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2018 Partnership Form M3 InstructionsTax Credit for Owners of Agricultural Assets Owners of agricultural assets who sell or rent their assets to beginning farmers in Minnesota may be eligible for a nonrefund‑able credit beginning in tax year 2018. The maximum amount of this credit depends on the sale or type of rental agreement with the beginning farmer. Unused portions of the credit can be carried over for fifteen years.

Taxpayers must have the transaction ap‑proved and certified by the state Rural Finance Authority before they are eligible to claim the credit.

Checkbox for IRC section 965 deferred foreign income A new checkbox was added to the top of Form M3. 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.

Minimum Fee Amounts and Brackets have ChangedThe 2018 minimum fee brackets amounts have been adjusted for inflation. Some of the minimum fee amounts have also been adjusted for inflation. (See Form M3A for additional details.)

Filing RequirementsAll entities required to file a federal Form 1065, U.S. Return of Partnership Income, or Form 1065‑B, U.S. Return of Income for Electing Large Partnerships, and have Min‑nesota gross income must file Form M3, Partnership Return. The entire share of an entity’s income is taxed to the partner/mem‑ber, whether or not it is actually distributed. Each partner/member must include their share of income on their tax return. How‑ever, the minimum fee is paid by the entity.

An S corporation must use Form M8, S Corporation Return.

If you are a single-member LLC, the form you must use depends on what kind of entity your business is for federal tax purposes.

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Minimum FeeA partnership 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. However, the partnership is exempt from the minimum fee if more than 80 percent of its income is from farming.

The minimum fee is determined on M3A, which is page 3 of Form M3.

Large PartnershipsIf you are a large partnership and, as a result of a federal audit, tax is assessed on additional income, you may elect to pay the federal tax on behalf of your partners. Even if you make the election, your partners remain responsible for paying Minnesota tax on the additional income.

If you made the election and paid federal tax as a result of a federal audit in a tax year after 1998, you must pass through the ad‑ditional income to your partners.

File ElectronicallyOptions are available to electronically prepare and file your partnership tax return. Electronic filing is a secure, fast and easy way to file. For more information, go to our website at www.revenue.state.mn.us.

Before You FileComplete Your Federal ReturnBefore you complete Form M3, complete federal Form 1065—or Form 1065‑B if you are a large partnership—and supporting schedules. You will need to reference them.

If you are filing federal Form 1065-B, include the amount from:

Schedule K-1 on (1065-B), Schedule KPI, box 1 line 21 box 2 line 21 box 3 line 26 box 4a line 28 or 29 box 4b line 28 or 29

Minnesota Tax ID NumberYour Minnesota tax ID is the seven‑digit number you’re assigned when you register with the department. Generally, it is the same as your sales and use tax or Minne‑sota employer’s withholding tax number.

It’s important to include your Minnesota tax ID on your return so that any payments you make are properly credited to your account.

Partnership Information

Websitewww.revenue.state.mn.us

Phone651‑556‑3075

Emailbusinessincome.tax@state.mn.usWe provide our publications in other formats upon request to persons with disabilities.

ContentsGeneral Information . . . . . . . . . . . . . 1–3 Filing Requirements . . . . . . . . . . . . . 1 Before You File . . . . . . . . . . . . . . . 1–2 Due Dates and Extensions . . . . . . . . 2 Payment Options . . . . . . . . . . . . . . . 2 Penalties and Interest . . . . . . . . . 2–3 Filing Reminders . . . . . . . . . . . . . . . . 3M3 Instructions . . . . . . . . . . . . . . . . . 4–5M3A Instructions . . . . . . . . . . . . . . . . 6–7KPI Instructions . . . . . . . . . . . . . . . . 8–11KPC Instructions . . . . . . . . . . . . . . . 12–13Nonconformity Adjustment . . . . . . 14-23

What’s New for 2018Federal Adjustments Under current Law, definitions used in determining 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), • Bipartisan Budget Act of 2018 (Pub. L.

115‑123), and • Consolidated Appropriates Act of 2018

(Pub. L. 115‑141)Because Minnesota has not yet adopted these federal changes, adjustments must be made to correctly determine your Minne‑sota taxable income. Use the new noncon‑formity Schedules KPINC and KPCNC to calculate any adjustments needed for your return.

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If you don’t have a Minnesota tax ID, you must apply for one. To apply, go to our website at www.revenue.state.mn.us, or call 651‑282‑5225 or 1‑800‑657‑3605.

Due Dates andExtensionsDue Date for Filing and Paying is March 15, 2019File your return and pay the taxes payable as soon as possible after the end of the tax year, but no later than the following dates:

• Calendar year returns: March 15, 2019.• Fiscal year returns: the 15th day of the

third month after the end of the tax year.

If the due date lands on a weekend or legal holiday, returns and payments electronically made or postmarked the next business day are considered timely.

Extension of Time to FileAll partnerships are granted an automatic six-month extension to file Form M3, if the tax payable for the year is paid by the regular due date.

However, if the IRS grants an extension of time to file your federal return that is longer than the Minnesota automatic six‑month extension, your state filing due date is extended to the federal due date.

This is a filing extension only. To avoid penalties, you must make an extension tax payment by the regular due date. See Exten-sion Payment on this page for details.

PaymentsThere are four types of partnership tax pay-ments—extension, estimated tax, tax return and amended return payments. You can pay electronically, by credit card or by check. (See Payment Options to the right.)

Note: If you’re currently paying electroni-cally using the ACH credit method, con-tinue to call your bank as usual. If you wish to make payments using the ACH credit method, instructions are available on our website at www.revenue.state.mn.us.

Extension PaymentYour tax is due by the regular due date, even if you are filing under an extension. Any tax not paid by the regular due date is subject to penalties and interest (see lines 13 and 14 on page 4).

If you’re filing after the regular due date, you can avoid penalties and interest by making an extension payment by the regu‑

General Information (continued)

lar due date. See Payment Options above. If you’re not required to pay electronically and are paying by check, go to www.revenue.state.mn.us to create a voucher to print and submit with your check.

Estimated Tax PaymentsA partnership must make quarterly estimated tax payments if the sum of its estimated minimum fee, nonresident withholding and composite income tax for all nonresident partners electing to participate in compos‑ite income tax, less any credits, is $500 or more.

Payments are due by the 15th day of the fourth, sixth and ninth months of the tax year and the first month following the end of the tax year. If the due date lands on a week‑end or legal holiday, payments electronically made or postmarked the next business day are considered timely.

If estimated tax is required for the minimum fee, composite income tax and/or nonresi‑dent withholding, include all on the same quarterly payments.

To make an estimated payment, see Payment Options above.

For additional information, see Partnership Estimated Tax Instructions.

Tax Return PaymentIf line 16 of Form M3 shows an amount due, you must make a tax return payment (see Payment Options above). If you’re not required to pay electronically and are paying by check, go to www.revenue.state.mn.us to create a voucher to print and submit with your check.

Penalties and InterestLate Payment. A late payment penalty is assessed on any tax not paid by the regular due date. The penalty is 6 percent of the unpaid tax.

If you file your return after the regular due date with a balance due, an additional 5 per‑cent penalty will be assessed on the unpaid tax.

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 .

To be timely, you must complete your transaction and receive a confirmation number on or before the due date for that payment . 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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Late Filing. There is also a penalty if you file after the extended due date and owe tax. The late filing penalty is 5 percent of any tax not paid by the regular due date.

Interest. You must also pay interest on the penalty and tax you are sending in late. The interest rate for 2019 is 5 percent.

Other Penalties. There are also civil and criminal penalties for intentionally failing to file a Minnesota return, evading tax and for filing a frivolous, false or fraudulent return.

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.

Composite Income TaxA partnership may pay composite Minne‑sota income tax on behalf of its nonresident individual partners or grantor trusts who elect to be included in lieu of each partner filing his or her own Minnesota return. The electing individuals must not have any Min‑nesota source income other than the income from this partnership and other entities electing composite filing.

