or
other documentation that support this exception will result in a denial of the exception. If any of the answers are
“No,” the taxpayer does not qualify for the exception. Also, to qualify for this exception, all parts of the following
schedule must be completed.
Name of Related
Member

Federal Identification
Number

State of Commercial
Domicile

Name of
Tax

	1.				
	2.				
	3.				
	4.				
	5.	 Total of lines 1 through 4. Enter here and on PART II, Section A, line 2			

Amount
Deducted

00
00
00
00
00

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Commonwealth of Kentucky
DEPARTMENT OF REVENUE

Section C — Exception for intangible expenses, intangible interest expenses and management fees paid to related
members located in a country or countries with which the United States has a comprehensive income tax treaty(ies).
	A.	
		
		
	B.	
		
		
		
		
	C.	
		
		

Were any intangible expenses, intangible interest expenses or management fees 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?	
Is the recipient engaged in substantial business activities separate and apart from the
acquisition, use, licensing, management, ownership, sale, exchange, or any other
disposition of intangible property, or in the financing of related members, as
evidenced by the maintenance of permanent office space and full-time employees
dedicated to the maintenance and protection of intangible property?	
Is the transaction giving rise to the intangible expenses, intangible interest expenses or
management fees between the taxpayer and the recipient made at a commercially
reasonable rate and at terms comparable to an arm’s length transaction?	

¨ Yes  ¨ No

¨ Yes  ¨ No
¨ Yes  ¨ No

If the answers to Questions A, B and C above are all “Yes,” attach a copy of recipient’s tax return (proprietary
information may be redacted), and a copy of pertinent parts of the contract or other documentation that support this
exception. Failure to provide the tax return and pertinent parts of the contract or other documentation that support
this exception will result in a denial of the exception. If any of the answers are “No,” the taxpayer does not qualify
for the exception. Also, to qualify for this exception, all parts of the following schedule must be completed.
Name of Related Member

Name of Foreign
Nation

Description of
Treaty

	1.				
	2.				
	3.				
	4.				
	5.	 Total of lines 1 through 4. Enter here and on PART II, Section A, line 3			

Amount
Deducted

00
00
00
00
00

Section D — Exception for intangible expenses, intangible interest expenses and management fees where the
recipient regularly engages in transactions with one (1) or more unrelated parties on terms identical to that of the
subject transaction.
	A.	 Has the recipient regularly engaged in transactions with one (1) or more unrelated
		 parties on terms identical to that of the subject transaction (giving rise to the
		 intangible expense, intangible interest expense or management fee)?	
¨ Yes  ¨ No
If the answer to Question A is “Yes,” complete line 1 below and attach copies of the written agreements between the
taxpayer and the recipient and the recipient and the unrelated party. Failure to attach the written agreements will
result in a denial of the exception. If the answer is “No,” the taxpayer does not qualify for this exception.
	1.	Exception amount. Enter here and on PART II, Section A, line 4			

00

Section E — Exception for intangible expenses, intangible interest expenses and management fees where the
taxpayer and department have agreed in writing to the application or use of an alternative method of apportionment
under KRS 141.120(9).
	A.	 Is there a written agreement between the taxpayer and the Department which
		 provides for use of an alternative method of apportionment under KRS 141.120(9)?	
¨ Yes  ¨ No
If the answer to Question A is “Yes,” complete line 1 below and attach a copy of the written agreement. Failure to
attach the written agreement will result in a denial of the exception. If the answer is “No,” the taxpayer is not eligible
for this exception.
	1.	Exception amount. Enter here and on PART II, Section A, line 5			

00

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Commonwealth of Kentucky
DEPARTMENT OF REVENUE

Page 4
INSTRUCTIONS FOR RELATED PARTY COSTS

KRS 141.205(1)(l) states that “related party costs” means intangible expense, intangible interest expense, management fees and
any costs or expenses associated with other related party transactions.
KRS 141.205(1)(h) states that “recipient” means a related member or foreign corporation to whom the item of income that
corresponds to the intangible interest expense, the intangible expense, or the management fees, is paid.
KRS 141.205(1)(b) states that “intangible expenses” includes the following only to the extent that the amounts are allowed as
deductions or costs in determining taxable net income before the application of any net operating loss deduction provided under
Chapter 1 of the Internal Revenue Code: (i) Expenses, losses, and costs for, related to, or in connection directly or indirectly
with the direct or indirect acquisition, use, maintenance, management, ownership, sale, exchange, or any other disposition of
intangible property; (ii) Losses, related to, or incurred in connection directly or indirectly with, factoring transactions or discounting
transactions; (iii) Royalty, patent, technical, and copyright fees; (iv) Licensing fees; and (v) Other similar expenses and costs.
KRS 141.205(1)(c) states that “intangible interest expense” means only those amounts which are directly or indirectly allowed as
deduction under Section 163 of the Internal Revenue Code for purposes of determining taxable income under that code, to the
extent that the amounts are directly or indirectly for, related to, or connected to the direct or indirect acquisition, use, maintenance,
management, ownership, sale, exchange, or any other disposition of intangible property.
KRS 141.205(1)(d) states that “management fees” includes but is not limited to expenses and costs paid for services pertaining to
accounts receivable and payable, employee benefit plans, insurance, legal, payroll, data processing, purchasing, tax, financial and
securities, accounting, reporting and compliance services or similar services, only to the extent that the amounts are allowed as
a deduction or cost in determining taxable net income before the application of net operating loss deduction for the taxable year
provided under Chapter 1 of the Internal Revenue Code.
PART I—REQUIRED ADD BACK

Section B—Total Related Party Cost Add Back After Exceptions

Section A—Intangible Expenses

Line 1—Enter the amount from Part I, Section D, Line 1 less the
amount on Part II, Section A, Line 6.

