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2018 Minnesota Corporation Franchise TaxIncludes instructions for Forms M4, M4I, M4A, M4T, and M4NC.

What’s New Federal AdjustmentsUnder current law, definitions used in deter-mining Minnesota taxable income are based on the Internal Revenue Code, as amended through December 16, 2016. Since that date, the following federal acts have been enacted by Congress:

• Disaster Tax Relief and Airport and Airway Extension Act of 2017 (Pub. L. 115-63),

• Tax Cuts and Jobs Act (Pub. L. 115-97),

• Biparti san Budget Act of 2018 (Pub. L. 115-123), and

• Consolidated Appropriates Act of 2018 (Pub. L. 115-141

Because Minnesota has not adopted these federal changes, adjustments must be made to correctly determine your Minnesota tax-able income. Use the new nonconformity Schedule M4NC to calculate any adjust-ments needed for your return.

Check Box for IRC Section 965 Deferred Foreign IncomeA new check box was added to the top of Form M4. Federal law changes enacted in 2017 require U.S. shareholders to pay a federal transition tax on the untaxed foreign earnings of certain foreign corporations as if those earnings had been repatriated to the United States. Mark this box if you reported deferred foreign income (DFI) under IRC section 965 on your federal return. This includes DFI reported for taxable year 2018 or any prior year.

Revenue NoticesRevenue Notices are policy statements that provide interpretation, details or supple-mentary information concerning Minnesota state tax laws or rules. Recently released Revenue Notices regarding corporation franchise tax include:

• 17-12 Corporate Franchise Tax – Sales Factor – Transactional Taxes on Gross Receipts

• 17-09 Corporate Franchise Tax – Net Operating Loss Carryforwards – Sinclair Broad. Grp., Inc. v. Comm’r of Revenue-For a complete list of revenue notices and to download copies, go to our website at www.taxes.state.mn.us.

Corporate Tax InformationWebsitewww.revenue.state.mn.us

Phone651-556-3075

E-mailbusinessincome.tax@state.mn.us

FormsDownload forms and other tax informa-tion at www.revenue.state.mn.us.This material is available in alternate formats.

ContentsWhat’s New . . . . . . . . . . . . . . . . . . . . . 1Revenue Notices . . . . . . . . . . . . . . . . . 1Filing Requirements . . . . . . . . . . . . . . . 1Before You File . . . . . . . . . . . . . . . . . . . 1Which Form Should You File? . . . . . . . 1Due Dates and Extensions . . . . . . . . . . 2Payment Options . . . . . . . . . . . . . . . . . 2Filing Reminders . . . . . . . . . . . . . . . . . . 3 Accounting Period When Completing Your Return Early Audits/BankruptcyDefinitions . . . . . . . . . . . . . . . . . . . . . . 3Amending Your Return . . . . . . . . . . . . 3Unitary businesses . . . . . . . . . . . . . . . 3-4Instructions for: M4 – Summary Page . . . . . . . . . . 5 M4I – Income Calculation. . . . . . 6-8 M4A – Apportionment and Minimum Fee . . . . . . . . . 9-11 M4T – Tax Calculation . . . . . . . . . 12 M4NC – Federal Adjustments . . 13-23

Filing RequirementsCorporations must file a Minnesota tax return if they transact business or own prop-erty in Minnesota, regardless of their state of incorporation.

Before You FileComplete Your Federal Return Before you complete Form M4, complete federal Form 1120 and supporting sched-ules. You will need to reference them.

You Need a Minnesota Tax ID Your Minnesota Tax ID is the seven-digit number you’re assigned when you register with the department. Generally, this is the same as your sales and use tax or Minne-sota employer’s withholding tax number.

You must include your Minnesota Tax ID on your return so that any payments you make are properly credited to your account.

If you don’t have a Minnesota Tax ID, apply for one online at www.revenue.state.mn.us or call 651-282-5225 or 1-800-657-3605.

FormsWhich Form Should You File?Most corporations, other than S corpora-tions, file Form M4, Corporation Franchise Tax Return.

S corporations filing federal Form 1120S file Minnesota Form M8, S Corporation Return.

Nonresident entertainers file Form ETR, Nonresident Entertainer Tax.

Exempt organizations file Form M4NP, Unrelated Business Income Tax Return. Exempt organizations include: • exempt organizations with unrelated

business income and organizations liable for proxy tax on lobbying and political expenditures that file federal Form 990-T;

• farmers’ cooperatives, as defined in Inter-nal Revenue Code (IRC) section 521, that file federal Form 1120-C;

• homeowner associations filing federal Form 1120-H; and

• political organizations filing federal Form 1120-POL.

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a voucher. (Do not use a voucher if you’re making your extension payment electroni-cally.)

PaymentsUnitary businesses: Payments must be made under the designated filer. See “Filing a Combined Return” on page 4.

Paying ElectronicallyIf your estimated tax payments during the last 12-month period ending June 30 totaled $10,000 or more, you are required to make all tax payments electronically starting January 1 of the following year. Once you meet the electronic payment threshold, you are required to pay electronically for all future periods.

You must also pay electronically if you’re required to pay any Minnesota business tax electronically, such as sales or withhold-ing tax. See Payment Method under line 11 Penalty on page 5.

General Information (continued)

If You Need an ExtensionAll corporations are granted an automatic seven-month extension to file Form M4. You are not required to submit a form to Minnesota to receive the seven-month filing extension.

However, if the Internal Revenue Service (IRS) grants an extension of time to file your federal return that is longer than the Minnesota automatic seven-month exten-sion, your state filing due date is extended to the federal due date.

This is a filing extension only, however, not a payment extension. Any tax not paid by the regular due date is subject to penalties and interest (see instructions for lines 11 and 12 on page 5).

To pay your extension payment electroni-cally, see “Paying Electronically” on this page. If you make your extension pay-ment by check, visit our website at www.revenue.state.mn.us and click on “Make a Payment” and then “By check” to create

Unit investment trusts. A unit investment trust, as defined in the Investment Company Act of 1940, is not considered a person, corporation, partnership, trust or invest-ment company for Minnesota income tax purposes if it:• issues periodic payment plan certificates;• has assets consisting mostly of a single

management company’s securities; and• has no power to invest in other types of

securities.If a trust meets these conditions, no return needs to be filed. Each holder of an interest in the trust, however, is considered to own a proportionate share of the assets and must report any distributions on his or her indi-vidual income tax return.

Real estate mortgage investment con-duits (REMICs), valid under IRC section 860D[b], are not required to file a return. Holders of an interest in a REMIC, how-ever, must report their share of income or loss on their individual income tax returns.

Insurance companies as defined in the IRC are not required to file a corporation franchise tax return if they are admitted to practice the business of insurance in Minnesota, or domiciled and licensed to practice the business of insurance in another state that has reciprocal agreement with Minnesota not to impose retaliatory taxes.

Software-Generated FormsIf you use tax preparation software, the information must be in the same format as our own forms and schedules. If it’s not in the same format, the forms and schedules will be returned to you for correction.

Due Dates and ExtensionsWhen is the Return Due?Returns, including short-year returns, must be filed by the due date for filing your fed-eral income tax return.

The U.S. postmark date, or date recorded or marked by a designated delivery service, is considered the filing date (postage meter marks are not valid). When the due date falls on a Saturday, Sunday or legal holiday, returns postmarked on the next business day are considered timely. When a return is filed late, the date it is received at the department is treated as the date filed.

The regular due date for returns filed by cooperative associations (other than IRC section 521 organizations) is the 15th day of the ninth month after the end of the calendar or fiscal year. Check the co-op box at the top of Form M4. Continued

Payment OptionsIf you’re required to pay any Minnesota business tax electronically, you must pay all tax-es electronically. A 5 percent penalty will be assessed if you fail to do so when required.

Pay Electronically • Go to www.revenue.state.mn.us and log in, or • Call 1-800-570-3329 to pay by phone.

For both methods, follow the prompts for a business to make a corporation franchise tax payment. You’ll need your Minnesota tax ID number, password and banking information. You can cancel a payment up to one business day before the scheduled date, if needed. When paying electronically, you must use an account not associated with any foreign banks.

If you’re using the system for the first time and need a temporary password, call 651-282-5225 or 1-800-657-3605.

Pay by Credit or Debit CardFor a fee, you can use your credit or debit card to make a payment through Value Payment Systems, a national company that partners with federal, state and local governments to provide credit and debit card payment services.

To do so: • Go to payMNtax.com; or• Call 1-855-9-IPAY-MN to pay by phone.

The Department of Revenue does not have any financial agreement with Value Payment Systems and does not receive any of its fees.

Pay by Check• Go to our website at www.revenue.state.mn.us and click on Make a Payment.• Click By Check to create and print a payment voucher. Write your check to

Minnesota Revenue and mail together to the address on the voucher.

Your check authorizes us to make a one-time electronic fund transfer from your account. You may not receive your cancelled check.

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General Information (continued)

Estimated PaymentsIf your estimated tax is more than $500, you must make quarterly payments based on the entire estimated amount. Payments are due by the 15th day of the third, sixth, ninth and 12th months of the tax year. You can make your payments electronically or by check by creating and printing a voucher on our website. www.revenue.state.mn.us. For additional information, see Corporation Estimated Tax Instructions.

Tax Return PaymentIf there is an amount due on line 14 of Form M4 and you are not required to pay electronically, you may pay by check by creating and printing a voucher on our website at www.revenue.state.mn.us.

Filing RemindersAccounting PeriodYou must use the same accounting period for Minnesota as you use for your federal return. If you change your federal account-ing period, attach a copy of federal Form 1128, Application to Adopt, Change or Retain a Tax Year, to your short-period Min-nesota return.

When Completing Your Return• Enter the beginning and ending dates

of your tax year at the top of Form M4.• Rounding is required. You must round

amounts to whole dollars. Drop amounts less than 50 cents and increase amounts 50 cents or more to the next higher dollar.

• How to assemble paper filed returns. Assemble schedules in the order com-pleted behind your Form M4. Attach any additional information requested and a copy of all returns filed with the IRS for the tax year, including 1120-FSCs. Be sure to include copies of all support-ing schedules, except for Forms 1118, 1122, 3115, 5471, 5472 and 5713. Your Minnesota tax return will not be consid-ered complete unless all required federal returns are attached. We will accept the federal return in PDF format on a Com-pact Disc.

• Corporate partners. Attach a copy of Schedule KPC, Partner’s Share of Income, Credits and Modifications.

• If this is your final return, check the correct box at the top of Form M4. At-tach an explanation and a copy of merger papers, dissolution date and distribution papers, or, for S corporations, a copy of your federal approval.

• If your M4 return shows a refund, Minnesota law requires you to provide your banking information so that your refund can be deposited electronically.

Early Audits/Bankruptcy To request an early audit or notify the department of bankruptcy proceedings, complete Form M22, Request for Early Au-dit of Minnesota Income Tax Returns. If the corporation is in bankruptcy, check the “in bankruptcy” box at the top of Form M4.

Amending Your ReturnUse Form M4X, Amended Franchise Tax Return/Claim for Refund, to report changes to your Minnesota liability or to claim a refund.

If the IRS changes or audits your federal return or you amend your federal return and it affects your Minnesota return, you must amend your Minnesota return. File Form M4X within 180 days after you were noti-fied by the IRS or after you filed your fed-eral amended return. Enclose a copy of the IRS report or your amended federal return with your amended Minnesota return.

If the changes do not affect your Minnesota return, you have 180 days to send a letter of explanation to the department. Send your letter and a complete copy of your amended federal return or the correction notice to: Minnesota Revenue, Corporation Franchise,

NexusCorporations that are required to file a Minnesota tax return are referred to as having nexus with Minnesota.

Designated FilerA unitary business filing a combined return must select one of its members to be the designated filer.

The designated filer’s name and tax ID numbers go on the face of the corporation franchise tax return and in the heading of Column B1 of each columnar schedule attached to the return. All payments (es-timated, extension and tax return) will be made under the Minnesota tax ID number of the designated filer and any refunds will be issued to the designated filer.

Domestic CorporationAny corporation organized under the laws of the United States or any state, the Dis-trict of Columbia or political subdivision of these, excluding the Commonwealth of Puerto Rico or any possession of the United States. Domestic international sales corporations (DISCs), qualifying under IRC section 992(a), are also domes-tic corporations (MS 290.01, subd. 5).

Foreign CorporationA corporation that doesn’t meet the defini-tion of a domestic corporation is a foreign corporation (MS 290.01, subd. 5a). A foreign corporation which is taxed as a C corporation for federal income tax pur-poses and has nexus with Minnesota must file a separate return.

Definitions

Mail Station 1255, St. Paul, MN 55146-1255. Do not send these with your current tax return.

If you fail to report federal tax changes within 180 days, you are subject to a penalty equal to 10 percent of any ad-ditional tax due. In addition, the period of time increases during which we may make adjustments to your Minnesota return.

Unitary BusinessesBelow are guidelines for corporations whose activities are part of a unitary business.