Partners who receive a share of gross profit or income from an installment sale reported on line 7a or 7b of form KPI are not eligible to elect the partnership to pay composite income tax on their behalf.

If you are paying composite income tax for your electing partners, check the box for composite income tax on the front of Form M3 and see the line 2 instructions on page 4.

Nonresidents included in composite income tax are not subject to the nonresident with‑holding requirements (see the next section).

Nonresident WithholdingPartnerships are required to withhold and remit Minnesota income tax for a nonresi‑dent individual partner if the partner:• has a legal residence that is not Minne‑

sota;• is not included in composite income tax;• has Minnesota distributive income of

$1,000 or more from this partnership; and• has income that was not generated by a

transaction related to the termination or liquidation of the partnership in which

no cash or property was distributed in the current or prior taxable year.

Also, income recognized because of dis‑charge of indebtedness or from the gain on the sale of property subject to a mortgage is excluded from withholding to the extent that no cash is received or the cash is required to pay the indebtedness or mortgage.

If you’re required to pay nonresident with‑holding, see the line 3 instructions on page 4.

Note: Nonresident individual partners in‑clude grantor trusts that file or can file under IRC section 1.671-4(b) and single-member LLCs when the single member is an indi‑vidual.

Exempt Partnerships: If the partnership’s ownership interests are traded on a public exchange, the partnership is not required to withhold and remit Minnesota taxes for its nonresident partners.

Nonresident Entertainers: Compensa‑tion paid to a nonresident entertainment entity for performances in Minnesota is not subject to Minnesota income tax. Instead, the compensation is subject to a 2 percent withholding tax on the gross compensation the entertainment entity receives for perfor‑mances in Minnesota.

A partnership is an entertainment entity if it is paid compensation for entertainment provided by entertainers who are partners. An entertainer includes, for example, a mu‑sician, singer, dancer, comedian, thespian, athlete or public speaker. If you are defined by law as an entertainment entity, file Form ETR, Nonresident Entertainer Tax Return, by April 15 of the following year the income was reported. For additional information, see Withholding Fact Sheet 11, Nonresident Entertainer Tax.

If you are an entertainment entity that received compensation for performances in Minnesota and have no other type of Min‑nesota income, you are not required to file Form M3.

Use of InformationAll information on this form is private, except for your Minnesota tax ID number, which is public. Private information cannot be given to others except as provided by state law.

The identity and income information of the partners are required under state law so the department can determine the partner’s cor‑rect Minnesota taxable income and verify if the partner has filed a return and paid the tax. The Social Security numbers of the

individual partners are required under M.S. 289A.12, subd. 13.

Assembling Paper Tax FormsArrange your MInnesota schedules in the order they were completed and place them behind your Form M3. Schedules KPI and KPC should be sorted with the largest share of Minnesota source income first. Inculde Schedules KPINC or KPCNC behind the corresponding KPI or KPC. Then place your federal return and its schedules behind the Minnesota material. Do not staple or tape any enclosures to your return.

Where to File Paper ReturnsMail Form M3 and all completed Minnesota and federal forms and schedules using a mailing label (see page 13).

If you choose not to use the label, mail your forms to: Minnesota Partnership Tax, Mail Station 1760, St. Paul, MN 55145‑1760.

Partnerships with more than 200 partners are asked to submit federal K–1 schedules and Minnesota KPI and KPC schedules (if applicable) on CDs. The department will continue to accept the filing of paper copies if this is not possible.

Reporting Federal ChangesIf the Internal Revenue Service (IRS) changes or audits your federal return or you amend your federal return, you must amend your Minnesota return. File your Form M3X within 180 days after you were notified by the IRS or after you filed your federal amended return. Enclose a copy of the IRS report or your amended federal return with your amended Minnesota return.

If you fail to report as required, a 10 percent penalty will be assessed on any additional tax.

Before you complete Form M3, you must complete the following; you will need to reference them:• Federal Form 1065—or Form 1065-B if

you are a large partnership—and sup-porting schedules;

• Schedule KPI for each nonresident part-ner and to any Minnesota partner who has adjustments to income (see page 8); and

• Schedule KPC for each corporate or partnership partner (see page 12).

General Information (continued)

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Completing Form M3Check BoxesInitial Return. If this is the partnership’s first return filed in Minnesota, check the box on the front of the form.

Composite Income Tax. If you are pay‑ing composite income tax for your elect‑ing partners, check the box for composite income tax on the front of Form M3 and see the instructions for line 2.

Farm Partnerships. If more than 80 percent of your income is from farming, you are not required to pay a minimum fee. Check the box on the front of Form M3.

Limited Liability Company (LLC). A limited liability company that is considered to be a partnership for federal income tax purposes is considered a partnership for Minnesota purposes, and the members are considered to be partners. If you are a limited liability company and are filing a partnership return, check the LLC box on the front of Form M3.

Out of Business (final return). If the partnership is out of business and/or is not required to file Form M3 in future years, check the “Out of Business” box on the front of the form.

Installment Sale of Pass-through Assets or Interests. Check the “Installment Sale of Pass‑through Assets or Interests” box if the partnership:1) executed an installment sale, after December 31, 2016, of partnership interests being reported on Form 6252; or2) executed an installment sale, after De‑cember 31, 2016, of the assets of a partner‑ship and is reporting the sale on form 6252; or3) owns an interest in a partnership, or trust reporting installment sale gains on line 7 of Schedule KPI, or KF, or line 10 of Schedule KPC.

If you are required to check the Installment Sale of Pass‑through Assets or Interests, also complete line 7 of all applicable Schedules KPI, and line 10 of all applicable Schedules KPC to report installment sale information to your partners.

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

Partnership Partners: When completing Form M3 and Schedules KPI and KPC, be sure to include any amounts reported on the Schedule KPC you received as a partner of a partnership (include Schedule KPC with your return).

Line 1—Minimum FeeComplete M3A of Form M3 to determine the minimum fee to enter on line 1. See the M3A instructions beginning on page 6.

You are exempt from the minimum fee if:• more than 80 percent of your income is

from farming

Line 2—Composite Income TaxTo determine line 2, you must first figure the amount of composite tax attributed to each electing partner. See the partnership instructions for lines 34 and 35 of Schedule KPI on page 10.

Add the composite income tax attributed to all electing partners (the total of lines 35 from all KPI schedules), and enter the result on line 2 of Form M3.

Line 3—Nonresident WithholdingTo determine line 3, you must first figure the amount to withhold for each nonresi‑dent individual partner. See the partnership instructions for line 36 of Schedule KPI on page 11.

Add the withholding required for all non‑resident partners (the total of lines 36 from all KPI schedules), and enter the result on line 3 of Form M3.

If you received a signed and dated Form AWC, Alternative Withholding Certificate, from one or more partners, check the box provided on line 3 of Form M3. You must include the certificate(s) when you file your return.

Line 5—Employer Transit Pass CreditIf you provided transit passes at a reduced cost to your employees for use in Minne‑sota, complete and enclose Schedule ETP, Employer Transit Pass Credit, to determine your credit.

Enter the amount of the credit that is being claimed directly by the partnership and not passed through to the partners. Line 5 can‑not exceed the minimum fee on line 1.

Line 6—Tax Credit for Owners of Agricultural AssetsIf you received a credit from the Minne‑sota Rural Finance Authority for selling or leasing agricultural assets to a beginning farmer, enter the certificate number in the space provided and credit amount on line 6.

If you have multiple credits, enter the cer‑tificate number your partnership received directly from the Rural Finance Authority within the certificate number box. If you have multiple credits and received all cred‑its from other pass‑through entities, enter

the certificate number relating to the largest credit amount within the certificate number box. Subtotal all credit amounts on Line 6.

Line 9—Enterprise Zone CreditIf your business has been certified and ap‑proved by the Department of Employment and Economic Development (DEED) as employment property in an enterprise zone, enter the credit that is being claimed directly by the partnership and not passed through to the partners.

