DC Nonresident (K-1) Allocation Not Activating

[dascpa]

MD resident with K-1 from both MD and DC. Activated nonresident in Federal and apportioned income. Numbers not transferring to DC D-40 so entered them on DC Allocation worksheet and it's not activating either. DC is trying to tax on 100% of Federal income. Tried doing a subtraction of income and it still taxes as if it's 100% DC. What am I doing wrong?

This is NOT the DC D-40B Request for Refund as it's not wages. It's also not a D-3 Unincorporated Business Franchise Return.  It's just a K-1.

[dascpa]

sjrcpa posted this previously

DC does not have a nonresident return. Congress prohibits them from taxing nonresidents. Your client may be considered a part year resident based on the time spent in DC. Check  the D-40 instructions.

So if I read this right I ignore the DC K-1 and only tax it to the resident state?  Weird since DC taxes everything including franchise tax returns.

Correct?

[rbynaker]

@sjrcpa will know way more about this stuff than I do, but my understanding is the same as hers.  Was there tax paid to DC at the entity level?  What type of entity?

[dascpa]

Maryland 1065 that did work in MD and DC. The entity filed a D-30 and paid DC franchise taxes.  But ProSeries spit out a DC K-1 Equivalent for each owner. In my thinking DC was paid a franchise tax but no income tax - yet.

[rbynaker]

Hopefully Susan will pop by and confirm.   IMO, a MD resident would owe no (additional) tax to DC and would likely not even have a filing requirement.  The entity paid the tax via the D-30.  That tax should have been deducted at the entity level (but maybe not until next year if cash basis) so it doesn't even count against your $10K SALT limit.

I'm not sure why PS would even generate a DC K-1, I'm curious as to what Lacerte does in these circumstances.

[sjrcpa]

Rick is correct. Client can get a credit on the MD return for tax paid to DC.

[sjrcpa]

I think there may be DC K-1s in Lacerte but I think I have managed to kill those when a D-30 is filed,

[rbynaker]

Oh nice.  I forgot that MD gives a credit for DC franchise taxes.  VA does not.  So maybe the DC K-1 helps to give you the numbers to use on the MD return for the OSC?  I'd have to think it through and my brain is pretty much mush at this point.

So David, are you good to go on this one?

[sjrcpa]

"So maybe the DC K-1 helps to give you the numbers to use on the MD return for the OSC?"

Yes. But the DC K-1 looked clunky or something so I just add a statement to the federal K-1.

[dascpa]

Since 1065 paid DC taxes I will treat all on the 1065 as a Federal deduction. It is a MD add back since state taxes are not allowed as a state expense. 

On the individual MD I will report 100% to resident state and ignore DC K-1 that was printed. There is no DC filing at the individual level. Just not sure why DC K-1 printed. 

Bottom line DC collects franchise tax only  No income tax  

I hope I understood you all. And thanks. 

[jfarmercpa]

Thank you!  I have been searching all over for this question/answer