What is a Unitary Business?“Unitary business” means business activi-ties or operations that result in a flow of value and includes both foreign and do-mestic companies. A business is presumed to be unitary whenever there is unity of ownership, operation and use. Unity is also presumed when business activities or opera-tions are of mutual benefit to, dependent upon or contributory to one another, either individually or as a group.

Unity of ownership exists when a corpora-tion is a member of a group of two or more corporations and more than 50 percent of the voting stock of each member is directly or indirectly owned by a common owner,

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General Information (continued)

either corporate or noncorporate, or by one or more of the member corporations of a unitary business.

Unity of operation and use can be shown by centralized management or executive force; or centralized purchasing, advertising, ac-counting or other controlled activity.

The absence of these centralized activities does not necessarily mean that a business is not unitary. A business is unitary if there is functional integration, centralized manage-ment and economies of scale (MS 290.17, subd. 4).

Filing a Combined ReturnA unitary business must file a combined return. A combined return for Minnesota includes domestic corporations but not insurance companies that are admitted to practice the business of insurance in Minne-sota, or domiciled and licensed to practice the business of insurance in another state that has reciprocal agreement with Min-nesota not to impose retaliatory taxes. A combined return does not include regulated investment companies. A combined return also includes foreign entities, other than those treated as C corporations for federal income tax purposes, which are included in the federal taxable income of the unitary business. Foreign corporations which are treated as C corporations for federal income tax purposes and regulated investment companies that have nexus with Minnesota, even if they are part of a unitary business, must file separate tax returns (see Defini-tions above).

One member of the unitary business must be selected as the designated filer to file the return, make payments, receive refunds and represent the other members of the group in tax matters.

If you are filing a combined return, com-plete Schedule AFF, Affiliations for Com-bined Returns, and attach it to your return.

Using the Combined-Income Method The combined-income method uses single-sales factor apportionment to determine what percentage of the combined business income of a unitary business is reportable to Minnesota by each unitary business mem-ber required to file a Minnesota return.

The apportionment factor for each member is determined by dividing the corporation’s sales or receipts attributable to Minnesota by the total sales of the entire group, both in and outside Minnesota.

Income and deductions from transactions between members included in the combined return are eliminated to avoid distortion of the group’s income or of the sales appor-tionment factor.

Unitary businesses: Sales or receipts at-tributable to Minnesota and made by any member that doesn’t have nexus with Min-nesota must be included in the Minnesota sales reported by a member of the group which does have nexus with Minnesota.

If a corporation is part of a unitary busi-ness, the entire income (loss) derived from the trade or business of the unitary business is used to figure how much income or loss should be apportioned and reported by that corporation on the combined Minnesota tax return. Income not derived from the trade or business is assigned to Minnesota or another state.

To determine the income (loss) from Min-nesota sources for each member of the group, the total apportionable income (loss) of the entire group is multiplied by the ap-portionment factor of each member.

None of the apportionable income of a unitary business will be considered derived from any particular source or place except as determined by using the combined income method.

Common Accounting PeriodsThe combined-income method for a group of related corporations requires the income and sales factors of all corporations be determined on the basis of a common ac-counting period.

If the members have different accounting periods, the income and sales factor compu-tations of all members should be computed for the same period as the designated filer’s normal accounting period (MR 8019.0405, subp. 4).

The due date of the return is still deter-mined according to the actual accounting period of the designated filer filing the Min-nesota return.

Estimated TaxMembers of a unitary business must com-pute the estimated tax using the combined- income method. Estimated tax payments must be made by the designated filer only.

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M4 Summary PageComplete Forms M4I, M4A, M4T and applicable schedules before completing Form M4. You must include these forms with your M4 return.

Name and Address of CorporationUnitary businesses fill in the name of the designated filer (see “Filing a Combined Return” on page 4). Enter the mailing ad-dress associated with corporate tax matters.

Check box for IRC Sec. 965 Deferred Foreign IncomeCheck this box if you reported Deferred Foreign Income under IRC Sec. 965 in any tax year.

Line InstructionsCorporate partners: Include amounts you may have received as a partner in a part-nership that is reported on Schedule KPC. Include Schedule KPC with your return.

Line 2Minnesota Nongame Wildlife Fund You can help preserve Minnesota’s rare and endangered animals and plants by donating to this fund. Your donation will be added to your total tax and will decrease your refund or increase your balance due.

For more information, go to the Minnesota Department of Natural Resources website at www.dnr.state.mn.us.

Line 4 Enterprise Zone CreditIf your business has been approved by the Minnesota Department of Employment and Economic Development as employment property in an enterprise zone, enter the credit amount. Attach Schedule EPC.

For details about the zones, go to the DEED website at www.positivelyminnesota.com.

Line 5Historic Structure Rehabilitation CreditTo qualify for this credit, you must be eligible for the federal Historic Rehabilita-tion Credit for improving a certified historic structure located in Minnesota and have your application approved by the State Historic Preservation Office (SHPO) of the Minnesota Historical Society. For details, go to www.mnhs.org/shpo.

On line 5, enter the NPS project number and credit amount from the credit certificate you received from SHPO. Include the credit certificate when you file your return.

Line 11PenaltyPenalties are collected as part of the tax and are in addition to any additional charge for underpaying estimated tax.

Late payment. A penalty is due if you don’t pay at least 90 percent of your total tax by the regular due date. The penalty is 6 percent of the unpaid tax on line 10.

There is no penalty if at least 90 percent of your total tax is paid by the regular due date, and any remaining balance is paid by the extended due date. You must calculate interest, however, on the remaining balance.

Late filing. If you file after the extended due date and owe tax, you must pay an additional penalty for filing late. The late-filing penalty is 5 percent of the unpaid tax on line 10.

Balance not paid. An additional penalty of 5 percent of the unpaid tax is due if the return is filed after the regular due date with a balance due, and that balance is not paid at the time of filing.

Payment method. If you are required to pay electronically and do not, an additional 5 percent penalty applies to payments not made electronically, even if a paper check is sent on time.

Line 12Interest You must pay interest on the unpaid tax plus penalty from the regular due date until the total is paid. To figure how much inter-est you owe, use the following formula with the appropriate interest rate (the rate for 2019 is 5 percent):

Interest = (tax + penalty) × # of days late × interest rate ÷ 365

Line 13Additional Charge for Underpayment of Estimated TaxIf you did not pay the correct amount of es-timated tax by the due dates, you may have to pay an additional charge for underpay-ment of estimated tax.

If your tax on Form M4, line 1 (less any credits on lines 4 and 5), is more than $500, use Schedule M15C, Additional Charge for Underpayment of Estimated Tax, to figure the additional charge or to show that you qualify for an exception. Attach Sched-ule M15C to your return.

Line 15If line 9 is less than the sum of lines 3 and 13, subtract line 9 from the sum of lines 3 and 13. Enter the result on line 14 and enter zero on line 15.

Signatures The return must be signed by a person authorized by the corporation. If you paid someone to prepare your return, the preparer must also sign and provide his or her PTIN number. Check the box if you want to autho-rize the department to discuss this return with the preparer.

Other PenaltiesIf you understate your tax by more than 10 percent or $10,000, whichever is more, the penalty is 20 percent of the underpay-ment. If you intentionally don’t file a return to evade paying tax, or if you file a false or fraudulent return, the penalty is 50 percent of the tax due or refund.If you are negligent or intentionally dis-regard the law or rules (but without intent to defraud), the penalty is 10 percent of any additional tax assessed.If you don’t file a return within 30 days of a written demand from the department, the penalty is 5 percent of the tax or $100, whichever is greater.Also be aware of the following:It is a gross misdemeanor to knowingly not file a return or pay a tax when required. If you willfully attempt to evade or defeat a tax or tax law, the action becomes a felony.It is a felony to knowingly file a false or fraudulent return or to knowingly help someone prepare, or advise someone on how to prepare, a false or fraudulent return.

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Line 1 Federal Taxable Income Before NOL and Special Deductions Use the line references below to figure the amount to enter from your federal return.

If the amount you enter on line 1 does not match the amount listed on your federal return, complete Schedule REC, Reconcili-ation, and attach it to your M4 return.

If you’re filing Enter amount federal Form: from line: 1120 28 1120-F 29, Section II 1120-FSC 18, Schedule B 1120-IC-DISC 5 1120-ND 10 1120-RIC 26* 1120-REIT 22 + 21a 1120-C 25c

* For Minnesota purposes, the federal taxable income of a regulated investment company must be increased by the net capital gain exclusion provided in IRC section 852(b)(2)(A). The dividend paid deduction must be applied by allowing a deduction for capital gains dividends and exempt interest dividends (IRC sections 852[b][3][C] and 852[b][5]). This also applies to any undistributed capital gains which are elected to receive IRC section 852(b)(3)(D) treatment.

AdditionsLine 2Corporate partners. Be sure to include any addition amounts reported on the Schedule KPC you received from the part-nership (include Schedule KPC with your return).

a. TaxesEnter the amount deducted on your federal return for taxes based on net income and related minimum taxes paid to Minnesota or another state, a political subdivision of a state, the District of Columbia, any U.S. possession or any foreign country. This also includes the Minnesota minimum fee. (MS 290.0133 subd. 2)

b. Capital LossesEnter any deduction for capital losses taken on your federal return under IRC sections 1211 and 1212. Include any loss from the sale or exchange of certain preferred stock which is treated as an ordinary loss for federal purposes under section 301 of the Emergency Economic Stabilization Act of 2008, Public Law 110-343, Division A, title III. (MS 290.0133 subd. 8 and 290.0136)

Line 1Unitary BusinessesBecause of differences in federal and state law, the amount on line 1 may not match the amount listed on your attached federal return. If it doesn’t match, com-plete Schedule REC, and attach it to your M4 return.

For example, line 28 on a consolidated federal Form 1120 might not include income from companies that are part of a Minnesota combined return. Line 1 must include the income of those companies that meet the Minnesota definition of a unitary business but are not included on line 28 on a consolidated Form 1120.

The consolidated Form 1120 does not in-clude income from less-than-80-percent-owned companies. Minnesota’s definition of a unitary business only requires greater than 50 percent ownership.

Federal Form 1120, line 28, may include income from the following companies that should not be included on line 1.

• Insurance companies that are admitted to practice the business of insurance in Minnesota, or domiciled and licensed to practice the business of insurance in another state that has reciprocal agree-ment with Minnesota not to impose retaliatory taxes.

• Investment companies• Mexican and Canadian companies

included in the federal consolidated return under provision 1504d of IRC.

• Non-unitary companies. These are members that don’t meet the definition of a unitary business.

M4I Income Calculationc. Exempt Interest IncomeEnter all interest income received that is not included on your federal return. (MS 290.0133 subd. 3)

d. Exempt Interest DividendsEnter all exempt interest dividends received (as defined in IRC section 852[b][5]) that are not included on your federal return. (MS 290.0133 subd. 4)

e. Losses From Mining OperationsEnter the amount of losses from mining op-erations (from Form M30, Occupation Tax) if these losses are included in your federal taxable income before NOL and special de-ductions. For gains from mining operations, go to line 4g. (MS 290.0133 subd. 7)

f. Percentage DepletionEnter the amount of percentage depletion deducted on your federal return under IRC sections 611 through 614 and 291. (MS 290.0133 subd. 9)

g. Federal Bonus Depreciation AdjustmentIf you claimed a deduction for the special depreciation allowance (bonus deprecia-tion) under IRC section 168(k) on lines 14 or 25 of federal Form 4562, you must complete the Worksheet for Line 2a – Bo-nus Depreciation from the instructions for Schedule M4NC.

Multiply the sum of lines 14 and 25 on your Minnesota NC 4562 by 80 percent (0.80) and enter the result on line 2g.

If the bonus depreciation on line 18 of the Worksheet for Line 2a – Bonus Depre-ciation generates a loss in an activity that cannot be deducted in 2018 (e.g., a passive activity loss or a loss in excess of basis), you may reduce it by the amount of loss not allowed from the activity for 2018, up to the bonus depreciation claimed by the activity. In a future year when the 2018 suspended loss is allowed, you must include the bonus depreciation as an addition. The bonus depreciation is treated as the last suspended loss allowed. (MS 290.0133 subd. 11)

h. Domestic Production Activities DeductionEnter the amount deducted on your federal return under IRC section 199 for domestic production activities. (MS 290.0133 subd. 13)

i. Excess IRC Section 179 DeductionIf you claimed federal section 179 expens-ing, you must adjust your deduction due to

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the difference between federal and Minne-sota thresholds, limitations, and qualifying property. Make the adjustment on Schedule M4NC, line 3a and complete the Worksheet for line 3a – Section 179 Expensing from the instructions for Schedule M4NC.

Use the Minnesota NC 4562 you completed for Schedule M4NC, line 3a, to complete the following steps.

Complete a Minnesota Form 4562 using the information from the Minnesota NC 4562 and the following modifications:

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Line 1 – Subtract $495,000 from line 1 of your Minnesota NC 4562, and enter the result on line 1 of your Minnesota Form 4562. Do not enter less than $25,000.

Line 2 – Enter the amount from line 2 of your Minnesota NC 4562.

Line 3 – Subtract $1,870,000 from line 3 of your Minnesota NC 4562, and enter the result on line 3 of your Minnesota Form 4562.