Line 1—Enter the total of all intangible expenses paid to a
related member. Do not include any interest expense or costs
related to intangible interest expense.
Section B—Intangible Interest Expenses	
Line 1—Enter the total of all intangible interest expenses paid
to a related member.
Section C—Management Fees
Line 1—Enter the total of all management fees paid to a related
member.
Section D—Total Required Add Back
Line 1—Enter the total of Section A, Line 1, Section B, Line 1
and Section C, Line 1.
PART II—EXCEPTIONS TO ADD BACK
Section A—Exceptions to Expenses
Line 1—Enter the amount from Part III, Section A, Line 6.
Line 2—Enter the amount from Part III, Section B, Line 5.
Line 3—Enter the amount from Part III, Section C, Line 5.
Line 4—Enter the amount from Part III, Section D, Line 1.
Line 5—Enter the amount from Part III, Section E, Line 1.
Line 6—Enter the total of Lines 1 through 5.

PART III—DETAIL OF EXCEPTIONS TO ADD BACK
Section A—Exception for intangible expenses, intangible
interest expenses and management fees paid to related
members that are included in the same consolidated
Kentucky corporation income tax return for this taxable
year.
Lines 1 to 5—For each related member include the name,
Federal Identification Number, Kentucky Corporation/LLET
Account Number and the amount deducted by the taxpayer.
If there are more than five related members, attach a
statement with the information for each member and enter
the total on Line 1.
Line 6—Enter the total of Lines 1 through 5. Also enter the
total on Part II, Section A, Line 1.
Section B—Exception for intangible expenses, intangible
interest expenses and management fees paid to related
members who are subject to tax in their state of domicile.
Questions A to C—Answer the questions A through C. If the
answers are all Yes, complete Lines 1 through 5 and attach a
copy of recipient’s tax return filed in its state of commercial
domicile (proprietary information may be redacted), and a
copy of pertinent parts of the contract or other documentation
that support this exception.
Lines 1 to 4—For each related member include the name,
Federal Identification Number, state of commercial domicile,
name of tax and the amount deducted by the taxpayer. If there

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Commonwealth of Kentucky
DEPARTMENT OF REVENUE

are more than four related members, attach a statement
with the information for each member and enter the total
on Line 1.
Line 5—Enter the total of Lines 1 through 4. Also enter the
total on Part II, Section A, Line 2.
Section C—Exception for intangible expenses, intangible
interest expenses and management fees paid to related
members located in a country or countries with which the
United States has a comprehensive income tax treaty(ies).
Questions A to C—Answer questions A through C. If the
answers are all Yes, complete Lines 1 through 5 and attach a
copy of recipient’s tax return (proprietary information may
be redacted), and a copy of pertinent parts of the contract or
other documentation that support this exception.
Lines 1 to 4—For each related member include the name,
name of foreign nation, description of treaty and the amount
deducted by the taxpayer. If there are more than four related
members, attach a statement with the information for each
member and enter the total on Line 1.
Line 5—Enter the total of Lines 1 through 4. Also enter the
total on Part II, Section A, Line 3.
Section D—Exception for intangible expenses, intangible
interest expenses and management fees where the
recipient regularly engages in transactions with one (1)
or more unrelated parties on terms identical to that of the
subject transaction.

Question A—If the answer is Yes, attach a schedule or
spreadsheet that identifies the unrelated party and the
amount paid to the recipient. Include the rate charged by the
recipient to the unrelated party for the intangible expense,
intangible interest or management fee. Complete Line 1
and include copies of the written agreements between the
taxpayer and the recipient, as well as, the recipient and the
unrelated party.
Line 1—Enter the total amount deducted by the taxpayer
for intangible expenses, intangible interest expenses or
management fees paid to related parties that are based on
terms identical to that of unrelated parties. Also enter the
total on Part II, Section A, Line 4.
Section E—Exception for intangible expenses, intangible
interest expenses and management fees where the taxpayer
and department have agreed in writing to the application
or use of an alternative method of apportionment under
KRS 141.120(9).
Question A—Answer question A. If the answer is Yes,
complete Line 1 and attach a copy of the written agreement
between the taxpayer and the department.
Line 1—Enter the total amount deducted by the taxpayer
for intangible expenses, intangible interest expenses or
management fees where the taxpayer and department have
agreed in writing to the application or use of an alternative
method of apportionment under KRS 141.120(9). Also enter
the total on Part II, Section A, Line 5.

PROVIDE ANY ADDITIONAL INFORMATION WHICH MAY BE USEFUL IN DETERMINING WHETHER INTANGIBLE
EXPENSES, INTANGIBLE INTEREST EXPENSES OR MANAGEMENT FEES HAVE BEEN PROPERLY DEDUCTED
FROM OR ADDED BACK TO FEDERAL TAXABLE (ORDINARY) INCOME IN YOUR KENTUCKY TAX RETURN FOR THE
TAXABLE YEAR REFLECTED ON PAGE 1.
Person completing questionnaire:_________________________________________________
Title:____________________________________________________________________________
Telephone:______________________________________________________________________
Email address:___________________________________________________________________
Date:____________________________________________________________________________
Please return this completed questionnaire to:
ATTN:	
	
	
	
	
	

Division of Corporation Tax
Kentucky Department of Revenue
P.O. Box 181, Station 52
Frankfort, Kentucky 40602-0181
Telephone: 502-564-8139
Fax: 502-564-0058