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

Line 10—Estimated Tax and Extension PaymentsEnter your total prepayments, including any of the following:• your total 2018 estimated tax payments

made in 2018 and 2019, paid either elec‑tronically or by check

• any 2018 extension payment, paid elec‑tronically or by check, that was made by the due date when filing under an exten‑sion

• the portion of your 2017 refund applied to your 2018 estimated tax

Line 13—PenaltyPenalties are collected as part of the tax and are in addition to any additional charge for underpaying estimated tax. If you are paying your tax after the regular due date, include the appropriate penalties on line 13.

Late Payment. If the tax is not paid by the regular due date, a penalty is due of 6 percent of the unpaid tax on line 12.

Late Filing. If you are filing your return after the extended due date and owe tax, you must pay a late filing penalty. The late filing penalty is 5 percent of the unpaid tax on line 12.

Balance Not Paid. If you file your return af‑ter the regular due date and have a balance due, an additional penalty is assessed. The additional penalty is 5 percent of the unpaid tax on line 12.

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 your paper check is sent on time.

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Line 14—InterestYou must pay interest on the unpaid tax and penalty from the regular due date until the total is paid. The interest rate for calendar year 2019 is 5 percent.

To figure how much interest you owe, use the following formula with the appropriate interest rate:Interest = (tax + penalty) x # of days late x interest rate ÷ 365

Line 15—Additional 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 underpaying or not paying estimated tax. You may also owe an additional charge if the sum of line 1 (less any credits on lines 7,9, and 10), composite income tax on line 2 or nonresident withholding on line 3, is more than $500.Complete Schedule EST, Underpayment of Estimated Income Tax, to determine the additional charge for underpaying estimated tax.

Enter the total charge, if any, on line 15. Enclose the schedule with your return.

Line 16—Amount DueAdd lines 12 through 15. This is the amount you owe. Be sure to check the appropriate box on line 16 to indicate your method of payment. See Payment options on page 2.

Line 17—OverpaymentIf line 11 is less than the sum of lines 8 and 15, subtract line 11 from the sum of 8 and 15. Enter the result on line 16 and enter zero on line 17.

If you have an overpayment on line 17, you may choose to have it direct deposited into your bank account. You may also choose to apply all or a portion of your overpayment toward your 2019 estimated tax account.

M3 (continued)Line 18—2019 Estimated TaxSkip this line if you owe additional tax.

If you are paying 2019 estimated tax, you may apply all or a portion of your refund to your 2019 estimated tax. Enter the portion of line 17 you want to apply toward your 2019 estimated tax on line 18.

Line 19—RefundIf you want to request your refund to be direct deposited into your bank account, complete line 20. Your bank statement will indicate when your refund was deposited to your account. Otherwise, skip line 20 and your refund will be sent to you in the mail.

Line 20—Direct Deposit of RefundIf you want your refund to be directly deposited into your checking or savings account, enter the routing and account numbers. You must use an account not asso‑ciated with any foreign banks.

The routing number must have nine digits.

The account number may contain up to 17 digits (both numbers and letters). Enter the number and leave out any hyphens, spaces and symbols.

If the routing or account number is incor‑rect or is not accepted by your financial institution, your refund will be sent to you in the form of a paper check.

By completing line 20, you are authorizing the department and your financial institu‑tion to initiate electronic credit entries, and if necessary, debit entries and adjustments for any credits made in error.

SignatureThe return must be signed by a general partner of the firm.

If you paid someone to prepare your return, the preparer must also sign. The preparer’s ID number and phone number should also be included.

You may check the box in the signature area to give us your permission to discuss your return with the paid preparer. This authorization remains in effect until you notify the department in writing (either by mail or fax) that the authorization is revoked.

Checking the box does not give your preparer the authority to sign any tax docu‑ments on your behalf or to represent you at any audit or appeals conference. For these types of authorities, you must file a power of attorney or Form REV184 with the department.

Email AddressIf the department has questions regarding your return and you want to receive corre‑spondence electronically, indicate the email address below your signature. Check a box to indicate if the email address belongs to an employee of the partnership, the paid preparer or other contact person.

By providing an email address, you are authorizing the department to correspond with you or the designated person over the Internet and you understand that the entity’s nonpublic tax data may be transmitted over the Internet.

You also accept the risk that the data may be accessed by someone other than the intended recipient. The department is not liable for any damages that the entity may incur as a result of an interception.

You can find your bank’s routing number and account number on the bottom of your check.

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Completing M3A Complete M3A to determine your Minne-sota source income and minimum fee.

Apportionment Factor Minnesota completed the transition to 100% sales apportioned state in 2014.

Under Minnesota Statute, the minimum fee still takes into account your Minnesota por‑tion of property, payroll, and sales.

Petitioning to Use Another Method of AllocationState law (M.S. 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 the statutory single sales factor apportion‑ment formula.

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 the sales‑factor formula does not properly and fairly reflect your Minnesota income, and that the alternative formula you have chosen does.

Property FactorIf you are not required to complete federal Schedule L (Form 1065), you may want to do so to determine the property factor. Enclose the completed federal Schedule L (Form 1065) or a copy of the partnership’s balance sheet with your Form M3.

The property factor consists of tangible property which includes land, buildings, machinery, equipment, inventories and other tangible personal property valued at original cost.

Original cost is your cost or original basis when you acquired the property. Deprecia‑tion and fair market value are not consid‑ered.

M3A, lines 1a–1cLine 1a. Add the beginning and the ending year inventories, divide by 2 and enter the result on line 1a. This is your average value of inventory.

Line 1b. Add the beginning and ending year values of the buildings, machinery, equip‑ment and other tangible property and divide by 2. Enter the result on line 1b.

Line 1c. Add the land’s beginning and end‑ing year values and divide by 2. Enter the result on line 1c.

M3A, line 2Capitalized rents are rents paid by you for land, buildings, equipment, etc., during the tax year.

Multiply the rents you paid for property located or used in Minnesota by 8 and enter the result in column A. The rents you receive are included in the sales factor.

Payroll FactorM3A, line 4In column A, enter your total payroll paid (including guaranteed payments to partners for services) or incurred in Minnesota, or paid for labor performed in Minnesota in connection with the trade or business dur‑ing the tax year.

Sales FactorM3A, line 5In column A, enter the amount of sales in Minnesota. In column B, enter total sales. Divide column A by column B and carry the result to five decimal places. Enter the result in column C. This is your sales factor.

The sales factor includes all sales, rents, 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 trade or

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

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

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 received by the purchaser within Minne‑sota and the taxpayer is taxed in this state, regardless of the f.o.b. point, other condi‑tions of the 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 nation, regardless of f.o.b. point or other conditions of the 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 leas‑es 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.

Royalties, fees and similar income not qualifying for the foreign royalty subtrac‑tion, received for the use of or the privilege of using intangible property (such as pat‑ents, copyrights, trade names, franchises or similar items) are attributed to the state in which the property is used by the purchaser.

Intangible property is attributed to Minne‑sota 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 you Continued

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cannot determine the portion of use in Min‑nesota, then exclude the sales or royalties from both the numerator and the denomina‑tor of the sales factor.

Personal ServicesReceipts from the performance of personal services are attributed to the state in which the services 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.

M3A, lines 6–9—Minimum FeePartnerships are subject to the minimum fee if the sum of its Minnesota source prop‑erty, payroll and sales or receipts is at least $990,000.

However, you are exempt from the mini‑mum fee if:

• more than 80 percent of your income is from farming

If you are exempt from the minimum fee, enter zero on line 9 of M3A and on line 1 of Form M3. Also, be sure to check the appropriate box in the heading at the top of your return to indicate you are a farm partnership.

M3A, line 7—AdjustmentsThe 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 7.