Enter the information from lines 6 and 7 of your Minnesota NC 4562 on your Minne-sota Form 4562.

Enter line 10 of your federal Form 4562 on line 10 of your Minnesota Form 4562.

Recalculate lines 4, 5, 8, 9, 11, and 12 of your Minnesota Form 4562. The result on line 12 of this form cannot be more than line 1.

Then complete the following worksheet to determine line 2i of Form M4I:

1 Amount from line 12 from your Minnesota NC 4562. .

2 Line 12 of your Minnesota Form 4562 . . . . . . . . . . . . .

3 Subtract step 2 from step 1 (if zero or less, enter 0) . . .

4 Multiply step 3 by 80% (.80). Enter here and on Form M4I, line 2i . . . . . . .

j. Fines, Fees and PenaltiesYou must add fines, fees and penalties that were deducted on your federal return as a trade or business expense paid to a govern-ment entity or nongovernment regulatory body as a result of a violation of law, or the investigation of any potential violation of law. Do not include amounts identified in a court order or settlement agreement as res-titution or as an amount paid to come into compliance with the law. (MS 290.0133 subd. 14 and 290.10, subd. 2)

k. Addition due to federal changes not adopted by Minnesota. If the amount on Schedule M4NC, line 29 is positive, enter it on line 2k.

If the amount on Schedule M4NC, line 29 is negative, enter it as a positive number on line 4l.

SubtractionsLine 4Corporate partners. Be sure to include any subtraction amounts reported on the

Schedule KPC you received from the part-nership (include Schedule KPC with your return).

a. Tax RefundsInclude refunds of any taxes of the type described on line 2a that are included on your federal return and were added back on your Minnesota return in prior years. (MS 290.0134 subd. 8)

b. Capital LossesEnter an amount for capital losses as al-lowed under IRC sections 1211 and 1212, except that for losses incurred in taxable years beginning after 1986, there is no car-ryback allowed and the carryforward period is 15 years. Include any loss from the sale or exchange of certain preferred stock, which is treated as an ordinary loss for federal pur-poses under section 301 of the Emergency Economic Stabilization Act of 2008, Public Law 110-343, Division A, title III, but has been treated as a capital loss for Minnesota. (MS 290.0134 subd. 5 and 290.0136)

c. Sum of Select Federal Tax Credit ExpensesThe amount on line 4c includes the sum of expenses associated with the following federal tax credits. Attach a list naming the federal tax credit and the expenses associ-ated with the credit.

• Research expenses. Include any research expenses that are disallowed on your fed-eral return due to claiming the federal re-search credit under IRC section 280C(c), but only to the extent that they exceed your Minnesota research credit from Schedule RD, line 29. (MS 290.0134 subd. 11)

• Federal Work Opportunity Credit and/or the Indian Employment Credit. In-clude any salary expenses disallowed due to the federal Work Opportunity Credit under IRC section 51, and/or the Indian Employment Credit under IRC section 45A(a). (MS 290.0134 subd. 3 and 12)

• Disability access expenditures. Include any disability access expenditures that are not allowed to be deducted or capital-ized on your federal return due to claim-ing the federal credit under IRC section 44(d)(7). (MS 290.0134 subd. 10)

• Qualified railroad track maintenance credit. Include any qualified railroad track maintenance expenditures that

are not allowed to be deducted on your federal return due to claiming the federal credit under IRC section 45G(a). (MS 290.0134 subd. 16)

d. Gross-up for Foreign Taxes Deemed Paid Enter the amount of gross-up for foreign taxes deemed paid added to gross income for federal income tax purposes required under IRC section 78. (MS 290.0134 subd. 2)

e. Interest and Expenses Include interest and expenses related to in-come exempt from federal tax, provided the income is taxable by Minnesota and the in-terest and expenses are disallowed as deduc-tions on your federal return. (MS 290.0134 subd. 6)

f. Dividends Paid by National and State Banks to U.S. Government National and state banks only: Include any dividend paid to the U.S. government on the preferred stock of the bank owned by the U.S. government. (MS 290.0134 subd. 4)

g. Mining Companies Enter the amount of income or gain from mining operations (from Form M30, Oc-cupation Tax) if these gains are included in your federal taxable income before NOL and special deductions. (MS 290.0134 subd. 9)

h. Deduction for Cost DepletionInclude an amount of cost depletion for property on which percentage depletion was added back on line 2f. (MS 290.0134 subd. 7)

i. Subtraction for Prior Bonus Depreciation AddbackIf you added back 80 percent of the federal bonus depreciation in any of the last five years, enter one-fifth of the amount added back. (MS 290.0134 subd. 13)

j. Subtraction for Prior IRC Section 179 AddbackIf you added back 80 percent of the excess IRC section 179 deduction, enter one-fifth of the add-back. (MS 290.0134 subd. 14)

k. Subtraction for Prior Addback of Discharge of Indebtedness IncomeInclude any discharge of indebtedness income from reacquisition of business debt which you elected to defer federally in a prior year but only to the extent that the in-come was included in net income in a prior year as a result of the addition under MS 2014 290.01 subdivision 19c, clause (16). (MS 290.0134, subd. 15)

Continued

M4I (continued)

8

l. Subtraction Due to Federal Changes Not Adopted by Minnesota

If the amount on Schedule M4NC, line 29 is negative, enter it as a positive number on line 4l.

Line 5Intercompany Eliminations Attach a separate list explaining any duplication of income (loss) resulting from intercompany transactions and enter the amount on line 5. For example, if line 1 in-cluded $10,000 of dividends that were paid by one member to another, you would need to include that $10,000 on line 5. List any item of income as a positive amount and any item of loss as a negative amount.

Dividends received by an insurer’s parent company from an insurer that is quali-fied and licensed in Minnesota, which is a member of an insurance holding company system as defined in MS 60D.15 subd. 6, should also be eliminated on this line. At-tach a separate list explaining any dividends received from a Minnesota licensed and qualified insurer, which is a member of an insurance holding company system. For example, if line 1 included $10,000 of divi-dends that were paid by an insurer that is qualified and licensed in Minnesota, which is a member of an insurance holding com-pany system, you would need to include that $10,000 on Line 5. List any item of dividend income as a positive amount.

M4I (continued)

Line 8Nonapportionable IncomeNonapportionable income is income that cannot be apportioned due to provisions of the United States Constitution. Nonappor-tionable income is allocated by assignment based on the type of property that gives rise to the income. Nonapportionable income must be reduced by the expenses incurred to generate the income.

Frequently used assignment rules are:

• Income/gains from tangible property not employed in the trade or business is allo-cated by assignment to the state in which the property is located.

• Gain on the sale of a partnership inter-est not employed in the trade or business is allocated to Minnesota in the ratio of the original cost of partnership tangible property located in Minnesota to that located everywhere as determined at the time of the sale. If more than 50 percent of the value of the partnership’s assets are intangibles, the gain/loss is allocated to Minnesota using the partnership’s prior year sales factor.

Other assignment rules are in MS 290.17, subd. 2. Income not assigned in any particu-lar manner is allocated by assignment to the taxpayer’s state of domicile.

All other types of income are referred to as business income, and are subject to appor-tionment.

If you are a corporate partner, include any nonapportionable income you may have re-ceived as reported on line 2 of the Schedule KPC you received from the partnership.

Continued

9

Single filers: Complete Columns A and B1.

Unitary businesses: Enter amounts for the designated filer in Column B1 and complete a column for each corporation having Nexus. Each cor-poration having nexus must have a Minnesota tax ID number.Minnesota uses a single-sales factor to determine the apportionment percentage.

If you are not a unitary business, com-plete Columns A and B1.

If you are a unitary business, Column A must include the total sales of all corpora-tions included on the combined return.

Column B1 is for the designated filer. The remaining columns are for each of the other corporations in the group having nexus with Minnesota. If you need more than three columns, attach additional forms as needed.

Financial institutions, read Apportionment for Financial Institutions on page 11.

PropertyIn Column B1 (and remaining columns as needed by unitary business members having nexus with Minnesota), enter the property items for your business in Minnesota.

Line 1 InventoryEnter the average value of inventories for your business for the tax year.

Line 2Tangible Property and LandEnter the average value of total tangible property (real, personal and mixed) used in connection with your business during the tax year. Property must be valued at original cost and includes land, buildings, machinery, equipment and other tangible personal property.

Line 3Capitalized RentsCapitalized rents are based on the actual rent for property used during the tax year. Do not use an average of rents paid during the year to determine capitalized rents. Determine the value of rented property used by multiplying the rent paid for the tax year by eight.

PayrollLine 5PayrollIn Column B1 (and the remaining columns as needed by unitary groups), enter your total payroll paid or incurred in Minnesota, or paid for labor performed in Minnesota, for the tax year in connection with the busi-ness.

SalesLine 6Minnesota Sales or ReceiptsIn Column B1 (and in the remaining columns as needed by unitary business members having nexus with Minnesota) enter sales attributable to Minnesota made by the corporation listed at the top of the column. Financial institutions, see instruc-tions on page 11.

The sales factor includes all sales, gross earnings or receipts received in the ordinary course of your business, except:• interest;• dividends;• sales of capital assets under IRC section

1221;• sales of property used in the business,

except sales of leased property that is regularly sold as well as leased;

• sales of stock or sales of debt instruments under IRC section 1275(a)(1);

• intercompany sales between members of a combined return.

Line 7Unitary Businesses OnlyAll sales of a unitary business attribut-able to Minnesota must be included on the group’s combined return. On line 7, enter all sales of the unitary business attributable to Minnesota that are not included on line 6. (MS 290.17, subd. 4[h])

Line 8Total SalesIn column A, line 8, enter the total sales for the tax year. Transactions between mem-bers included in the combined return must be eliminated. In Column B1 (and in the remaining columns as needed by unitary business members having nexus with Min-nesota) add lines 6 and 7.

Determining Minnesota SalesReal PropertySales, rents, royalties and other income from real property are attributed to the state in which the property is located.

Tangible Personal PropertySales of tangible personal property are attributed to Minnesota if the property is re-ceived by the purchaser within Minnesota, regardless of the f.o.b. point, other condi-tions of sale, or the ultimate destination of the property.

Tangible personal property delivered to a common or contract carrier or foreign vessel for delivery to a purchaser in another state or nation is a sale in that state or na-tion regardless of the f.o.b. point or other conditions of sale.

Property is received by a purchaser in Minnesota if the recipient is located in this state, even if the property is ordered from outside Minnesota.

Sales of tobacco products, beer, wine and other alcoholic beverages to someone licensed to resell the products only within the state of ultimate destination is a sale in the destination state.

Receipts from leasing or renting tangible personal property, including finance leases and true leases, are attributed to the state in which the property is located. Receipts from the lease or rental of moving property are attributed to Minnesota to the extent the moving property is used in Minnesota. The extent of use is determined as follows:

• A motor vehicle is used wholly in the state in which it is registered.

• Receipts from rolling stock are assigned to Minnesota in the ratio of miles trav-eled in Minnesota to total miles traveled.

• Receipts from aircraft are assigned to Minnesota in the ratio of landings in Minnesota to total landings.

• Receipts from vessels, mobile equipment and other mobile property are assigned to Minnesota in the ratio of days the property is in Minnesota to the total days of the tax year.

Intangible PropertySales of intangible property are attributed to the state in which the property is used by the purchaser.

M4A Apportionment/Minimum Fee

Continued

10

Royalties and other income received for the use of or privilege of using intangible property (such as patents, copyrights, trade names, franchises or similar items) are at-tributed to the state in which the property is used by the purchaser.

Intangible property is attributed to Min-nesota if the purchaser uses the property, or rights in the property, to conduct business within this state, regardless of the location of the purchaser’s customers.

If the property is used in more than one state, then the sales or royalties must be apportioned to Minnesota pro rata based on the portion of use within this state.

If the amount of use in Minnesota cannot be determined, then exclude the sales or royalties from both the numerator and the denominator of the sales factor.

ServicesReceipts from the performance of services are attributed to the state in which the ser-vices are received.

Receipts from services provided to a cor-poration, partnership or trust may only be attributed to a state in which it has a fixed place of doing business.

If you can’t determine where the service was received, or if it was received in a state where the corporation, partnership or trust doesn’t have a fixed place of business, use the location of the office of the customer from which the service was ordered.

If you can’t determine the ordering office, use the office location to which the service was billed.

Petitioning to Use Another Method of AllocationState law (MS 290.20, subd. 1a and Min-nesota Rules 8020.0100, subp. 3) allows entities to request permission from the department to allocate all, or any part of, taxable net income in a manner other than single-sales factor apportionment.

To request permission, complete Form ALT, Petition to Use Alternative Method of Al-location (see Revenue Notice 04-07).

Permission will be granted only if you can show that single-sales factor apportionment does not properly and fairly reflect your Minnesota income, and that the alternative formula you have chosen does.

Minimum FeeA corporation is subject to a minimum fee if the sum of its Minnesota source prop-erty, payroll and sales or receipts is at least $990,000. The minimum fee is in addition to the regular tax and the alternative mini-mum tax.

