PS 92(12)

Limited Liability Companies

This publication has been superseded by PS 92(12.1)

BACKGROUND: Limited liability companies are entities that can be organized under the laws of an increasing number of States.  Limited liability companies combine the corporation law characteristic of limited liability for all investors with the possibility of the federal tax law treatment of partnerships (i.e., partnership items of income, gain, loss or deduction pass through, and are taxed, to the partners).  Legislation that would allow the organization of limited liability companies has not been enacted by the Connecticut General Assembly.  The Internal Revenue Service has classified a limited liability company that was formed under Wyoming law--the first such law to allow the organization of limited liability companies--as a partnership, and not an association taxable as a corporation, for federal income tax purposes.  Rev. Rul. 88-76, 1988-2, C.B. 360.

PURPOSE: The purpose of this Policy Statement is to describe how limited liability companies will be treated both for corporation business tax purposes and for income tax purposes.

EFFECTIVE DATE: Effective upon issuance and applicable, for corporation business tax purposes, to all income years, and, for income tax purposes, to all taxable years beginning during 1991 and thereafter.

STATUTORY AND REGULATORY AUTHORITY: Conn. Gen. Stat. §§12-213 and 12-214; 1991 Conn. Pub. Acts 3, §§52(b) and 77(a) (June Spec. Sess.), as amended by 1992 Conn. Pub. Acts 5, §19 (May Spec. Sess.)

TREATMENT FOR CORPORATION BUSINESS TAX PURPOSES: Conn. Gen. Stat. §12-214 imposes the corporation business tax on every company that carries on, or has the right to carry on, business in Connecticut for the privilege of carrying on or doing business within the state in a corporate capacity or as an unincorporated association taxable as a corporation for federal income tax purposes.

Conn. Gen. Stat. §12-213 defines "Company" as including "any corporation ... or association ...."

Conn. Agencies Regs. §12-213-1(e) defines "association" or "association taxable as a corporation for federal income tax purposes" as "an unincorporated organization that has ... as described in section 301.7701-2(a) of title 26 of the Code of Federal Regulations, associates, an objective to carry on business and divide the gains therefrom, continuity of life, centralization of management, liability for corporate debts limited to corporate property, and free transferability of interests; and, as described in section 301.7701-2(a) of title 26 of the Code of Federal Regulations, more corporate characteristics than noncorporate characteristics."

Because Conn. Agencies Regs. §12-213-1(e) incorporates by reference the criteria under the Treasury Regulations for determining whether an entity is an association for federal income tax purposes, the Department will follow the application of those criteria by the Internal Revenue Service in revenue rulings such as Rev. Rul. 88-76, 1988-2 C.B. 360.   A limited liability company that is classified as a partnership, and not as an association, under such a ruling (or that can rely on such a ruling because the circumstances are substantially the same as, and are not materially different from the circumstances underlying the ruling) will not be treated, for corporation business tax purposes, as an association taxable as a corporation.

TREATMENT FOR INCOME TAX PURPOSES:  

1992 Conn. Pub. Acts 3, §52(b) (June Spec. Sess.) provides that "[any term used in sections 51 to 93, inclusive, of this act shall have the same meaning as when used in a comparable context in the laws of the United States relating to income taxes unless a different meaning is clearly required. Any reference in sections 51 to 93, inclusive, of this act to the laws of the United States shall mean the provisions of the Internal Revenue Code and any other provisions of the laws of the United States relating to income tax as the same may be or become effective, at any time or from time to time, for the taxable year."

Temporary Income Tax Rule 52(b)-1(3) defines " partnership" as meaning "a partnership as defined in 26 U.S.C. §7701(a)(2) and 26 C.F.R. §301.7701-3(a)".  

Temporary Income Tax Rule 52(b)-1(4) defines "partner" as meaning "a partner as defined in 26 U.S.C. §7701(a)(2) and 26 C.F.R. §301.7701-3(d)."

Because 1991 Conn. Pub. Acts 3,  §52(b) (June Spec. Sess.) and the Temporary Income Tax Rules incorporate by reference the criteria under the Treasury Regulations for determining whether an entity is a partnership for federal income tax purposes, the Department will follow the application of those criteria by the Internal Revenue Service in revenue rulings such as Rev. Rul. 88-76, 1988-2 C.B. 360.  A limited liability company is classified as a partnership, and not as an association taxable as a corporation, under such a ruling (or that can rely on such  a ruling because the circumstances are substantially the same as, and are not materially different from, the circumstances underlying the ruling) will be required to file a Connecticut Partnership Income Tax Return (Form CT-1065).

In accordance with 1991 Conn. Pub. Acts. §§63, 66 and 77(a), as amended by 1992 Conn. Pub. Acts 5, §19 (May Spec. Sess.), and Part VII of the Temporary Income Tax Rules,  members of a limited liability company who are individuals are subject to Connecticut income tax on their share of the limited liability company's income derived from or connected with Connecticut sources in the same manner that partners of a partnership who individuals are subject to Connecticut income tax on their share of the partnership's income derived from or connected with Connecticut sources.

EFFECT ON OTHER DOCUMENTS: None affected. 

PS 92(12)
Corporation business tax
Income tax
Issued: 10/27/92