Add: All tangible property owned or rented that is not included on line 3 of M3A. Some examples include construction in progress, idle property, any nonbusiness property or rent expense. The amounts should be deter‑mined in the same manner as the amounts on lines 1 and 2.

M3A (continued)

Subtract:

• Any amounts included on lines 3, and 5 that represent your share of the factors passed through from other partnerships.

• If the tax year is a short tax year, subtract the amount of the average value of tan‑gible property that is excluded because of prorating for a short tax year. The amount excluded for a short tax year is deter‑mined by multiplying M3A, column A, line 1 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 M3A, line 7.

8

Use the Minnesota NC 4562 that you com‑pleted using the M3 Nonconformity Adjust‑ment Instructions for the following steps.

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

• 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.

• Enter line 2 of Minnesota NC 4562 on line 2 of your Minnesota Form 4562.

• 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 Minnesota NC 4562 on lines 6 and 7 of your Minnesota Form 4562.

• Enter line 10 of Minnesota NC 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 Minnesota Form 4562 cannot be more than line 1.

Enter the partner’s distributive share of the amount on line 12 of the Minnesota Form 4562 on line 4 of Schedule KPI.

KPI, line 5If you claimed federal bonus depreciation, your partners must add back 80 percent of the bonus depreciation to Minnesota.

Before completing the below steps, the partnership must complete a Minnesota NC 4562 (see the Worksheet for Line 2a - Bonus Depreciation from the M3 Noncon‑formity Adjustment Instructions).

Follow the steps below to determine the partner’s share to enter on line 5:

1 Enter the total bonus depreciation allowed on lines 14 & 25 of your Minnesota NC 4562. . . . . . . . . 2 Multiply step 1 by the partner’s percentage of ownership interest . . . . . . . . . .Enter the result from step 2 on line 5 of the partner’s Schedule KPI.

Federal bonus depreciation subtrac-tion. For five years following the addback year, your partners may be able to subtract one-fifth of the addback on their Minnesota income tax return. See the instructions for Form M1 or Form M2 for details.

Complete and provide Schedule KPI to each nonresident individual, estate or trust partner and any Minnesota indi-vidual, estate or trust partner who has adjustments to income.

Enter the information associated with this partnership and partner. If the partner is a one-member LLC, a grantor or substantial owner of a grantor trust, also enter the federal ID or Social Security number of the partner who is ultimately taxed for Minnesota purposes.

PurposeA partnership must provide each nonresi‑dent partner and any Minnesota partner with enough information regarding adjust‑ments to income in order for the partner to complete a Minnesota income tax return and determine their correct Minnesota tax.

Use Schedule KPI to provide the necessary information to the partner. The schedule shows each partner their specific share of the partnership’s income, credits and modi‑fications. Be sure to provide the partner a copy of both the front and back of the com‑pleted Schedule KPI and the instructions.

If there are no modifications or credits, and there are no nonresident partners, you do not have to provide Schedule KPI.

Enclose copies of the Schedules KPI and attachments issued to partners with your Form M3. Also enclose copies of your federal Schedules K and K‑1.

If you are required to amend your federal partnership return or you have been audited by the IRS, you must file an amended Min‑nesota return using Form M3X, Amended Partnership Return, and Schedules KPI and KPC, if appropriate, even if the partnership originally filed federal Form 1065-B.

Partner Ultimately TaxedEnter the identifying number of the partner ultimately taxed. For example, if the partner is a trust and has one beneficiary, enter the beneficiary’s Social Security number.

A $50 penalty will be assessed for each incorrect tax ID number used for a partner after being notified by the department that the number is incorrect.

Line InstructionsCalculate lines 1–19 the same for all resi-dent and nonresident partners. Calculate lines 20–36 for nonresident partners only.

Completing Schedule KPIPartnership Partners: When complet-ing Schedules KPI, be sure to include any amounts reported on the Schedule KPC you received as a partner of a partnership (include Schedule KPC with your return).

KPI, line 1Determine the interest the partnership received from non‑Minnesota state and municipal bonds. Include the Minnesota portion of exempt‑interest dividends if less than 95 percent of the exempt‑interest dividends are from Minnesota state and mu‑nicipal bonds. Enter the partner’s distribu‑tive share of this amount on line 1.

KPI, line 2Determine the state income taxes deducted in arriving at ordinary income or net rental income of the partnership. Do not include the minimum fee in this amount. Enter the partner’s distributive share of this amount on line 2.

KPI, line 3Expenses or interest deducted on your fed‑eral return that relate to income not taxed by Minnesota must be added back to the partners’ Minnesota income.

Enter the partner’s share of any federal deductions that are attributable to income not taxed by Minnesota, other than U.S. government bond interest or other federal obligations.

If you had expenses attributable to interest or mutual fund dividends from U.S. bonds, see line 9 of Schedule KPI. Do not include these expenses on line 3.

KPI, line 4If, during the year, your total investment in qualifying property was more than $200,000 or if you elected more than $25,000 in section 179 expensing, your partners must add back to Minnesota 80 percent of the difference between the ex‑pensing allowed for federal and for state tax purposes. Your partners will be allowed to subtract their share of the addition in equal parts over the next five years when they file their state tax returns.

If you completed federal Form 4562 to claim the section 179 expensing for federal tax purposes, the partnership must com‑plete a Minnesota NC 4562 (see the Work-sheet for line 3a – Section 179 Expensing from the M3 Nonconformity Adjustment Instructions). You must adjust your Min‑nesota allowable section 179 deduction on Schedule KPINC due to the difference between federal and Minnesota thresholds, limitations, and qualifying property. Continued

9

KPI (continued)reported to this entity on all Schedules KF, KS, and KPC.

If the partnership receives installment pay‑ments from multiple sales executed after December 31, 2016, attach a schedule to Form M3 detailing the different sales and distributive allocations.

KPI, line 8Enter the amount from the Schedule KPINC, line 27. Use this amount in calcu‑lating composite tax and nonresident with‑holding. If the amount is negative enter it as a positive number on KPI line 10.

KPI, line 9Interest earned on certain direct federal obligations is taxable on the federal return, but is not taxable on the state return.

Determine the net interest you received from primary obligations issued by the U.S. government, such as savings bonds and treasury notes, that are held directly by the partnership. Do not include obligations where the U.S. government is only a guar‑antor. Be sure to subtract any investment interest and other expenses you deducted on the federal return that relate to this income.

Enter the partner’s distributive share of this amount on line 9.

KPI, line 10Enter the amount from the Schedule KPINC, line 27 as a positive number. Use this amount in calculating composite tax and nonresident withholding.

KPI, line 11Enter the partner’s distributive share of the 2017 credit for increasing research ac‑tivities. If the business qualifies, the credit cannot be claimed by the partnership and the full credit must be passed through to the partners.

KPI, line 12If you received a credit certificate from the Minnesota Rural Finance Authority for sell‑ing or leasing agricultural assets to a begin‑ning farmer, enter the certificate number in the space provided and the partners share of the credit on line 12.

If the partner has multiple credits, enter the certificate number your partnership received directly from the Rural Finance Authority within the certificate number box. If the partner has multiple credits and received all credits from other pass‑through entities, enter the certificate number relating to the largest credit amount within the certificate

KPI, line 6Enter the partner’s distributive share of any fines, fees and penalties that were deducted as business expenses paid to a government entity or nongovernment regulatory body as a result of a violation of law, or the inves‑tigation of any potential violation of law. This does not include amounts identified in a court order or settlement agreement as restitution or as an amount paid to come into compliance with the law.

KPI, line 7aEnter each resident and nonresident individ‑ual partner’s share of the gross profit from any installment sale of s corporation stock or assets, partnership interests or assets executed after December 31, 2016.

If the sale was completed by the partnership completing this schedule, the total gross profit to be allocated among the partners is reported on federal Form 6252, line 16. If the sale was executed by an entity owned by this entity, or another entity in a multi‑tiered structure, this information is reported on Schedule KF, or KS on line 7a, or Schedule KPC line 10a.