Entities that are exempt from the minimum fee include:

• regulated investment companies (RICs)• real estate investment trusts (REITs)• real estate mortgage investment conduits

(REMICs)

Line 10AdjustmentsThe minimum fee is determined by your total Minnesota property, payroll and sales. In some cases the property, payroll and sales used for computing the minimum fee will be different than those used for apportionment. The following adjustments should be made to your Minnesota factors on line 10.

Add: All tangible property owned or rented that is not included on line 4 of Form M4A. Some examples include construction in progress, idle property and any nonbusi-ness property or rent expense. The amounts should be determined in the same manner as the amounts on line 4.

Subtract:• Any partnership amounts included on

lines 4, 5 and 8.• Reduction of property owned for a short

taxable year. To determine, multiply the sum of line 1 and line 2 by a fraction: the numerator is 365 minus the number of days in the tax year; the denominator is 365.

Enclose a schedule showing the computa-tion and pass-through information of any adjustments listed on M4A, line 10.

M4A (continued)

Continued

11

Financial institution means:1) any corporation or other business entity

registered• under state law as a bank holding com-

pany• under the federal Bank Holding Com-

pany Act of 1956, as amended; or• as a savings and loan holding company

under the federal National Housing Act, as amended

2) any regulated financial corporation; or a national bank organized and existing as a national bank association pursuant to the provisions of United States Code, title 12, chapter 2

3) a savings association or federal savings bank as defined in United States Code, title 12, section 1813(b)(1)

4) any bank or thrift institution incorporated or organized under the laws of any state

5) any corporation organized under United States Code, title 12, sections 611 to 631

6) any agency or branch of a foreign de-pository as defined under United States Code, title 12, section 3101

7) any corporation or other business entity that is more than 50 percent owned, directly or indirectly, by any person or business entity described in clauses (1) to (6), other than an insurance company taxable under chapter 297I

8) a corporation or other business entity that derives more than 50 percent of its total gross income for financial account-ing purposes from finance leases. For the purposes of this clause, “gross income” means the average from the current tax year and immediately preceding two years and excludes gross income from incidental or occasional transactions. For purposes of this clause, “finance lease” means any lease transaction that is the

• merchant discount income if the mer-chant is located in Minnesota

• receipts from travelers checks if pur-chased in Minnesota

• receipts from credit cards if regularly billed in Minnesota

• receipts for regulated financial institu-tions from securities, based on the ratio of total deposits from Minnesota to total deposits in and outside Minnesota

• receipts for nonregulated financial institutions from securities, based on the ratio of gross business income from Minnesota to total gross business income

• receipts from secondary market assets treated in the same way as securities

• receipts from the performance of ser-vices received in Minnesota

Apportionment for Financial Institutionsfunctional equivalent of an extension of credit and that transfers substantially all the benefits and risks incident to the ownership of property, including any di-rect financing lease or leverage lease that meets the criteria of Financial Account-ing Standards Board Statement No. 13, accounting for leases, or any other lease that is accounted for as financing by a lessor under generally accepted account-ing principles, or

9) any other person or business entity, other than an insurance company taxable under chapter 297I, that derives more than 50 percent of its gross income from activi-ties that an entity described in clauses (2) to (6) or (8) is authorized to transact. For the purposes of this clause, gross income does not include income from nonrecur-ring, extraordinary items.

Financial institutions complete Form M4A the same way that other corporations would, with the exception of lines 6 and 7.

Lines 6 and 7 Sales or Receipts FactorFinancial institutions use a receipts factor instead of a sales factor.

Include the gross income from activities in the ordinary course of business, including income from securities and money market instruments.

The following are considered Minnesota income: • interest income from loans secured by

real or tangible personal property located in Minnesota

• interest on consumer loans not secured by real or tangible personal property if the borrower is a Minnesota resident

• interest on commercial loans not secured by real or tangible personal property if the proceeds are applied in Minnesota

Use this mailing label on your own envelope to mail your Form M4 and copies of your federal return and schedules. (Cut on the dotted line and tape to your envelope.)

Mailing Label

FOR ADDITIONAL INFORMATIONPLEASE CONTACT THE US POSTAL SERVICEREPRESENTATIVE BELOW:

Patrick VogtMail Classification SpecialistBusiness Mail Entry100 S 1st ST Rm 115Minneapolis MN 55401-9651612-349-4747Fax: 612-349-3576Email: Patrick.D.Vogt@usps.gov

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12

Each corporation must have a Minnesota tax ID number. When entering the corporation’s name, use the same abbreviation as that used on M4A.

Line 1Enter the amount from line 9 of Form M4I in each column. Do not divide the amount between columns.

Line 4 Minnesota Nonapportionable Income Enter any income from Form M4I, line 8, that is assigned to Minnesota and attach a schedule. Include the Minnesota nonappor-tionable income you may have received as a partner in a partnership, as reported on line 1 of Schedule KPC.

Line 6Net Operating Loss DeductionA net operating loss incurred in a prior year and not previously used to offset net in-come may be deducted on line 6. Complete and attach Schedule NOL, Net Operating Loss Deduction.

Acquired Net Operating Losses: Acquired net operating losses are subject to limitation as determined under Internal Revenue Code section 382(g). See Revenue Notice 17-09 Corporate Franchise Tax – Net Operating Loss Carryforwards – Sinclair Broad. Grp., Inc. v. Comm’r of Revenue

Unitary businesses only: A separate NOL schedule is required for each corporation claiming a net operating loss deduction.

Line 8Dividends Received DeductionComplete and attach Schedule DIV, Deduc-tion for Dividends Received.

Line 11Alternative Minimum Tax Complete and attach Schedules AMTI, Alternative Minimum Tax, Calculation of Income, and AMTT, Alternative Minimum Tax, Calculation of Tax, if your Minnesota net income (Form M4I, line 7) combined with your adjustments and tax preferences (including adjusted current earnings) ex-ceeds $40,000 or your allowable exemption amount.

Line 13AMT Credit Complete and attach Schedule AMTI and AMTT to claim the AMT carryover credit.

Line 15Minnesota Research CreditComplete and attach Schedule RD, Credit for Increasing Research Activities, to claim credit for research and development ex-penses.

Your credit is limited to the regular fran-chise tax or the liability for tax, whichever is less.

Include any research credit you may have received as a partner in a partnership, as reported on line 14 of Schedule KPC.

Unitary businesses only: A separate Schedule RD is required for each corpora-tion claiming this credit.

M4T Tax CalculationLine 19Tax Credit for Owners of Agricultural AssetsEnter the amount of credit you received from a partnership on Schedule KPC line 15. Do not enter more than the amount on Form M4T line 14. If the credit you received is more than the tax liability on Form M4T line 14, the excess may be car-ried forward up to 15 years. Attach a copy of Schedule KPC showing the credit you received to your return.

Line 21Employer Transit Pass CreditIf you purchase transit passes to sell or give to your employees, you may be eligible for this credit. The credit is 30 percent of the difference between the price you paid for the passes and the price charged employ-ees. Complete and attach Schedule ETP, Employer Transit Pass Credit.

Include any credit you may have received as a partner in a partnership, as reported on line 17 of Schedule KPC.

13

Schedule M4NC InstructionsFor taxpayers affected by federal tax law passed after December 16, 2016.

Purpose of This ScheduleMinnesota defines net income for tax on Form M4 according to the Internal Rev-enue Code, as amended through December 16, 2016 (referred to as “2016 IRC”). Since that date, federal tax laws were passed that contain changes affecting business income taxes for tax year 2018. The updated Internal Revenue Code (IRC), as amended through March 23, 2018, is referred to as “2018 IRC”. Because Minnesota has not adopted these federal changes, adjustments are required to correctly determine your Minnesota tax when filing your 2018 Cor-poration Franchise Tax Return.

Who Must File Schedule M4NCYou must adjust federal taxable income (FTI) on your 2018 Minnesota return if provisions in the following federal acts af-fect the amount of taxable income reported on your 2018 U.S. Corporation Income Tax* return:

• Federal Disaster Tax Relief and Airport and Airway Extension Act of 2017 (Pub. L. 115-63),

• Tax Cuts and Jobs Act (Pub. L. 115-97) (TCJA),

• Bipartisan Budget Act of 2018 (Pub. L. 115-123) (BBA), and

• Consolidated Appropriations Act of 2018 (Pub. L. 115-141) (CAA)

Use the Schedule M4NC and these instruc-tions to complete your Minnesota return. The adjustment for each line should reflect the change to your FTI due to the dif-ference between the item as calculated on your 2018 federal return and the item as calculated under 2016 IRC. Corpora-tions that are partners in partnerships may receive Schedule KPCNC from the partnerships to report items that need to be included on Schedule M4NC. Include cop-ies of any Schedule KPCNC you receive with Schedule M4NC.

If the change results in a reduction of your FTI under 2016 IRC, enter the adjustment as a negative number. If the change results in an increase of your FTI under 2016 IRC, enter the adjustment as a positive number. For purposes of calculating the adjustment under 2016 IRC, any federal regulation, ruling, or other guidance under 2016 IRC applies.

Save your entire 2018 Minnesota M4 tax return and all worksheets you use in deter-mining the adjustments.

*Form M4 is filed by corporations filing federal Forms 1120, 1120-C, 1120-F, 1120-FSC, 1120-IC-DISC, 1120-ND, 1120-REIT, and 1120-RIC.

Line InstructionsLine 1 - Capitalization Rules ProvisionsCosts of Replanting Citrus Plants (TCJA Sec. 13207)The Tax Cuts and Jobs Act (TCJA) pro-vides a special temporary exception when applying the capitalization rules for certain costs of replanting citrus plants lost by reason of casualty. The exception exists for any amounts paid or incurred by a person, other than the person who owned the plants, at the time of the casualty, if—

(1) The person who owned the plants has an equity interest of not less than 50 percent in the replanted citrus plants at all times during the taxable year in which the amounts were paid or in-curred and such other person holds any part of the remaining equity interest, or

(2) The person who did not own the plants acquired the entirety of the original owner’s equity interest in the land on which the lost or damaged citrus plants were located at the time of the loss or damage, and the replanting is on the same land.

Under 2016 IRC, if a person other than the owner of the plants at the time of the citrus plant casualty incurred expenses, the costs to replant are allowed an exception to the capitalization rules only if both of the fol-lowing apply—

(1) The person who owned the plants when damaged owns an equity interest of more than 50 percent at all times during the tax year the replanting costs were paid or incurred, and

(2) The person who is not the original owner owns any portion of the remain-ing equity interest and materially participates in the replanting, main-tenance, cultivation, or development of the plants during the tax year the amounts are paid or incurred.

If you deducted interest expenses relating to the special temporary exception to the capitalization rules enacted under TCJA, recalculate your interest expense using the

exception allowed under 2016 IRC. Enter the interest expense capitalized under 2016 IRC as a positive amount on line 1. Recal-culate any depreciation and basis changes using the newly capitalized amounts under 2016 IRC and enter the adjustment on line 1.

Production Period for Beer, Wine, & Distilled Spirits (TCJA Sec. 13801)The TCJA amended 2018 IRC section 263A to exclude the aging period from the pro-duction period for beer, wine, and distilled spirits.

Under 2016 IRC, the aging period was included in the production period for beer, wine, and distilled spirits when determining the uniform interest capitalization (UNI-CAP) rules.

If you deducted interest expenses relating to the production of beer, wine, or distilled spirits under TCJA capitalization rules, re-calculate your production period to include the aging period. Enter the interest expense capitalized under 2016 IRC as a positive amount on line 1. Recalculate any depre-ciation and basis changes using the newly capitalized amounts under 2016 IRC and enter an adjustment on line 1.

Attach a schedule showing the computation of amounts listed on line 1.

Lines 2 and 3To calculate your nonconformity adjust-ments for Lines 2 and 3, you must complete a Minnesota version of the federal Form 4562 – Depreciation and Amortization. The Minnesota version is referred to as “Minne-sota NC 4562”.

You must complete a Minnesota NC 4562 if you claimed bonus depreciation or section 179 expensing on your federal return. Use the Minnesota NC 4562 for the remainder of your Minnesota return filing as if it was your federal Form 4562 for purposes of bonus depreciation and section 179 expensing. The instructions and worksheets for lines 2 and 3 describe the adjustments needed to create the Minnesota NC 4562.

Complete the Minnesota NC 4562 using the maximum amount on line 1 of $520,000 and the threshold amount on line 3 of $2,070,000.

Continued

14

Line 2 - Increase in Federal Bonus Depreciation for Certain Assets (TCJA Sec. 13201)Line 2a The TCJA changed the type of property that qualifies for bonus depreciation and increased the percentage you are allowed to claim for bonus depreciation on your federal return.

If you claimed federal bonus depreciation on line 14 or 25 of federal Form 4562 for assets placed in service after September 27, 2017, you must make an income adjustment on your Minnesota return using your Min-nesota NC 4562. The Minnesota NC 4562 includes the amounts of bonus depreciation allowable under 2016 IRC.

