Income 54: Nonresident Partners and Shareholders of Partnerships and S Corporations

The Colorado Department of Revenue has finally revised its guidelines in FYI Income 54 regarding people who do not live in Colorado but are partners and/or shareholders of partnerships and/or S corporations in Colorado, ensuring that pass-through entities pay Colorado income tax on their Colorado-source income. This #EnrolledAgent says #AboutTime!

According to the revised guidelines, this requirement is satisfied in one of three ways.  The pass-through entity can:

  1. Include the nonresident member in a composite return the pass-through entity files (Form 106) and make a composite payment of tax on the nonresident’s behalf;
  2. File with its Form 106 a signed agreement from the nonresident member via Form DR 0107 by which the nonresident member agrees to file their own individual Colorado income tax return to report and pay any tax the nonresident member owes; or
  3. Withhold and remit the applicable tax on the nonresident member’s behalf via Form DR 0108.

If you do not live in Colorado and do not elect to be included in a composite return OR sign an agreement to file you own Colorado income tax return, your pass-through entity must withhold and remit the applicable tax on your behalf using Form DR 0108. The appropriate box in Part III of Form 106 must be checked to indicate which option has been selected for each partner that does not live in Colorado.

Yes you will finally get caught.  #TreadLightly

John R. Dundon, EA [720-234-1177, John@JohnRDundon.com] Enrolled with the United States Department of Treasury to Practice before the IRS (Enrolled Agent # 85353). Under contract with the IRS as a Certified Individual Taxpayer Identification Number (ITIN) Acceptance Agent. A Federally Authorized Tax Practitioner (USC 31 Section 330 + IRC 7525a.3.A) regulated under US Treasury Cir. 230.

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Posted in Colorado Department of Revenue, Colorado Income Tax, Composite Tax Return, Partnership, Sub-chapter S

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