If installment sale information is reported to this entity on informational schedules from other entities, the amount reported to the partners should equal the total amount reported to this entity on all Schedules KF, KS, and KPC.

If the partnership receives installment pay‑ments from multiple sales executed after December 31, 2016, attach a schedule to Form M3 detailing the different sales and distributive allocations.

KPI, line 7bEnter each resident and nonresident indi‑vidual partner’s share of installment sale income the sale of s corporation stock, partnership interests, and any installment sale income from the sale of the assets of any s corporation or partnership. If the sale was completed by the partnership com‑pleting this schedule, the total installment sale income to be allocated to the partners is reported on Form 6252, line 24. If the sale was executed by an entity owned by this entity, or another entity in multi‑tiered structure, this information is reported on Schedule KF, or KS on line 7b, or Schedule KPC line 10b.

If installment sale information is reported to this entity on informational schedules from other entities, the amount reported to the partners should equal the total amount

number box. Subtotal the partner’s share of all credit amounts on Line 12.

KPI, line 13Enter the partner’s distributive share, if any, of the Historic Structure Rehabilita‑tion Credit based on the partner’s share of the partnership’s assets, or as specifically allocated in the partnership’s organizational documents, as of the last day of the taxable year.

You must also include the NPS project number, which is provided on the credit certificate you received from the State His‑toric Preservation Office of the Minnesota Historical Society when the project was completed and placed into service.

KPI, line 14Enter the partner’s share, if any, of the Employer Transit Pass Credit that is passed through to the partners.

KPI, line 15Enter the partner’s share, if any, of the En‑terprise Zone Credit that is passed through to the partners.

KPI, line 16If, for regular tax purposes, you elected the optional 60-month write-off under IRC section 59(e) for all property in this category, skip lines 16–19. No adjustments are necessary.

Intangible drilling costs (IDCs) from oil, gas and geothermal wells are a tax prefer‑ence item to the extent that the excess IDCs exceed 65 percent of the net income from the wells. The tax preference item is com‑puted separately for oil and gas properties and for geothermal properties.

Enter the partner’s distributive share of the following: IDCs allowed for regular tax purposes under section 263(c), (but not including any section 263(c) deduction for nonproductive wells) less the amount that would be allowed had the IDCs been amortized over a 120‑month period start‑ing with the month the well was placed in production.

KPI, line 17Gross income from oil, gas and geothermal properties are used in determining if the excess IDCs exceed 65 percent of the net income from the wells.

Enter the partner’s distributive share of the aggregate amount of gross income [within the meaning of section 613(a)] from all

Continued

10

oil, gas and geothermal properties that was received or accrued during the tax year.

KPI, line 18Deductions allocable to oil, gas and geo‑thermal properties are used in determining if the excess IDCs exceed 65 percent of the net income from the wells.

Enter the partner’s distributive share of any deductions allocable to oil, gas and geother‑mal properties. Do not include deductions for nonproductive wells.

KPI, line 19In the case of oil wells and other wells of nonintegrated oil companies, enter the partner’s distributive share of the amount by which the depletion deduction exceeds the adjusted basis of the property at the end of the tax year.

In computing the year‑end adjusted basis, use the rules of section 1016. However, do not reduce the adjusted basis by the current year’s depletion. Figure the excess amount separately for each property. If the deple‑tion deduction for any property does not exceed the adjusted basis at year‑end, do not include a tax preference amount for that property.

Nonresident Individual, Estate or Trust Partners — Lines 20-36KPI, line 20The Minnesota source gross income is used to determine whether a nonresident partner is required to file a Minnesota income tax return or has the option to elect composite income tax.

Enter the partner’s distributive share of the partnership’s Minnesota source gross in‑come. The Minnesota source gross income is the total of the amounts apportioned to Minnesota that are included on lines 3, 6, and 7 (other than losses) of federal Form 1065; lines 18a and 19 and 20 (other than losses) of Form 8825; line 9 of Schedule F (1040); line 3a, 5, 6a, 7, 8, 9a, 10 and 11 of Schedule K (1065, not reported else‑where) plus Minnesota source gross income amounts from all partnerships, estates, and trusts in which the partnership is a partner or beneficiary.

KPI, lines 21-32From the nonresident partner’s federal Schedule K‑1 (1065), enter the Minnesota portion of amounts on lines 21 through 32.

On line 31, include the Minnesota portion of any items from the Schedule K‑1 that are not specifically labeled on lines 21-30 and 32.

Line 32 refers to the Minnesota apportioned amount of federal section 179 expense, not the amount calculated on line 4 of Schedule KPI for the Minnesota addition.

All income of a Minnesota individual resident is taxed by Minnesota, regardless of the source.

KPI, line 24Guaranteed payments to partners (Includ‑ing for services and use of capital) make up a portion of the partner’s distributive share of partnership income. Accordingly, to determine the Minnesota portion of each partner’s share of guaranteed payments, multiply the amount reported to the partner on Schedule K‑1, line 4, to Minnesota using the same apportionment percentage or as‑signment ratio used to allocate the income from which the guaranteed payment was deducted federally.

Nonresident Individual Part-ners OnlyKPI, line 34When determining the partner’s share of the partnership’s Minnesota source distributive income, you must make adjustments for any items you passed through to the partner on lines 1 through 10 of the partner’s Schedule KPI.

Follow the steps below to determine line 34:

1 The difference between the partner’s pro rata share of the section 179 deduction from the Minnesota NC 4562 line 12 and line 4 of the partner’s Schedule KPI . . . . . . . . . . . . .

2 Federal bonus depreciation amount from line 5 of the partner’s Schedule KPI . . . . .

3 Add step 1 and step 2 . . . . . . . 4 Multiply step 3 by 80% (.80) 5 Enter the amount from

line 8 of Schedule KPI . . . . . . 6 Combine steps 4 and 5 . . . . . . 7 Multiply step 6 by

apportionment factor from line 33 of partner’s Schedule KPI . . . . . . . . . . . . .

8 Combine lines 21-31 of the partner’s Schedule KPI . . . . .

9 Add steps 7 and 8. . . . . . . . . . 10 To the extent allowed by law,

enter one-fifth of the partner’s share of the federal bonus depreciation that was added back in a year the partner elected to be included in composite income tax . . . . . . . . . . . . . . .

11 To the extent allowed by law, enter one-fifth of the partner’s share of the section 179 expensing that was added back in a year the partner elected to be included in composite income tax . . . . . . .

12 Enter amount from line 10 of Schedule KPI . . . . .

13 Add steps 10,11, and 12 . . . . .

14 Multiply step 13 by the apportionment factor from line 33 of the partner’s Schedule KPI . . . . . . . . . . . . .

15 Enter the amount from line 32 of the partner’s Schedule KPI .

16 Add Steps 14 and 15 . . . . . . . .

17 Subtract step 16 from step 9 . .

Enter the result from step 17 on line 34 of the partner’s Schedule KPI. This amount is the partner’s adjusted Minnesota source distributive income.

KPI, line 35Composite Income TaxNonresident individual partners must pay tax if their Minnesota gross income is more than the minimum filing requirement for the year ($10,650 for 2018).

Partners who receive a share of gross profit or income from an installment sale reported on line 7a or 7b of form KPI are not eligible to elect the partnership to pay composite income tax on their behalf.

Skip this line if the nonresident partner did not elect the partnership to pay composite income tax on his or her behalf.

To determine the amount of composite in‑come tax to pay on behalf of each electing partner, follow the steps below:

1 Multiply line 34 of Schedule KPI by 9.85% (.0985) . . . . . . .

KPI (continued)

Continued

11

2 Add lines 12‑15 of Schedule KPI . . . . . . . . . . . . . .

3 Subtract step 2 from step 1 . . .

The result in step 3 is the amount you are required to pay on behalf of the electing individual partner. Enter this amount on line 35 of the partner’s Schedule KPI and check the box to indicate the partner’s election to be included.