Complete the Worksheet for line 2a – Bonus Depreciation to calculate the adjustment required on your Minnesota return if you claimed bonus depreciation during 2018. The Worksheet calculates adjustments needed on lines 14 and 25 of your federal Form 4562 in order to create the Minnesota NC 4562. If you received nonconformity adjustments from another entity, incorpo-rate the adjustments into the Worksheet for line 2a – Bonus Depreciation step 14 and do not report the adjustment directly onto Line 2a.

Include your computation of the worksheet as an attachment to your return.

Line 2b For the property entered on steps 5 and 8 of the Worksheet for Line 2a, determine the amount of MACRS depreciation (other than bonus or section 179 expensing) allowed under 2016 IRC. If you choose section 179 expensing for property entered on step 5, do not enter the depreciation on Line 2b. Use the appropriate recovery period and method for each asset under 2016 IRC using your Minnesota NC 4562 lines 17-20. This will result in negative amount.

If you entered property on step 10 of the Worksheet for Line 2a, reverse the portion of MACRS depreciation (not including sec-tion 179 expensing) claimed on the public utility property and vehicle dealer property on your federal return for which you are claiming bonus depreciation for Minnesota purposes. This will result in a positive amount.

Net the amount of the adjustments above on line 2b.

2018 Schedule M4NC Instructions (continued)

Continued

Worksheet for Line 2a – Bonus Depreciation1. Enter amounts from lines 14 and 25 of your federal Form 4562.. . . . . . . . . . .2. Enter the total bonus depreciation received from any non-Minnesota

partnership that was not reported on step 1. See instructions. . . . . . . . . . . . . .3. Add steps 1 and 2.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4. Net like-kind exchange adjustment from Schedule LK. See instructions. . . . .5. Enter bonus depreciation claimed on used property, television, film,

and theatrical production expenses. See instructions.. . . . . . . . . . . . . . . . . . . .6. Add steps 4 and 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7. Subtract step 6 from step 3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8. Enter amount of bonus depreciation claimed that exceeds 40%

of the depreciable base of property in step 7. See instructions. . . . . . . . . . . . .9. Subtract step 8 from step 7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10. 40% bonus depreciation for public utility property and vehicle

dealer property. See instructions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11. Property for which you are claiming 40% bonus depreciation for

Minnesota purposes. See instructions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12. Add steps 9 through 11. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13. Subtract step 12 from step 3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14. Enter any bonus depreciation nonconformity adjustments you receive

from a Minnesota partnership. See instructions.. . . . . . . . . . . . . . . . . . . . . . . . 15. Add steps 13 and 14. See instructions.

Enter the amount on Schedule M4NC line 2a. . . . . . . . . . . . . . . . . . . . . . . . 16. Total federal bonus depreciation you receive from a Minnesota partnership

that is not reported on steps 1 or 2. See instructions. . . . . . . . . . . . . . . . . . . . .17. Add steps 3 and 16.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18. Subtract step 15 from step 17. Enter this amount onlines 14 or 25

of your Minnesota NC 4562. See instructions. . . . . . . . . . . . . . . . . . . . . . . . . .Instructions for Worksheet for Line 2a – Bonus depreciationStep 2 – Enter the total bonus depreciation from entities for which you have not received a Minnesota non-conformity schedule. Do not include amounts reported on step 16. Step 4 – If are you filing Schedule LK, include the difference between your federal depreciable basis and your Minnesota depreciable basis for the property you identified on line 2 of Schedule LK. Include only the portion for which you claimed federal bonus depreciation and that qualifies for bonus depreciation under 2016 IRC. Step 5 – The TCJA expanded bonus depreciation to include used, television, film, and theatrical production property. This property does not qualify for bonus depreciation under 2016 IRC. The property listed on Step 5 may be eligible for section 179 expensing or another method of depreciation under 2016 IRC. If the property is eligible for section 179 expensing under 2016 IRC and you choose that method of depreciation, enter the amount on line 6 of the Minnesota NC 4562. Any property for which you are not choosing section 179 expensing may use another allowable method under 2016 IRC. Report that depreciation amount on Line 2b. Step 8 – The TCJA increased the percentage of bonus depreciation to 100% of the depreciable base. For Min-nesota purposes, the percentage is 40% of the depreciable base for assets placed in service after 2017. Enter the amount of federal bonus depreciation claimed that exceeds 40% of the depreciable base.Step 10 – Enter the amount of public utility property and vehicle dealer property for which you are claiming bonus depreciation under 2016 IRC. If you do not choose to claim bonus depreciation for this type of prop-erty, enter zero. Step 11 – Enter 40% of the depreciable basis of any property for which you are claiming bonus depreciation for Minnesota purposes. You may only claim bonus depreciation for Minnesota purposes if all of the follow-ing are true:• You claimed a federal deduction for section 179 expensing on the property.• The property does not qualify as section 179 property under 2016 IRC.• The property qualifies for bonus depreciation under 2016 IRC.Step 14 – Enter on Step 14 any bonus depreciation nonconformity adjustments you received on Schedule KPCNC for your pro rata interest in another entity. Step 15 – This is your total nonconformity adjustment for bonus depreciation this year. Enter this amount on Schedule M4NC, line 2a. Step 16 – Enter the total federal bonus depreciation from any entity from which you have received a Min-nesota nonconformity schedule. Do not include amounts reported on step 2.The total federal bonus depreciation from another entity equals the sum of the amounts reported on the Schedule KPC line 8 and Schedule KPCNC line 2a you received from that entity.Step 18 – This is your Minnesota bonus depreciation under 2016 IRC. Use this amount to calculate your Minnesota modification on Form M4I, line 2g.

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Line 3 – Section 179 Expensing (TCJA Sec. 13101)Line 3aIf you claimed federal section 179 expens-ing on line 12 of federal Form 4562, you must make an income adjustment on your Minnesota return using your Minnesota NC 4562.

The TCJA has changed the definition of property that qualifies for section 179 expensing and adjusted the threshold and limitations for calculating the allowable federal deduction. For Minnesota purposes, the property must qualify under 2016 IRC.

Complete the Worksheet for line 3a – Section 179 Expensing to calculate your nonconformity adjustment. If you received nonconformity adjustments from another entity and the property is included on step 2 of the Worksheet for Line 3a – Section 179 Expensing, do not report the nonconformity adjustment you received directly onto Line 3a.

Include your computation of the worksheet as an attachment to your return.

Line 3bFor the property entered on line 3a, deter-mine the amount of MACRS depreciation (other than bonus or section 179 expensing) allowed under 2016 IRC. Use the appropri-ate recovery period and method for each asset under 2016 IRC using your Minnesota NC 4562 lines 17-20. Enter the amount of depreciation as a negative number on line 3b. This will result in a negative amount.

If you entered property on lines 7, 8, or 9 of the Worksheet for Line 3a, reverse the por-tion of MACRS depreciation (not including bonus depreciation) claimed on the property on your federal return. This is property for which you did not claim section 179 ex-pensing for federal purposes but are elect-ing section 179 expensing for Minnesota purposes on the Minnesota NC 4562. This will result in a positive amount.

Net the amount of adjustments above on line 3b.

Line 4 - Other Depreciation Modifications (TCJA Sec. 13202, 13203, 13204, 13205)Line 4aIf you have an adjustment for one of the provisions below, enter the amount on line 4a. If you have an adjustment for more than one provision listed below, net the adjust-ments and enter the total on line 4a.

2018 Schedule M4NC Instructions (continued)

Continued

Worksheet for Line 3a – Section 179 Expensing1. Enter the total cost of section 179 property placed in

service on line 2 of your federal Form 4562. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2. Section 179 deduction from line 12 of your federal Form 4562. . . . . . . . . . . . . . 3. Qualified real property. See instructions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4. Certain depreciable tangible personal property used to furnish lodging.

See instructions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5. Net like-kind exchange adjustment from Schedule LK.

See step instructions. See instructions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6. Add steps 3 through 5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7. Qualified leasehold improvement property. See instructions . . . . . . . . . . . . . . . .8. Qualified retail improvement property. See instructions. . . . . . . . . . . . . . . . . . . .9. Qualified restaurant property. See instructions. . . . . . . . . . . . . . . . . . . . . . . . . . .10. Add steps 7 through 9. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11. Subtract step 6 from 10. If the result is less than zero,

enter as a negative amount.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12. Add steps 1 and 11. This is your adjusted total cost of section 179 property placed

in service. Enter this amount on line 2 of the Minnesota NC 4562. . . . . . . . . . . .13. Recalculate lines 4, 5, 6, 7, 8, 9, 11, and 12 of your Minnesota NC 4562.

Enter the amount from line 12 of the Minnesota NC 4562. See instructions . . . .14. Subtract step 13 from step 2. Enter the amount on Schedule M4NC line 3a. .Instructions for Worksheet for Line 3a – Section 179 ExpensingStep 3 – Enter the total cost of property defined as qualified real property under 2018 IRC. Qualified real property includes qualified improvement property and the following types of improvements to nonresident real property: • Roofs• Heating, ventilation, and air-conditioning property• Fire protection and alarm systems• Security systemsStep 4 – Enter the cost of certain depreciable tangible personal property used to furnish lodging allowed under 2018 IRC. Examples of property used to furnish lodging includes beds and other furniture, refrigerators, ranges, and other equipment used in the living quarters of a lodging facility such as an apartment house, dormitory, or any other facility where sleeping accommodations are provided.Step 5 - If are you filing Schedule LK, include the difference between your federal depreciable basis and your Minnesota depreciable basis for the property you identified on line 2 of Schedule LK. Include only the portion eligible for section 179 expensing under 2016 IRC. Step 7 – Enter the cost of property defined as qualified leasehold improvement property under 2016 IRC. Qualified leasehold improvement property typically are improvements to existing building spaces of a lessor or lessee.Step 8 – Enter the cost of property defined as qualified retail improvement property under 2016 IRC. Qualified retail improvement property typically includes improvements made to an existing building used for a retail business.Step 9 – Enter the cost of property defined as qualified restaurant property under 2016 IRC. Qualified restaurant property typically includes buildings or improvements to buildings that are used more than 50% of the square footage as a restaurant.Step 13 – Complete the Minnesota NC 4562 using the maximum amount of $520,000 on line 1 and the threshold amount of $2,070,000 on line 3. If you have qualified zone property of an enterprise zone busi-ness, adjust the lines 1 and 3 amounts by the dollar limit increase allowed undersection 1397A of 2016 IRC. Recalculate lines 4, 5, 6, 7, 8, 9, 11 and 12 of your Minnesota NC 4562. For lines 6 and 7, start with the elected cost from line 6 and 7 of your federal 4562. Remove elected costs for property reported on line 3, 4, and 5 of Worksheet for Line 3a – Section 179 Expensing.You may take 179 expensing for qualified leasehold improvement property, qualified retail improvement property, and qualified restaurant property reported on lines 7, 8, and 9 of Worksheet for Line 3a – Section 179 Expensing (up to Minnesota limitations)For amounts that exceed the Minnesota NC 4562 line 5 limitation, you may use any MACRS depreciation method allowable under 2016 IRC.Report your Minnesota cost allowable under 2016 IRC section 179 on line 6 and 7 of Minnesota 4562NC.Enter the amount from line 12 of the Minnesota NC 4562 on Step 13 of this worksheet.

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Limitation on Depreciation for Luxury Automobiles (TCJA Sec. 13202)The Tax Cuts and Jobs Act (TCJA) in-creased depreciation limits for passenger vehicles placed in service after December 31, 2017. The greatest allowable deprecia-tion deduction is—

• $10,000 for the first year, but $18,000 for a vehicle for which bonus depreciation is claimed,

• $16,000 for the second year,• $9,600 for the third year, and• $5,760 for each later taxable year in the

recovery period.The TCJA also removes computer or peripheral equipment from the definition of listed property. Under 2016 IRC computer or peripheral equipment used exclusively at a regular business establishment, and owned or leased by the person operating such establishment, were considered “listed property” and were subject to a stricter business use test with possible reduced tax benefits. This change applies to property placed in service after December 31, 2017.

Enter the total federal depreciation claimed for passenger vehicles that exceed the limit under 2016 IRC as a positive number on line 4a. Refer to line 4b for 2016 IRC limits.

Enter the federal depreciation claimed for computer or peripheral equipment that do not meet the substantiation requirements under 2016 IRC as a positive number on line 4a.

Treatment of Certain Farm Assets (TCJA Sec. 13203)Under TCJA, any machinery or equipment used in a farming business has a 5-year recovery period to calculate depreciation. The farm machinery or equipment cannot be any grain bins, cotton ginning assets, fences, or other land improvements. The TCJA also repealed the requirement that farm machinery or equipment has to use the 150% declining balance method of depreciation.

Enter the federal depreciation claimed on farm machinery or equipment as a positive number on line 4a.

Recovery Period for Real Property Shortened (TCJA Sec. 13204) Under TCJA, the Alternative Depreciation System (ADS) recovery period for residen-tial rental property changes from 40 years to 30 years, effective for property placed in service after December 31, 2017.

Also under TCJA, qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property are no longer separately defined under the General Depreciation System (GDS) and given a 39-year recovery period.

