Idaho Admin. Code r. 35.01.01.877

Current through September 2, 2024

Section 35.01.01.877 - BACKUP WITHHOLDING BY PASS-THROUGH ENTITIES

Sections 63-3022L and 63-3036B, Idaho Code

01.In General. A pass-through entity that is transacting business in Idaho or an estate or trust that has income taxable in Idaho must withhold Idaho income tax from the owner's or beneficiary's share of income and guaranteed payments from the pass-through entity that is required to be included in the individual's Idaho taxable income unless exempt from backup withholding by Section 63-3036B, Idaho Code, or this rule. For purposes of this rule, pass-through entity means "pass-through entity" as defined in Section 63-3006C, Idaho Code. The provisions of this rule do not affect the withholding requirements set forth in Sections 63-3035, 63-3035A, or 63-3036, Idaho Code, and related rules.

02.Exceptions to Backup Withholding. Backup withholding by a pass-through entity is not required on the income of the following pass-through owners and beneficiaries:

a. Owners and beneficiaries who are not natural persons, including corporations, partnerships, trusts, and estates.

b. Unit holders of a publicly traded partnership as defined by Section 7404(b), Internal Revenue Code, if the publicly traded partnership:

i. Is treated as a partnership for purposes of the Internal Revenue Code; and

ii. Has agreed to file an annual information return. The information return must be in the form of a schedule included with the partnership's Idaho Partnership Return of Income reporting the name, address, taxpayer identification number, and other information requested by the Tax Commission of each unit holder with a distributive share of partnership income in Idaho in excess of five hundred dollars ($500) for the taxable year.

c. Resident individuals and part-year resident individuals who have income other than from a pass-through entity.

d. Nonresident individuals if:

i. The pass-through entity has reported and paid the tax relating to the individual on a composite return pursuant to Section 63-3022L, Idaho Code.

ii. Such individual's share of income and guaranteed payments of the pass-through entity from Idaho sources is less than one thousand dollars ($1,000) for the taxable year in which the income is subject to tax;

iii. The income is subject to withholding under Section 63-3035 or 63-3036, Idaho Code; or

iv. The individual has signed and the pass-through entity has approved an Idaho nonresident owner agreement.

03.Idaho Nonresident Owner Agreement. When an individual signs an Idaho nonresident owner agreement, he agrees to file and pay tax on his share of Idaho income from a pass-through entity. The signed agreement must be the proper form prescribed by the Tax Commission and must be submitted to the pass-through entity each year. The pass-through entity must sign and approve the nonresident owner agreement for it to be valid. Their approval will signify their acknowledgment that they are liable for any tax due at the corporate rate if the individual fails to file a return as agreed. If the pass-through entity does not approve the nonresident owner agreement, the pass-through entity must withhold or include the individual in the composite return. The pass-through entity must retain the forms for three years following the end of the taxable year for which it is to apply.

04.Payment of Backup Withholding.

a. The pass-through entity must withhold amounts from the pass-through income of nonresident individuals at the highest marginal rate applicable for the taxable year under Section 63-3024, Idaho Code. The amount withheld for a taxable year must be remitted to the Tax Commission annually on or before the fifteen day of the fourth month following the end of the taxable year, unless one of the exceptions under Subsection 877.02 of this rule apply to the owner or beneficiary. The amount withheld must be remitted on the appropriate return as required by the Tax Commission.

b. Amounts remitted as backup withholding for a taxable year in accordance with the provisions of this rule will be considered to be in part payment of the tax imposed on such owner or beneficiary for his taxable year in which the pass-through entity's taxable year ends.

05.Backup Withholding Returns. A reconciliation schedule must be included with the pass-through entity's Idaho income tax return. Returns submitted to the Tax Commission reporting amounts withheld as required by Section 63-3036B, Idaho Code, must include the following information:

a. The amount of income described in Section 63-3022L(2), Idaho Code, by owner or beneficiary;

b. The amount of tax withheld;

c. Name, address, filing option, and social security number of each owner or beneficiary;

d. The pass-through entity's name, and federal employer identification number.

06.Failure to File Returns or Remit Backup Withholding. Returns that fail to meet the requirements of this rule are invalid and may be returned to the pass-through entity to be refiled. Failure to file a valid return or remit the proper amount of backup withholding by the due date may cause interest and penalties to be imposed.

Idaho Admin. Code r. 35.01.01.877

Effective April 6, 2023