If the individual elects to be included in composite income tax but has zero tax due, enter zero on line 35. Even though the amount may be zero, be sure to check the box to indicate the election.

Once you have completed all the KPI sched‑ules for your electing nonresident individual partners, add the amounts on line 35 of all the schedules and enter the total on line 2 of Form M3. This is the amount of compos‑ite income tax you are required to pay on behalf of your electing partners.

KPI, line 36—Nonresident WithholdingNonresident individual partners who are not included in the composite income tax may be subject to withholding. See Nonresident

KPI (continued)Withholding on page 3 to determine if your nonresident partners are subject to Minne‑sota withholding.

To determine the amount of tax to withhold for each nonresident partner, follow the steps below:

1 Multiply line 34 of Schedule KPI by 9.85% (.0985) . . . . . . .

2 Add lines 12‑15 of Schedule KPI . . . . . . . . . . . . . .

3 Subtract step 2 from step 1 . . .

The result in step 3 is the amount you are required to withhold from the nonresident partner, unless the individual submits Form AWC, Alternative Withholding Certificate.

If the individual submits Form AWC, with‑hold the amount from line 6 of the certifi‑cate. Check the box provided on line 36 of

the partner’s Schedule KPI and also on line 3 of Form M3. Be sure to enclose a copy of the certificate when you file your return.

If the individual submits a false or fraudu‑lent Form AWC, the department may require you to withhold the maximum percentage from that individual in the future, even if an exemption certificate is submitted.

Be sure to inform your partners that they must include their Schedule KPI when they file their Form M1 to claim the Minnesota withholding. If the schedule is not included, the department will disallow the with‑holding and assess the tax or reduce their refund.

12

Completing Schedule KPCComplete and provide Schedule KPC to each corporate or partnership partner.

Enter the information associated with this partnership and partner. If the partner is a one-member LLC, also enter the federal ID or Social Security number of the part-ner who is ultimately taxed for Minnesota purposes.

PurposeA partnership must provide each part‑ner with enough information for them to complete a Minnesota income tax return and determine their correct Minnesota tax. Schedule KPC is used to show each corpo‑rate and partnership partner their specific share of the partnership’s credits, modifica‑tions and apportionment factors. The pro rata share of the apportionment factors are used in two different ways (depending on if the relationship between partner and partnership is unitary) in computing the corporate or partnership partner’s Minne‑sota income.

There may be other items that a corpo‑rate partner would need to know in order to complete its Form M4, Corporation Franchise Tax Return. If applicable, you should pass that information through to the corporate partners. For more information, see the instructions for Form M4.

Be sure to provide the partner a copy of both the front and the back of the complet‑ed Schedule KPC and the instructions.

Enclose copies of the Schedules KPC and attachments issued to partners with your Form M3. Also enclose copies of federal Schedules K and K‑1 with your partnership return.

Partner Ultimately TaxedEnter the identifying number of the partner ultimately taxed. For example, if the partner is an LLC and its one member is a C corpo‑ration, enter the C corporation’s FEIN.

A $50 penalty will be assessed for each incorrect tax ID number used for a partner after being notified by the department that the number is incorrect.

Line InstructionsPartnership Partners: When completing Schedules KPC, be sure to include any amounts reported on the Schedule KPC you received as a partner of a partnership (include Schedule KPC with your return).

KPC, lines 1 and 2Generally, all of the income of a partnership is apportionable. If you have nonapportion‑able income, the corporate and partner‑ship partners need to know their share of the nonapportionable income. Provide the partner with a schedule describing the type of income.

Enter the partner’s share of Minnesota source nonapportionable income on line 1. On line 2, enter the partner’s share of total nonapportionable income.

KPC, line 3Enter the partner’s distributive share of the minimum fee from line 1 of the partner‑ship’s Form M3.

KPC, line 4Enter the partner’s distributive share of the partnership’s interest income exempt from federal tax. Provide the partner with a schedule listing how much is from Minne‑sota municipal bonds.

KPC, line 5Enter the partner’s distributive share of any state income tax (other than the minimum fee) the partnership deducted in arriving at the partnership’s net income.

KPC, line 6Skip this line for all corporate partners.

Expenses or interest deducted on your fed‑eral return that relate to income not taxed by Minnesota must be added back to the individual partners’ Minnesota income.

Enter the partner’s share of any federal deductions that are attributable to income not taxed by Minnesota, other than U.S. government bond interest or other federal obligations.

If you had expenses attributable to inter‑est or mutual fund dividends from U.S. bonds, see line 12 of Schedule KPC. Do not include these expenses on line 6.KPC, line 7If, during the year, your total investment in qualifying property was more than $200,000 or if you elected more than $25,000 in section 179 expensing, your partners must add back to Minnesota 80 percent of the difference between the ex‑pensing allowed for federal and for state tax purposes. Your partners will be allowed to subtract their share of the addition in equal parts over the next five years when they file their state tax returns.

If you completed federal Form 4562 to claim the section 179 expensing for federal tax purposes, the partnership must com‑plete a Minnesota NC 4562 (see the Work-sheet for line 3a – Section 179 Expensing from the M3 Nonconformity Adjustment Instructions.) You must adjust your Min‑nesota allowable section 179 deduction on Schedule KPCNC due to the difference between federal and Minnesota thresholds, limitations, and qualifying property.

Use the Minnesota NC 4562 that you com‑pleted using the M3 Nonconformity Adjust‑ment Instructions for the following steps.

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

• 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.

• Enter line 2 of Minnesota NC 4562 on line 2 of your Minnesota Form 4562.

• 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 Minnesota NC 4562 on lines 6 and 7 of your Minnesota Form 4562.

• Enter line 10 of Minnesota NC 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 Minnesota Form 4562 cannot be more than line 1.

Enter the partner’s distributive share of the amount on line 12 of the Minnesota Form 4562 on line 4 of Schedule KPC.

KPC, line 8If you claimed federal bonus depreciation, your partners must add back 80 percent of the bonus depreciation to Minnesota.

Before completing the below steps, the partnership must complete a Minnesota NC 4562 (see the Worksheet for Line 2a - Bonus Depreciation from the M3 Noncon‑formity Adjustment Instructions).

Follow the steps below to determine the partner’s share to enter on line 8:

1 Enter the total bonus depreciation allowed on lines 14 & 25 of your Minnesota NC 4562. . . . . . . . . 2 Multiply step 1 by the partner’s percentage of ownership interest . . . . . . . . . .Continued

13

Enter the result from step 2 on line 8 of the partner’s Schedule KPC.Federal bonus depreciation subtrac-tion. For five years following the addback year, your partners may be able to subtract one-fifth of the addback on their Minnesota income tax return. See the instructions for Form M3, M4, or M8 for details.

KPC, line 9Enter the partner’s distributive share of any fines, fees and penalties that were deducted as business expenses paid to a government entity or nongovernment regulatory body as a result of a violation of law, or the inves‑tigation of any potential violation of law. This does not include amounts identified in a court order or settlement agreement as restitution or as an amount paid to come into compliance with the law.

Line 10aEnter each corporate or partnership partner’s share of the gross profit from any install‑ment sale of partnership interests or assets executed after December 31, 2016.

If the sale was completed by the partnership completing this schedule, the total gross profit to be allocated among the partners is reported on federal Form 6252, line 16. If the sale was executed by an entity owned by this entity, or another entity in a multi‑tiered structure, this information is reported on Schedule KF, line 7a, or Schedule KPC, line 10a.

If installment sale information is reported to this entity on informational schedules from other entities, the amount reported to the partners should equal the total amount reported to this entity on all schedules KF, KS, and KPC.

If the partnership receives installment pay‑ments from multiple sales executed after December 31, 2016, attach a schedule to Form M3 detailing the different sales and distributive allocations.

Line 10bEnter each corporate or partnership part‑ner’s share of installment sale income from

KPC (continued)the sale of partnership interests or assets executed after December 31, 2016.