Finally, TCJA requires a taxpayer elect-ing out of the interest deduction limita-tion (TCJA section 13301) to use ADS to depreciate its nonresidential real property, residential rental property, and qualified improvement property.

Enter the federal depreciation claimed for these types of property placed in service af-ter December 31, 2017 as a positive number on line 4a.

ADS for Electing Farming Businesses (TCJA Sec. 13205)The TCJA requires a farming business that is electing out of the interest deduction limitation (TCJA 13301) to use ADS to depreciate any Modified Accelerated Cost Recovery System (MACRS) property with a recovery period of 10 years or more.

Enter the federal depreciation claimed for this property placed in service after December 31, 2017 as a positive number on line 4a.

Line 4b Amounts of allowable depreciation for assets Determine the amount of depreciation allowed using the appropriate recovery period and method under 2016 IRC for assets entered on line 4a. Enter the amount of depreciation you calculate for the assets included on line 4a as a negative number on line 4b.

Limitation on Depreciation for Luxury Automobiles (TCJA Sec. 13202)For any passenger vehicle placed in service after December 31, 2017, the greatest al-lowable depreciation deduction under 2016 IRC is—

• $3,160 for the first year, but $9,560 for a vehicle for which bonus depreciation is claimed,

• $5,000 for the second year,• $2,950 for the third year, and • $1,775 for each later taxable year in the

recovery period.For any qualified truck or van placed in service after December 31, 2017, the great-est allowable depreciation deduction under 2016 IRC is—

• $3,560 for the first year, but $9,960 for a truck or van for which bonus deprecia-tion is claimed,

• $5,700 for the second year,• $3,350 for the third year, and • $2,075 for each later taxable year in the

recovery period.Computer or peripheral equipment placed in service after December 31, 2017, that does not meet the substantiation require-ments under 2016 IRC is required to use the ADS method for depreciation.

Treatment of Certain Farm Assets (TCJA Sec. 13203)Under 2016 IRC, machinery or equipment used in a farming business is required to use the 150% declining balance method and is assigned various recovery periods for depreciation.

Recovery Period for Real Property Shortened (TCJA Sec. 13204) and ADS for Electing Farming Businesses (TCJA Sec. 13205)Under 2016 IRC, the recovery period for residential rental property is 40 years.

Under 2016 IRC, qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property are separately defined and given a 15-year recovery period.

If you were required to use the ADS method of depreciation by electing out of the interest deduction limitation, you may recalculate your depreciation using another method allowable under 2016 IRC.

Only enter an amount on line 4b for a corre-sponding amount on line 4a.

Attach a schedule showing the computation of amounts listed on line 4b.

Lines 5a and 5bThese lines are intentionally left blank.

Line 6 – Depreciation for Assets from 2017 Nonconformity AdjustmentsChanges made by the federal Disaster Tax Relief and Airport and Airway Extension Act of 2017, Tax Cuts and Jobs Act, and Bipartisan Budget Act of 2018 may have affected the depreciation reported on your 2017 federal return.

If you made any adjustments for noncon-formity on your 2017 Minnesota return relating to asset basis or depreciation, enter the asset’s second year depreciation for

2018 Schedule M4NC Instructions (continued)

Continued

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Minnesota purposes. If you claimed depre-ciation on your federal return for the same asset, net the difference between the federal and Minnesota cost recovery on this line.

For example, in 2017 you claimed deprecia-tion on your federal return for a passenger vehicle placed in service in excess of 2016 IRC limits. On your 2017 Minnesota return you reported a nonconformity adjustment for the difference between the federal and Minnesota depreciation amounts. This year you must calculate the passenger vehicle’s second year depreciation based on the lower depreciation limit allowed under 2016 IRC. Enter the amount as a negative number on line 6.

Line 7 - Temporary Suspension of Charitable Contribution Limit (BBA Sec. 20104)The Bipartisan Budget Act of 2018 tempo-rarily suspends the percentage limitations for charitable contributions made in cash to relief efforts in the California wildfire disaster area.

If your federal deduction for charitable contributions exceeds the deduction al-lowed under 2016 IRC, enter the excess as a positive number on line 7.

Line 8 – Limitation on Deduction for Interest (TCJA Sec. 13301)The Tax Cuts and Jobs Act (TCJA) changed the calculation of the limitation for the deduction of business interest expense under 2018 IRC section 163(j), as well as modified the definition of business interest income and expense for this purpose. The amount allowed as a deduction is limited by the sum of business interest income, 30% of adjusted taxable income, and floor plan financing interest.

For corporations, 2016 IRC section 163(j) limitation, was calculated differently and applies to interest expense for corporate taxpayers to related parties. The limitation includes parameters such as a debt to equity ratio, net interest expense, and adjusted tax-able income percentage. If 2018 IRC sec-tion 163(j) limitation applies to you, use the worksheet to determine your adjustment. For additional resources in completing the worksheet, use the 2017 federal Form 8926 and instructions.

For corporations not required to limit their deduction under 2016 IRC, do not use the worksheet. Enter the amount of disallowed interest expense under 2018 IRC sec-tion 163(j) as applied to members of your

Minnesota combined group, as a negative number on line 8.

Worksheet for line 8 – Limitation on Deduction for Interests

1 Total disqualified interest disallowed on federal return (see instructions) . . 1

2 Debt to equity ratio (see instructions) . . . . . . . 2

3 Net interest expense (see instructions) . . . . . . . 3

4a Taxable income (loss) before application of section 163(j) (see instructions) . . . . . . . 4a

4b Allowable net interest expense . . . . . . . . . . . . . . . 4b

4c Net operating loss deduction taken under section 172 . . . . . . . . . . . . 4c

4d Section 199 deduction . . . 4d4e Depreciation, amortization,

or depletion deduction . . . 4e4f Additional adjustments. . . 4f4g Adjusted taxable income.

Add lines 4a through 4f. If zero or less, enter 0 . . . . 4g

5a Multiply line 4g by 50% (0.50) . . . . . . . . . . . . . . . . 5a

5b Excess limitation carry forward . . . . . . . . . . . . . . . 5b

5c Add lines 5a and 5b . . . . . 5c5d Excess interest expense.

Subtract lines 5c from line 3. If zero or less, enter 0 . . . . . . . . . . . . . . . . 5d

6a Disqualified interest (see instructions) . . . . . . . 6a

6b Disqualified interest disallowed in prior tax years (see instructions) . . . 6b

6c Total disqualified interest. Add lines 6a and 6b . . . . . 6c

7 Interest deduction disallowed and carried forward (see instructions) 7

8 Subtract line 1 from line 7. Enter here and on Schedule M4NC line 8 . . . 8

Use the following instructions to complete the Worksheet for line 8.Line 1: Enter the amount of interest ex-pense disallowed under section 2018 163(j) as applied to members of your Minnesota combined group.

Line 2: Calculate the debt to equity ratio by first calculating total equity, which is the sum of the corporation’s money and the adjusted basis of all the corporation’s other assets reduced by total indebtedness at the end of the tax year. If zero or less, use $1. To calculate the ratio, divide the corpora-tion’s total indebtedness at the end of the tax year by the equity amount. Round this figure to 5 decimal places.

Line 3: Subtract any interest includible in the gross income of the corporation for the tax year from the interest paid or accrued by the corporation for the tax year, includ-ing any disqualified interest disallowed under 2016 IRC section 163(j) in a prior year and carried forward to the current year. If zero or less, enter zero.

Lines 4a through 4f: Amounts entered on these steps should be calculated under the 2016 IRC. The amounts entered should incorporate any other nonconformity ad-justments.

Line 6a: Enter the amount of interest disqualified that was actually paid, deemed paid, or accrued in the current tax year, not including any disqualified interest that was paid or accrued in a prior year. This includes amounts any disqualified inter-est paid or accrued to a related person, on the indebtedness subject to a disqualified guarantee, or any interest paid to a taxable REIT subsidiary (defined in 2018 IRC sec-tion 856(l)).

Line 6b: Enter the amount of disqualified interest disallowed under 2016 IRC section 163(j) for prior tax years that is treated as paid or accrued in the current tax year.

Line 7: If the debt to equity ratio on line 2 is 1.5 or less, enter the smaller of the excess interest expense from line 5d or the disqualified interest disallowed under 2016 IRC section 163(j) from prior years on line 6b.

If the debt to equity ratio on line 2 is greater than 1.5, enter the smaller of the excess interest expense from line 5d or the total disqualified interest from line 6c.

Line 9 – Like-Kind Exchange Treatment (TCJA Sec. 13303)Use Minnesota Schedule LK to calculate your nonconformity adjustment for like-kind exchange treatment of personal prop-erty. Enter the amount from Schedule LK, line 25 on line 9a. Enter the amount from Schedule LK, line 28 on line 9b.

2018 Schedule M4NC Instructions (continued)

Continued

18

Attach a complete Schedule LK to your return.

Line 10 - Limitation on Deduction by Employers of Expenses for Fringe Benefits (TCJA Sec. 13304)If you have an adjustment for one of the expenses below, enter the amount on line 10. If you have an adjustment for more than one expense listed below, net the adjust-ments and enter the total on line 10.

Business Deductions for Entertainment ExpensesUnder the Tax Cuts and Jobs Act (TCJA), no deduction is allowed for the following entertainment expenses paid or incurred after December 31, 2017—

(1) Entertainment, amusement, or recre-ation activities,

(2) Membership dues for clubs organized for business, pleasure, recreation, or other social purposes, or

(3) A facility used in connection with either of the above items.

Under 2016 IRC, no deduction is allowed for ordinary and necessary expenses for any activity of a type generally considered to be entertainment, amusement, or recreation, or for a facility used in connection with such an activity. An exception is allowed if the taxpayer establishes that the expense was directly related to or associated with the active conduct of the taxpayer’s trade or business or income producing activity. The deduction is limited to 50% of the deduct-ible amount of the entertainment expense.

If you incurred a business expense related to entertainment, amusement, or recreation activities and can establish the expense was directly related to or associated with the active conduct of your trade or business, enter 50% of the allowable amount of enter-tainment expenses as a negative number on line 10.

Expenses for Employer-Operated Eating Facilities Under TCJA, an employer can no longer deduct the full cost of food and beverages offered as a de minimis fringe benefit. Instead the employer must apply a 50% limit to the deduction of food or beverage expenses.

Under 2016 IRC, employers can deduct the full cost of food and beverages that are excludable from the employee’s income if they are provided conveniently at an employer-operated eating facility as a de minimis fringe benefit.

2018 Schedule M4NC Instructions (continued)

If you offered food and beverages that qualify as a de minimis fringe benefit under 2016 IRC and are limited to a 50% deduc-tion, enter the amount of the remaining 50% deduction as a negative number on line 10.

Employers’ Cost of Providing Qualified Transportation Fringes and Other Transportation Benefits The TCJA repealed the employer deduction for the expense of a qualified transportation fringe.

Under 2016 IRC, an employer can deduct expenses for providing qualified transporta-tion fringe benefits or other transportation or commuting benefits to an employee.

If you offered qualified transportation fringe benefits or other transportation or commuting benefits to employees that you could not deduct on your federal return, enter the amount of the qualifying trans-portation expense as a negative number on line 10.

Line 11 – Other Deduction Provisions (TCJA 13307, 13308, 13310, 13601, 13603)If you have an adjustment for one of the provisions below, enter the amount on line 11. If you have an adjustment for more than one provision below, net the adjustments and enter the total on line 11.

Denial of Deduction for Settlements Subject to Nondisclosure Agreements Paid in Connection with Sexual Harassment or Sexual Abuse (TCJA Sec. 13307)Under the Tax Cuts and Jobs Act (TCJA), a taxpayer can no longer deduct as a business expense—

(1) Any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a nondisclosure agreement, or

(2) Attorney’s fees related to such a settle-ment or payment.

If you incurred expenses described in items (1) or (2) that qualify as a deduction under 2016 IRC section 162, and do not qualify as a deduction under 2018 IRC, enter the amount as a negative number on line 11.

Repeal of Deduction for Local Lobbying Expenses (TCJA Sec. 13308)Under TCJA, you may no longer deduct amounts paid or incurred in connection with influencing, or attempting to influence, legislation of a local council, similar gov-erning body, or Indian tribal government.

For these specific local government bodies, 2016 IRC allows taxpayers to deduct—

(1) all ordinary and necessary expenses (including, but not limited to, travel-ing expenses and the cost of preparing testimony) paid or incurred in carrying on any trade or business—a. In direct connection with appear-

ance before, submission of state-ments to, or sending communica-tions to the committees, or indi-vidual members, of such council or body with respect to legislation or proposed legislation of direct inter-est to the taxpayer, or

b. In direct connection with commu-nication of information between the taxpayer and organization of which the taxpayer is a member with respect to any such legislation or proposed legislation which is of direct interest to the taxpayer and to such organization, or

(2) The portion of the dues paid or incurred to the organization of which the taxpayer is a member for activities described in Item (1).

If you incurred expenses described in Items (1) or (2) that qualify as a deduction under 2016 IRC section 162, and do not qualify as a deduction under 2018 IRC, enter the amount of the expense as a negative num-ber on line X.

