Individual Income Tax; Privilege
Application of Kansas Income and Privilege Tax to Shareholder Distributions by Subchapter-S Financial Institutions
Office of Policy & Research
REVENUE RULING 12-1998-1
March 4, 1998
Application of Kansas Income and Privilege Tax to
Shareholder Distributions by Subchapter-S Financial Institutions
K.S.A. 79-1109, K.S.A. 79-32,117(c)(xiv).
This ruling is intended to clarify the application of Kansas income tax to shareholder distributions made by financial institutions that are organized as subchapter S corporations. For purposes of this ruling, "financial institution" means banks and savings and loans that are organized under any state law, and banking associations and federal savings and loans that are organized under the laws of the United States. "Shareholder" means a shareholder of such a financial institution that is organized as a subchapter S corporation.
In 1997, the Kansas legislature amended the Kansas privilege tax and the Kansas income tax laws. These amendments change the way that subchapter S shareholders report earnings on their individual income tax returns. Shareholders are now required to adjust their Kansas adjusted gross income by excluding any subchapter S earnings that have not been distributed to them in the form of dividends, even though the shareholder has reported such earnings a part of his or her federal adjusted gross income. This exclusion is accomplished by first determining the difference between total shareholder earnings from the subchapter S corporation that are reported on the shareholder's federal return and the earnings that have been paid to the shareholder in the form of dividends. The difference should be included on Line A10 of Schedule S, which supplements form K-40, as a subtraction from the shareholder's federal adjusted gross income.
Likewise, any subchapter S losses of a shareholder must be reported as an add back on the Kansas return since these losses have reduced the shareholder's reported federal adjusted gross income. This should be done by including the losses on Line A4 of Schedule S, which supplements form K-40, as an "add back" to the federal adjusted gross income.
As used in K.S.A. 79-32,117(c)(xiv) and this ruling, dividends shall have the same meaning as dividends for federal income tax purposes. Anyone who has questions or wishes to discuss this ruling may contact the Taxpayer Assistance Bureau, Kansas Department of Revenue, Topeka, Kansas 66625-0001 at (785) 296-0222.
John D. LaFaver
Secretary of Revenue
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