If the sale was completed by the partnership completing this schedule, the total install‑ment sale income to be allocated to the part‑ners is reported on Form 6252, line 24. If the sale was executed by an entity owned by this entity, or another entity in multi‑tiered structure, this information is reported on Schedule KF, or KS, on line 7b, or Schedule KPC line 10b.

If installment sale information is reported to this entity on informational schedules from other entities, the amount reported to the partners should equal the total amount reported to this entity on all schedules KF, KS, and KPC.

If the partnership receives installment pay‑ments from multiple sales executed after December 31, 2016, attach a schedule to Form M3 detailing the different sales and distributive allocations.

KPC, line 11This line has been intentionally left blank.

KPC, line 12Skip this line for all corporate partners.

Interest earned on certain direct federal obligations is taxable on the federal return, but is not taxable on the state return.

Determine the net interest you received from primary obligations issued by the U.S. government, such as savings bonds and treasury notes, that are held directly by the partnership. Do not include obligations where the U.S. government is only a guar‑antor. Be sure to subtract any investment interest and other expenses you deducted on the federal return that relate to this income.

Enter the partnership partner’s distributive share of this amount on line 12.

KPC, line 13This line has been intentionally left blank.

KPC, line 14Enter the partner’s distributive share of the 2018 credit for increasing research activities.

If the business qualifies, the credit cannot be claimed by the partnership and the full credit must be passed through to the partners.

KPC, line 15Enter the partner’s distributive share of the Tax Credit for Owners of Agricultural Assets being passed through to partners. For more information on the credit amount allowed please see page 9 of the instruction, KPI, line 12.If the partner has multiple credits, enter the certificate number your partnership received directly from the Rural Finance Authority within the certificate number box. If the partner has multiple credits and received all credits from other pass‑through entities, enter the certificate number relating to the largest credit amount within the certificate number box. Subtotal the partner’s share of all credit amounts on Line 15.

KPC, line 16Enter the partner’s distributive share, if any, of the Historic Structure Rehabilita‑tion Credit based on the partner’s share of the partnership’s assets, or as specifically allocated in the partnership’s organizational documents, as of the last day of the taxable year.

You must also include the NPS project number, which is provided on the credit certificate you received from the State His‑toric Preservation Office of the Minnesota Historical Society when the project was completed and placed into service.

KPC, line 17Enter the partner’s distributive share of the Employer Transit Pass Credit being passed through to partners.

KPC, line 18Enter the partner’s distributive share of the Enterprise Zone Credit being passed through to partners.

KPC, lines 19 Enter the partner’s Pro Rata Share of Min‑nesota Source Gross Income.

KPC, lines and 20 and 21Enter the partner’s pro rata share of the partnership’s apportionment factors deter‑mined on M3A.

Use this mailing label on your own envelope to mail Form M3 and copies of your federal return and schedules. (Cut and tape to your envelope.)

Use a mailing label if filing a paper return

Partnership Tax Mail Station 1760 St. Paul, Minnesota 55145-1760

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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CAUTION:USE ONLY FOR ADDRESS BEARING THE ZIP+4 CODEABOVE. SEE PUBLICATION 25 FOR PRINTINGREQUIREMENTS.

THIS POSITIVE PREPARED FOR: COURTESY REPLY MAIL

MINNESOTA REVENUEPARTNERSHIP TAXMAIL STATION 1760600 N ROBERT STSAINT PAUL MN 55145-1760

TO BE USED ONLY WITH FIM - A (Courtesy Reply Mail)AND ZIP CODE: 55145-1760 DP=99 CK=8

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Continued

14

Nonconformity Adjustment Instructions

Purpose of This ScheduleMinnesota defines net income according to the Internal Revenue Code, as amended through December 16, 2016 (referred to as “2016 IRC”). Since that date, federal tax laws were passed that contain changes af‑fecting federal taxable income (FTI) 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 complete Schedules KPINC and Schedules KPCNC for your partners. Enter the partner’s pro rata share of each line adjustment on Schedules KPINC and KPCNC.

Who Must File Schedule KPINC or KPCNCYou must distribute nonconformity adjust‑ments to your partners if any of the federal provisions included in the following federal acts affect the amount of taxable income reported on your 2018 federal Form 1065, U.S. Return of Partnership Income:

• 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 these instructions to complete Sched‑ules KPINC and KPCNC for your partners’ pro rata share of each adjustment. The adjustment for each line should reflect the change to FTI due to the difference between the item calculated on your 2018 federal return and the item calculated under 2016 IRC. Each line will also include the net adjustments received from Schedule(s) KPCNC for your pro rata share in another partnership(s).

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

Save your entire 2018 Minnesota Form M3 and all worksheets you use in determining the adjustments.

Line InstructionsLine 1 - Capitalization Rules ProvisionsCosts of Replanting Citrus Plants (TCJA Sec. 13207)The Tax Cuts and Jobs Act (TCJA) provides a special temporary exception when apply‑ing 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 capi‑talization rules only if both of the following 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 par‑ticipates in the replanting, maintenance, 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, re‑calculate your interest expense using the ex‑ception allowed under 2016 IRC. Enter the interest expense capitalized under 2016 IRC as a positive amount on line 1. Recalculate 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 “Min‑nesota 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 pur‑poses 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.

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.

Continued

For taxpayers affected by federal tax law passed after December 16, 2016.

15

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 step 14 and do not report the adjust‑ment 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 depreciation or section 179 expens‑ing) 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 pe‑riod 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 Minne‑sota purposes. This will result in a positive amount.

Net the amount of depreciation on line 2b.

Line 2cThis line is intentionally left blank.

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

Nonconformity Adjustment 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 in which you own an interest that was not reported on step 1. . . . . . . . 3. Add steps 1 and 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4. Net like‑kind exchange adjustment from Schedule LK. See step instructions. . . . . 5. Enter bonus depreciation claimed on used property, television, film, and

theatrical production expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9. Subtract step 8 from step 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10. 40% bonus depreciation for public utility property and vehicle dealer property . . .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 in which you own an interest. . . . . . . . . . . . . . . . . . . . . . . .15. Add steps 13 and 14. Enter each partner’s pro rata share of the amount on

Schedule KPINC line 2a or Schedule KPCNC line 2a . . . . . . . . . . . . . . . . . . . .16. Total Federal bonus depreciation you receive from a Minnesota partnership in

which you own an interest that is not reported on step 1 or 2 . . . . . . . . . . . . . . . . .17. Add steps 3 and 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18. Subtract step 15 from step 17. Enter this amount on lines 14 or 25 of your

Minnesota NC 4562 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Instructions for Worksheet for Line 2a – Bonus depreciationStep 2 – Enter the total bonus depreciation from entities for which you have not received a Minnesota nonconformity 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 Minnesota 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 claim‑ing bonus depreciation under 2016 IRC. If you do not choose to claim bonus depreciation for this type of property, enter zero. Step 11 – Enter 40% of the depreciable basis of any property for which you are claiming bonus deprecia‑tion for Minnesota purposes. You may only claim bonus depreciation for Minnesota purposes if all of the following 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 each part-ner’s pro rata share of the amount on Schedule KPINC, line 2a or Schedule KPCNC, 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 partner’s Minnesota modification on Schedule KPI or Schedule KPC.

16

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. Include your computation of the worksheet as an at‑tachment to your return. If you received nonconformity adjustments from another entity and the property is included on step 2 of the Worsksheet for Line 3a, do not report the nonconformity adjustment you received directly onto line 3a.

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 3cThis line is intentionally left blank.

Line 4 - Other Depreciation Modi-fications (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.