Prohibition on Cash, Gift Cards, and Other Nontangible Personal Property as Employee Achievement Awards (TCJA Sec. 13310)The TCJA allows a deduction for the cost of employee achievement awards with certain limitations. The employee achievement award must be tangible personal property given in recognition of an employee’s length of service or safety and awarded as part of a meaningful presentation under specified conditions and circumstances.

Under TCJA, the definition of tangible personal property changed to exclude—

(1) Cash, cash equivalents, gift cards, gift coupons, or gift certificates; or

(2) Vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, other securities, and other simi-lar items.

As a result, the above items are no lon-ger deductible federally as an employee achievement award.

Continued

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If you granted employee achievement awards consisting of tangible personal property described in Items (1) or (2) above and qualify for the deduction under 2016 IRC section 274, enter the amount paid or incurred during the taxable year as a nega-tive number on line X.

Modification on Limitation on Excessive Employee Remuneration (TCJA Sec. 13601)TCJA repealed the exception for perfor-mance-based compensation on covered employees from the $1 million deduction limit. As a result, a publicly held corpora-tion can deduct reasonable compensation for covered employee remuneration only up to $1 million.

The TCJA also changed the definition of a covered employee to include—

(1) The principal executive officer (PEO); (2) The principal financial officer (PFO);

and (3) The three other most highly compen-

sated officers employed. Individuals meeting the above definition of a covered employee while holding the posi-tion at any time during the taxable year are limited to the $1million deduction. Each tax year, at least five individuals meet this definition of a covered employee.

In addition, 2018 IRC definition of a pub-licly held corporation includes —

(1) Any corporation whose securities are required to be registered under section 12 of the Exchange Act of 1983; or

(2) Any corporation that is required to file reports for debt and equity securities under the Securities Act of 1933, even though the corporation does not list securities for exchange.

2018 IRC provides a transition rule for the above listed changes. The new limit will not apply to remuneration paid by a written binding contract in effect on November 2, 2017, and not materially modified on or after that date.

2016 IRC allows an exception to the $1 million deduction limit on performance-based compensation for covered employ-ees. A business paying performance-based compensation to covered members during the taxable year are not limited to a $1 mil-lion deduction.

Under 2016 IRC, a covered member is defined as—

(1) The principal executive officer (PEO) at the close of the tax year; and

2018 Schedule M4NC Instructions (continued)

(2) The three highest compensated officers for the tax year, other than the PEO and the principal financial officer (PFO).

Each tax year, only four individuals meet this definition of a covered employee.

All definitions and requirements for deter-mining performance-based compensation, covered members, and publicly held cor-porations follow 2016 IRC and any related federal regulations and rulings.

If your deduction for performance-based compensation of covered members is limited to $1 million under TCJA, you may need to make an adjustment on your Min-nesota return. Complete the Worksheet for line 11 - Excessive Employee Remunera-tion to determine your adjustment.

Worksheet for line 11 – Excessive Employee Remuneration

1 Total performance-based compensation paid to your principal executive officer . . . . . . . . . . . . . . . . . 1

2 Total performance-based compensation paid to your three highest compensated officers (other than PEO and PFO) . . . . . . . . . . . . . . 2

3 Add lines 1 and 2 . . . . . . . . 34 Total number of employees

meeting the definition of a covered member under TCJA 2018 IRC and disallowed a portion of compensation by the $1 million limit under TCJA . . . . . . . . . . . . 4

5 Multiply line 4 by $1 million . . . . . . . . . . . . . . 5

6 Subtract line 5 from line 3. . . . . . . . . . . . . . . . . . 6

Enter the amount on line 6 as a negative number on Schedule M4NC line 11.

Treatment of Qualified Equity Grants (TCJA Sec. 13603)TCJA allows a qualified employee to make an election to defer the inclusion of income relating to qualified stock transferred from an employer to the qualified employee. Generally, an employer is allowed a busi-ness deduction in the year the employee recognizes the income.

The deferred income must be recognized by the employee and allowed as a deduction by the employer in the taxable year the earliest of the following occurs—

(1) The first date the qualified stock be-comes transferable;

(2) The date the employee first becomes an excluded employee;

(3) The first date any stock of the corpora-tion becomes readily tradable on an established securities market;

(4) The date that is 5 years after the first date the rights of the employee is such stock are transferable or are not sub-ject to a substantial risk of forfeiture, whichever occurs earlier; or

(5) The date the employee revokes the deferral election.

2016 IRC requires an employee to rec-ognize qualified stock as income when the employee’s beneficial interest in the stock is either transferable or not subject to substantial risk of forfeiture (substantially vested). The employee includes the excess of the fair market value of the stock at the time it is recognized over any amount the employee paid for the stock in income.

If a qualified employee elects to defer recognition, you may need to make an ad-justment on your Minnesota return. Gener-ally, your business may deduct the amount included in the employee’s income for the taxable year.

Enter the total amount of deferred income as a negative number on line 11.

Line 12 - Limitation on Substantial Built-in Loss in the Case of Transfer of Partnership Interest (TCJA Sec. 13503)The Tax Cuts and Jobs Act provides that a partner’s distributive share of the partner-ship charitable contributions and taxes paid or accrued to foreign countries or United States possessions are taken into account when determining the amount of the part-ner’s loss.

Under 2016 IRC, the basis limitation on a partner’s loss does not take into account the partner’s share of partnership charitable contributions and foreign taxes paid or accrued.

Enter the lesser of the amount of loss suspended by basis limitation, or the sum of charitable contributions and taxes paid or accrued to foreign countries included in the calculation of the partner’s adjusted basis as a negative number on line 12.

Continued

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Line 13 - Treatment of S Corporation Conversion to C Corporation (TCJA Sec. 13543(a))Under the Tax Cuts and Jobs Act, a C corporation which converted from an S corporation is allowed an extended number of years for the new C corporation to take into account adjustments that are necessary solely by reason of a change in accounting.

For any adjustments to items of income or expense that are not made in the year of the change, the C corporation must make the changes ratably using the period available under 2016 IRC for Minnesota.

If you report accounting changes due to a conversion from an S corporation using the period allowed under 2018 IRC section 481(d), recalculate the adjustment ratably over the period allowed under 2016 IRC and enter the difference on line 13.

Line 14– Cash distributions from Converted C Corporations (TCJA Sec. 13543(b))The Tax Cuts and Jobs Act made changes to the rules for distributions made from a C corporation which converted from an S corporation.

Under 2016 IRC, cash distributions made by a C corporation during the period fol-lowing conversion from an S corporation are treated as tax-free to the shareholder with a reduction in the adjusted basis of stock.

If you are an eligible terminated S corpo-ration (defined by 2018 IRC 481(d)) that made a distribution of money during the post-termination transition period, real-locate the distribution under 2016 IRC and enter any adjustments to FTI as a result of this reallocation on line 14.

If you received a cash distribution from an eligible terminated S corporation (defined by 2018 IRC 481(d)), enter any portion of the distribution that would be reported as income under 2016 IRC as a positive number on line 14.

Line 15 - Tax Treatment of Alaska Native Corporations (TCJA Sec. 13821)The Tax Cuts and Jobs Act allows an Alaska Native Corporation (ANC) a deduc-tion for contributions made to a settlement trust. Additionally, the ANC does not recognize any gain or loss on contributions of appreciated property to a settlement trust if a deduction is allowed under 2018 IRC section 247.

Under 2016 IRC, these modifications to income are not allowed.

If you took a deduction for contributions made to a settlement trust, include the amount of the deduction as a positive num-ber on line 15.

If you did not recognize a gain or loss from contributions of appreciated property to a settlement trust, include the unrecognized gain as a negative number or unrecognized loss as a positive number on line 15.

Line 16 - Special Rules for Capital Gains Invested in Opportunity Zones (TCJA Sec. 13823)The Tax Cuts and Jobs Act allows—

(1) A temporary deferral from income for capital gains reinvested in a qualified opportunity fund, and

(2) A permanent exclusion from income of certain capital gains from the sale or exchange of an investment in the qualified opportunity fund.

If you have deferred or excluded from income one of the two types of capital gains listed above, enter the deferred or excluded amount as a positive number on line 16.

Line 17 - Sales or Transfers Involving 10-percent Owned Foreign Corporations (TCJA Sec. 14102)The Tax Cuts and Jobs Act (TCJA) changed rules for the treatment of gains or losses from certain sales or transfers involving 10-percent owned foreign corporations.

Treatment of certain foreign branch losses2018 IRC section 91 requires a domestic corporation to include in gross income any losses associated with the transfer of sub-stantially all assets of a foreign branch to a specified 10% owned foreign corporation of which the domestic corporation is a U.S. shareholder. The transferred loss amount is treated as derived from U.S. sources and is no longer subject to the active trade or busi-ness exception.

Under 2016 IRC, foreign branch transfers are subject to various recapture provisions for overall foreign losses and must recog-nize gains to the extent of net losses. The disposal of any property used in a trade or business predominantly outside the U.S. results in recognition of foreign taxable income related to the gain on the property or the unrecaptured overall foreign loss.

If you included losses due to the transfer of a foreign branch, calculate the differ-

ence between the amount recognized under TCJA and the amount recognized under 2016 IRC, and enter the difference on line 17.

Adjustment to basisThe TCJA requires an adjustment to basis of stock for purposes of determining loss if the sale or transfer of the stock is treated as a dividend under IRC section 245A. Any adjustment to basis under these provisions must be disregarded for purposes of deter-mining Minnesota taxable income.

Line 18– Section 965 Deferred Foreign Income (TCJA Sec. 14103) Under the Tax Cuts and Jobs Act, U.S. shareholders are required to pay a fed-eral transition tax on the untaxed foreign earnings of certain specified foreign corporations as if those earnings had been repatriated to the United States (referred to as deferred foreign income (DFI)). For federal income tax purposes, these deemed repatriated amounts are subject to a transi-tion tax for the taxable year of the taxpayer in which the foreign corporation’s taxable year ends.

Under 2016 IRC, these untaxed foreign earnings are only reported as income when actually distributed to the taxpayer. If you elect to pay federal tax related to DFI in annual installments the election is not ap-plicable for your Minnesota tax liability.

Line 18aIf you reported DFI, enter the 2018 IRC section 965(a) inclusion amount (from your federal Form 1120, Schedule C, Line 15, Column (a)) as a negative number on line 18a.

Line 18b – Section 965 Actual Repatriated Income If any portion of the DFI was distributed as an actual dividend that would be required to be reported by you under 2016 IRC, enter the amount of the distribution as a positive number on line 18b.

Line 19 – Inclusion of Global Intangible Low-Taxed Income (TCJA Sec. 14201)The Tax Cuts and Jobs Act added rules requiring inclusion of global intangible low-taxed income (GILTI) generated by controlled foreign corporations (CFCs) as foreign source income under 2018 IRC sec-tion 951A. A U.S. person that owns at least 10 percent of the value or voting rights in

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2018 Schedule M4NC Instructions (continued)

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one or more CFCs is required to include a portion of GILTI in FTI.

Under 2016 IRC, GILTI is not included in FTI.

If you reported GILTI as a shareholder of a CFC, enter the amount as a negative num-ber on line 19.

Line 20 - Related Party Amounts Paid in Hybrid Transactions (TCJA Sec. 14222)The Tax Cuts and Jobs Act added 2018 IRC section 267A to disallow a deduction for disqualified related party amounts paid or accrued in a hybrid transaction or by, or to, a hybrid entity.

2016 IRC does not explicitly disallow deductions for disqualified related party amounts.

If you have related party amounts disal-lowed under 2018 IRC section 267A, enter the amount disallowed as a negative number on line 20.

Line 21 - Subpart F Provisions (TCJA Sec. 14211, 14212, 14213, 14214, 14215)If you have an adjustment for one of the provisions below, enter the amount on line 21. If you have an adjustment for more than one provision listed below, net the adjust-ments and enter the total on line 21.

Elimination of Inclusion of Foreign Base Company Oil Related Income (TCJA Sec. 14211)The Tax Cuts and Jobs Act (TCJA) eliminated foreign base company oil related income from being included in Subpart F income as foreign base company income.

Under 2016 IRC, foreign base company oil related income is included in Subpart F income of a U.S. shareholder if they are at least a 10% shareholder of a controlled foreign corporation (CFC).

If you are a 10% or more shareholder of a CFC that earned foreign base company oil related income, whether or not distributed to you, enter the amount of your pro rata share as a positive number on line 21.

Repeal of Inclusion Based on Withdrawal of Previously Excluded Subpart F Income from Qualified Investment (TCJA Sec. 14212)The TCJA eliminated the income recapture provision of previously excluded Subpart F income in qualified foreign base company shipping operations when the CFC decreas-es their qualified shipping investment.

Under 2016 IRC, the previously excluded income of qualified foreign base company shipping operations is recaptured when the income is withdrawn from the qualified shipping investment.

If you are a 10% or more shareholder of a CFC that earned qualified shipping invest-ment income, whether or not distributed to you, enter your pro rata share as a positive number on line 21.

