United States

Connecticut: Corporation With Pass-Through Income is a Financial Services Company

May 18, 2015
From KPMG TaxWatch

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Recently, the Connecticut Department of Revenue Services addressed whether a corporation deriving all of its gross income from certain partnerships was a financial services company. Under Connecticut law, financial services companies are companies that derive more than fifty percent of their gross income from certain activities, including but not limited to, making loans, selling or brokering securities, and providing investment advisory or management services, or investment banking services. The taxpayer at issue was the general partner in a number of partnerships that derived all of their income from financial services activities. The taxpayer requested a ruling as to whether it was classified as a financial services company when its sole source of income was its distributive share of income from the financial services partnerships.

The Department observed that the Connecticut’s Corporation Business Tax incorporates the federal conduit treatment of partnerships through its adoption of the federal definition of gross income. As such, the corporation must include its distributive share of the partnerships’ gross income in its gross income. Moreover, the character of the corporation’s distributive share income is determined by looking at the partnerships’ activities. Therefore, the Department ruled that the corporation would be treated as receiving 100 percent of its income from financial services activities and would be classified as a financial services corporation. Please contact Steve Kralik at 860-297-5431 with questions on Ruling 2015-1.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.