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,

Nonconformity Adjustment 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Certain depreciable tangible personal property used to furnish lodging . . . . .5. Net like‑kind exchange adjustment from Schedule LK. See step instructions.6. Add steps 3 through 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. Qualified leasehold improvement property. . . . . . . . . . . . . . . . . . . . . . . . . . . .8. Qualified retail improvement property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9. Qualified restaurant property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .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 line 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. . . . . . . . . . . . . . . .14. Subtract step 13 from step 2. Enter each partner’s pro rata share of the amount on

Schedule KPINC line 3a or Schedule KPCNC 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 nonresiden‑tial 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, refrig‑erators, 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 under section 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 4562 NC.Enter the amount from line 12 of the Minnesota NC 4562 on Step 13 of this worksheet.

17

• $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 on line 4aDetermine 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 Form 1065.

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 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 low‑er depreciation limit allowed under 2016 IRC. Enter the nonconformity adjustment amount as a negative number on line 6.

Nonconformity Adjustment Instructions (continued)

Continued

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Line 7 – 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. The TCJA expanded the limit to apply to business interest expenses of pass‑through entities in addition to corporations.

For pass‑through entities, enter the amount of disallowed interest expense as a negative number on line 7.

Line 8 – Like-Kind Exchange Treatment (TCJA Sec. 13303)Use Minnesota Schedule LK to calcu‑late your nonconformity adjustment for like‑kind exchange treatment of personal property. The Schedule LK should be completed at the partnership level. Enter the amount from Schedule LK, line 25 on line 8a. Enter the amount from Schedule LK, line 28 on line 8b. Distribute the nonconfor‑mity adjustments pro rata to each partner on Schedules KPINC and KPCNC.

Attach a complete Schedule LK to your return.

Line 9 - Limitation on Deduction by Employers of Expenses for Fringe Benefits (TCJA Sec. 13304)If you have an adjustment for one of the expenses listed below, enter the amount on line 9. If you have an adjustment for more than one expense listed below, net the ad‑justments and enter the total on line 9.

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 9.

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 for the convenience of the employer at an employer‑operated eating facility as a de minimis fringe benefit.

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 9.

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 9.

Line 10 – Other Deduction Provisions (TCJA 13307, 13308, 13310, 13603)If you have an adjustment for one of the provisions below, enter the amount on line 10. If you have an adjustment for more than one provision listed below, net the adjust‑ments and enter the total on line 10.

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 10.

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

Nonconformity Adjustment Instructions (continued)

Continued

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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 as a negative number on line 10.

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.

The TCJA changed the definition of tan‑gible personal property 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.

If you granted employee achievement awards consisting of tangible personal property described in Items (1) or (2) above that 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 10.

Treatment of Qualified Equity Grants (TCJA Sec. 13603)The TCJA allows a qualified employee to make an election to defer the inclusion of income relating to qualified stock trans‑ferred from an employer to the qualified employee. Generally, an employer is al‑lowed a business 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 in which 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 subject 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 10.

Line 11 - 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 losses 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 11.

Line 12 – Cash Distributions from Converted C Corporations (TCJA Sec. 13543(b))The Tax Cuts and Jobs Act made changes to the tax treatment of 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 received a cash distribution from an eligible terminated S corporation (defined by 2018 IRC section 481(d)), enter any portion of the distribution that would be reported as income under 2016 IRC as a positive number on line 12.

Line 13 - 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 13.

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 13.

Line 14 - 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 quali‑fied 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 14.

Line 15a – 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

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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.

If you reported DFI, enter the net amount (2018 IRC section 965(a) inclusion amount reduced by 2018 IRC section 965(c) par‑ticipation exemption amount allowed) as a negative number on line 15a.

Line 15b – 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 entire actual dividend dis‑tribution as a positive number on line 15b.

Line 16 – 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 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 16.

Line 17 - Deduction for Foreign Derived Intangible Income (TCJA Sec. 14202)The Tax Cuts and Jobs Act allows a deduc‑tion under 2018 IRC section 250 for a percentage of foreign‑derived intangible income (FDII) arising from a trade or busi‑ness within the United States.

Under 2016 IRC, the FDII deduction is not allowed in the calculation of FTI.

If you deducted a portion of FDII under 2018 IRC section 250, enter the amount as a positive number on line 17.

Line 18 - 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 18.

Line 19 - 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 19. If you have an adjustment for more than one provision listed below, net the adjust‑ments and enter the total on line 19.

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 inclusion 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 19.

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 19.

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 19.

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 2018 IRC but not under 2016 IRC, enter the amount related to this provision as a nega‑tive number on line 19.

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 19.

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Line 20 – Source of Income from Sales of Inventory (TCJA Sec. 14303)The Tax Cuts and Jobs Act specifies 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 20.

Line 21 - 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 2018 IRC 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 21.

Line 22 - Other Provisions (TCJA Sec. 13309, 13313, 13314, 13502, 13504, 13522, 13531, 13532, 14502)If you have an adjustment for one of the provisions below, enter the amount on line 22. If you have an adjustment for more than one provision listed below, net the adjust‑ments and enter the total on line 22.

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 22.

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 can 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 can postpone each tax year is limited to the lesser of—

(1) $1 million, reduced by the gain previ‑ously excluded under 2016 IRC 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 22.

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 processTherefore, 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 are 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 is excluded from the definition of a capital asset is also ineligible to be treated as a capital gain or ordinary losses asset under 2016 IRC sec‑tion 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 22.

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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 al‑located 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 22.

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 asset due to the change in these rules, enter the amount of the specifically allocated loss as a positive number on line 22.

Repeal of Technical Termination of Partnerships (TCJA Sec. 13504)The TCJA repealed the partnership techni‑cal termination rule under 2016 IRC section 708(b)(1)(B).

Under 2016 IRC, a partnership has a techni‑cal termination if within any 12‑month period, there is a sale or exchange of 50‑percent or more of the total interest in the partnership capital and profits. If a tech‑nical termination occurs at the end of the taxable year, it is reportable on that year’s Minnesota tax return.

If the technical termination occurs mid‑year, this results in short taxable years and requires two short period Minnesota tax returns. In order to accurately file your Minnesota short period tax return, you must complete pro‑forma federal returns consistent with 2016 IRC. Include a copy of the pro‑forma federal partnership return as well as the federal partnership return as filed with the IRS.

For each partner, if the pro‑rata share of income calculated on the federally filed form 1065 K‑1 is larger than the pro‑forma federal returns required because of the Minnesota technical termination, enter the difference on the applicable partners Schedules KPINC or KPCNC as a negative number on line 22.

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 22.

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 a negative number on line 22.

Repeal of Advance Refunding Bonds (TCJA Sec. 13532)The TCJA repealed the exclusion relat‑ing to interest on bonds issued to advance refund another bond. Instead, 2018 IRC requires any bonds for which the refunding bond is issued more than 90 days before the redemption of the refunded bond to include the interest in gross income.

Under 2016 IRC, the interest on bonds issued to advance refund another bond are excluded from gross income.

If you included advance refunding bond interest, and it is allowed as a deduction un‑der 2016 IRC, enter the amount of interest as a negative number on line 22.

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 22.

Line 23 - Extension of Credits and Tax Incentives (TCJA Sec. 13401, 13403) (BBA Sec. 40411)If you have an adjustment for one of the provisions listed below, enter the amount on line 23. If more than one provision listed below requires an adjustment, net the ad‑justments and enter the total on line 23.

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 23.

Employer Credit for Paid Family and Medical Leave (TCJA Sec. 13403)The TCJA allows 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 23.

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Nonconformity Adjustment Instructions (continued)

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 pump

When 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 23.

Line 24 - 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 24. 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 24.

Attach a schedule showing the calculation of any amount entered on line 24.

Lines 25 and 26These lines intentionally left blank.

Line 27 – Total of lines 1 through 26Add lines 1 through 26 for each partners’ pro rata share on Schedules KPINC and KPCNC.

If the result is positive, enter the number on Schedule KPI, line 8 for your individual, estate, and trust partners’ pro rata share of nonconformity adjustments. If the result is negative, enter it as a positive number on Schedule KPI, line 10 for your individual, estate, and trust partners’ pro rata share of nonconformity adjustments.