Modification of Stock Attribution Rules for Determining Status as a Controlled Foreign Corporation (TCJA Sec. 14213)The TCJA changed the constructive attribu-tion rules by allowing stock owned by a foreign person to be treated as owned by a U.S. person when considering whether a 10% shareholder of a CFC must include in income their pro rata share of the CFC’s Subpart F income.

Under 2016 IRC, the constructive attribu-tion rules do not apply to a U.S. person when the stock is owned by a foreign person.

If you included a CFC’s Subpart F income relating to stock owned by a foreign person under the constructive attribution rules, enter the amount as a negative number on line 21.

Modification of Definition of United States Shareholder (TCJA Sec. 14214)The TCJA changed the definition of a U.S. shareholder for purposes of determining whether a 10% shareholder of a CFC must include in income their pro rate share of the CFC’s Subpart F income. Under 2018 IRC section 951(b), a U.S. shareholder is a U.S. person who owns at least 10% of either—

(1) The total combined voting power of all classes of stock entitled to vote, or

(2) The total value of shares of all classes of stock of the foreign corporation.

Under 2016 IRC, a U.S. shareholder is defined as a U.S. person who owns at least 10% of the total combined voting power of all classes of stock entitled to vote.

If you are a U.S. shareholder under TCJA but not under 2016 IRC, enter the amount related to this provision as a negative num-ber on line 21.

Elimination of Requirement a Corporation Must be Controlled for 30 Days Before Subpart F Inclusion Applies (TCJA Sec. 14215)The TCJA removed the requirement that a foreign corporation must be a CFC for an uninterrupted period of 30 days or more to

have its Subpart F income taxable to a U.S. shareholder.

If you are a U.S. shareholder that received a pro rata share of a foreign corporation’s Subpart F income but the foreign corpora-tion was not a CFC for an uninterrupted period of 30 days or more, enter the amount as a negative number on line 21.

Line 22 – Source of Income from Sales of Inventory (TCJA Sec. 14303)The Tax Cuts and Jobs Act (TCJA) speci-fies that gains, profits, and income from the sale or exchange of inventory are allocated and apportioned between sources within and without the United States based solely on where the production activities occurred for the inventory.

Under 2016 IRC, any gains, profits, and income from the sales or exchange of in-ventory are sourced based on both the place of production and the place of sale.

If you sold or exchanged inventory dur-ing the tax year where the inventory was produced in the U.S. and sold in a foreign country (or vice versa), recalculate the allocation and apportionment of the gains, profits, and income based on both the place of production and the place of sale under 2016 IRC. Enter the adjustment to FTI on line 22.

Line 23 - Restriction on Insurance Business Exception to Passive Foreign Investment Company Rules (TCJA Sec. 14501)The Tax Cuts and Jobs Act restricts the insurance business exception to passive for-eign investment company rules by limiting it to qualifying insurance corporations.

A qualifying insurance corporation is a foreign corporation—

(1) Which would be subject to tax under Subchapter L of 2018IRC if it were a domestic corporation, and

(2) For which the applicable insurance li-abilities constitute more than 25-per-cent of its total assets, determined on the basis of such liabilities and assets as reported on the corporation’s appli-cable financial statements for the last year ending with or within the taxable year.

If you have included an amount in FTI because of the restriction to the exception under 2018 IRC, reverse the amount on line 23.

2018 Schedule M4NC Instructions (continued)

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Line 24 - Other Provisions (TCJA Sec. 13309, 13312, 13313, 13314, 13502, 13504, 13522, 13531, 14502)If you have an adjustment for one of the provisions below, enter the amount on line 24. If you have an adjustment for more than one provision listed below, net the adjust-ments and enter the total on line 24.

Certain Gains from Partnership Profits Interests (TCJA Sec. 13309)The Tax Cuts and Jobs Act (TCJA) changes the tax treatment of gains from a profits interest in a partnership (or carried interest) held in connection with the performance of services by providing that if one or more applicable partnership interests are held by a taxpayer at any time during the tax year, the excess of—

(1) The taxpayer’s net long term capital gain with respect to those interest for that tax year, over

(2) The taxpayer’s net long term capital gain with respect to those interests for that tax year computed by apply-ing 2018 IRC sections 1222(3) and 1222(4) and substituting “3 years” for “1 year,” will be treated as short term capital gain.

The TCJA also allows a three-year hold-ing period for certain net long-term capital gains relating to any applicable partnership interest held by the taxpayer.

If your long-term gains under 2016 IRC have changed to short-term gains due to changes made by TCJA, enter the adjust-ment from short-term gains to long-term gains on line 24.

Certain Contributions by Governmental Entities not Treated as Contributions to Capital (TCJA Sec. 13312)The TCJA requires gross income to include any contributions to the capital of the tax-payer by any governmental entity or civic group (other than a contribution made by a shareholder as such).

Under 2016 IRC section 118, these contri-butions to capital are excluded from gross income.

If you include the above contributions to capital, and the contributions are excluded under 2016 IRC, enter the amount as a negative number on line 24.

Repeal of Rollover of Publicly Traded Securities Gain into SSBICs (TCJA Sec. 13313)The TCJA repealed 2016 IRC section 1044 election to postpone gain on certain sales.

Under 2016 IRC, a corporation that sold publicly traded securities could elect to postpone all or part of the gain on that sale if it bought common stock or a partner-ship interest in a specialized small business investment company (SSBIC) during the 60-day period that began on the date of the sale. The gain a corporation could postpone each tax year was limited to the lesser of—

(1) $1 million, reduced by the gain previ-ously excluded under section 1044(a), or

(2) $250,000.The basis of the SSBIC stock or partnership interest is reduced by any postponed gain.

To make the election for Minnesota under 2016 IRC section 1044, attach a statement showing:

• How the postponed gain was figured• The name of the SSBIC stock in which

the common stock or partnership interest was purchased

• The date of the purchase• The new basis in that SSBIC stock or

partnership interestFor more information, refer to section 1.1044(a)-1 of title 26 of the Code of Fed-eral Regulations, as in effect on December 16, 2016.

The corporation must make the election no later than the federal due date (includ-ing extensions) for filing its tax return for the year in which it sold the securities or partnership interest. If the original return was filed on time without making the elec-tion, the corporation may make the election on an amended return filed no later than 6 months after the original due date (exclud-ing extensions). Write “Filed pursuant to TCJA Section 13313” at the top of the Min-nesota return.

Enter the amount of postponed gain as a negative number on line 24.

Patents, Inventions, Certain Models or Designs, and Secret Formulas or Processes (TCJA Sec. 13314)The TCJA adds the following items to 2018 IRC sections 1221 and 1231 as items ex-cluded from the definition of a capital asset:

• patent, • invention, • model or design (whether or not patent-

ed), • secret formal or process

Therefore, these assets are no longer eli-gible for federal capital gain treatment.

Under 2016 IRC, certain self-created intan-gibles such as copyrights, literary, musical, or artistic compositions, letters or memo-randa, or similar property were excluded from the definition of a capital asset if the asset is held either by the taxpayer who created the property, or in certain circum-stances a taxpayer for whom the property was produced.

In determining the gain from this property, any self-created intangible that was ex-cluded from the definition of a capital asset was also ineligible to be treated as a capital gain or ordinary losses asset under 2016 IRC section 1231.

If you included income from the sale of a patent, invention, model or design, or a se-cret formula or process, report it as the sale of capital assets for Minnesota purposes. Recalculate gains and losses under 2016 IRC sections 1221 and 1231. Enter any dif-ference from 2018 IRC on line 24.

Mandatory Basis Adjustment Upon Transfers of Partnership Interest Amended (TCJA Sec. 13502)Under TCJA, a partnership has a substantial built-in loss with respect to a transfer of a partnership interest if either—

(1) The partnership’s adjusted basis in the partnership property exceeds by more than $250,000 the fair market value of the property, or

(2) The transferee partner would be allocated a loss of more than $250,000 if the partnership assets were sold for cash equal to their fair market value immediately after the transfer.

Under 2016 IRC, a partnership has a substantial built-in loss with respect to a transfer of the partnership interest only if the partnership’s adjusted basis in the partnership property exceeds by more than $250,000 the fair market value of the property.

If after December 22, 2017, you became a transferee partner and your income was increased because of the change in these rules, enter the increase in income as a negative number on line 24.

If after December 22, 2017, you became a transferee partner and a loss was specifical-ly allocated to you because of a sale of an

2018 Schedule M4NC Instructions (continued)

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asset due to the change in these rules, enter the amount of the specifically allocated loss as a positive number on line 24.

Repeal of Technical Termination of Partnerships (TCJA Sec. 13504)Enter the value for this adjustment from Schedule KPCNC line 24.

Exceptions to Life Insurance Transfer-for-Value Rule (TCJA Sec. 13522)The TCJA requires a portion of the death benefit received by a buyer of a life insur-ance contract to be includable in income when a reportable policy sale occurs.

Under 2016 IRC, reportable policy sales are excluded from the transfer-for-value rule and the acquirer is not required to report income.

If you included income from a reportable policy sale, enter the amount as a negative number on line 24.

Limitation on Deduction for FDIC Premiums (TCJA Sec. 13531)The TCJA limits the amount of FDIC pre-miums banks are allowed to deduct based on an applicable percentage defined in 2018 IRC section 162(r)(3).

Under 2016 IRC, FDIC premiums are fully deductible based upon the all-events test.

If you were disallowed a deduction for a portion of FDIC premiums, enter the amount of premiums disallowed for mem-bers of your Minnesota combined group as negative number on line 24.

Repeal of Fair Market Value Method of Interest Expense Allocation (TCJA Sec. 14502)The TCJA amended 2018 IRC section 864(e)(2) to repeal the use of the fair mar-ket value method to allocate or apportion interest expense between income from U.S. sources and income from foreign sources. Interest expense is now allocated or appor-tioned on the basis of assets.

Under 2016 IRC, a taxpayer could use the fair market method to establish the value of its assets.

You may elect to use the fair market value method to value assets and allocate or ap-portion interest expenses between U.S. and foreign sources for purposes of determining your Minnesota taxable income. Include an explanation that establishes the fair market value of your assets with this schedule. Determine any adjustments needed to FTI using the fair market value method under 2016 IRC section 864(e). Enter the adjust-ments on line 24.

Line 25 - Extension of Credits and Tax Incentives (TCJA Sec. 13401, 13403) (BBA Sec. 40411)If you have an adjustment for one of the provisions below, enter the amount on line 25. If more than one provision listed below requires an adjustment, net the adjustments and enter the total on line 25.

Orphan Drug Credit (TCJA Sec. 13401)The Tax Cuts and Jobs Act (TCJA) de-creased the percentage of qualified clini-cal testing expenses that can be taken into account in determining the amount of the orphan drug credit. The TCJA also added an election to claim a reduced amount of orphan drug credit in lieu of reducing busi-ness expenses.

Under 2016 IRC, a higher percentage of qualified clinical testing expenses is al-lowed and the election is not available.

If you claimed an orphan drug credit and made the election under 2018 IRC section 280C(b)(3) to reduce the amount of credit, enter the amount of qualified clinical test-ing expenses that exceeds the amount you could have claimed as a business expense deduction without the election as a positive number on line 25.

Employer Credit for Paid Family and Medical Leave (TCJA Sec. 13403)The TCJA created a new credit for certain employers who offer paid family and medi-cal leave to their employees. Generally, wages used to determine the credit are not deductible on the federal return.

If you claimed the employer credit for paid family and medical leave, enter the amount of wages disallowed as a negative amount on line 25.

Energy Credit (BBA Sec. 40411)The Bipartisan Budget Act of 2018 extend-ed the investment credit for the following energy properties:

• Solar illumination • Qualified fuel cell• Qualified microturbine• Combined heat and power system• Qualified small wind• Geothermal heat pumpWhen claiming the energy credit under the federal investment credit, the basis of the energy property used for determining the credit must be reduced by 50% of the energy credit amount.

If you claimed the energy credit relating to any of the above listed energy properties, adjust the energy property’s basis without regard to the 50% basis reduction required for energy property under the federal credit. Enter any adjustments to FTI as a result of this Minnesota change in basis on line 25.

Line 26 - Other Adjustments to Federal Taxable Income (FTI)If any provision within the Federal Disaster Tax Relief and Airport and Airway Exten-sion Act, Tax Cuts and Jobs Act, Bipartisan Budget Act, or Consolidated Appropriations Act impacts the calculation of FTI and is not included as an adjustment on another line of this schedule, enter an adjustment incorporating the change(s) to FTI on line 26. Common examples of adjustments to FTI are capital contributions limitations, capital loss limitations, basis adjustments, and gain or loss from sales.

For example, in 2017 you placed in service a passenger vehicle and made a nonconfor-mity adjustment on your 2017 Minnesota tax return. This resulted in creating a Min-nesota basis in the property different from the federal basis. If you sell the passenger vehicle this year, the difference between the gain or loss recognized using the federal basis and the Minnesota basis should be entered as an adjustment on line 26.

Attach a schedule showing the calculation of any amount entered on line 26.

Line 27This line intentionally left blank

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Line 29Add lines 1 through 28. If the result is positive, enter it on Form M4I, line 2k. If the resultis negative, enter it as a positive number.

2018 Schedule M4NC Instructions (continued)