Ic 6-3-2-3.3 - "nonresident Partner"; Allocation to Partner's State of Residence or Commercial Domicile; Treatment as Business Income; Apportionment

Effective 1-1-2026.

     Sec. 3.3. (a) As used in this section, "nonresident partner" has the meaning set forth in IC 6-3-4-12(n).

     (b) For all taxable years beginning after December 31, 2025, in the case of an investment partnership:

(1) any qualifying investment partnership income that is distributable to a nonresident partner shall be allocated to the partner's state of residence (in the case of an individual, estate, or trust) or commercial domicile (in the case of any corporation or other entity) for purposes of section 2 of this chapter; and

(2) any qualifying investment partnership income that is distributable to a nonresident partner shall be treated as business income and apportioned as if such income had been received directly by the partner if such income is from investment activity:

(A) that is directly or integrally related to any other business activity conducted in this state by the nonresident partner (or another corporation or entity that is unitary with the partner);

(B) that serves an operational function to any other business activity of the nonresident partner (or another corporation or entity that is unitary with the partner); or

(C) where assets of the investment partnership were acquired with working capital from a trade or business activity conducted in this state in which the nonresident partner (or another corporation or entity that is unitary with the partner) owns an interest.

     (c) For purposes of this section, the following apply:

(1) If an entity is permitted to allocate qualifying investment partnership income under subsection (b)(1), the entity shall exclude the receipts derived from the investment partnership and attributable to the investment partnership income from the denominator of the sales factor in section 2(e) of this chapter.

(2) If an entity is required to treat qualifying investment partnership income as apportionable income, the entity's share of receipts from the investment partnership and attributable to the investment partnership shall be included in the denominator of the sales factor and attributed to the entity's state of domicile for purposes of section 2(e) of this chapter.

(3) For purposes of subsection (b)(2), a corporation or other entity shall be treated as unitary with the partner if the partner and the corporation or other entity would be required to be included in a combined income tax return under this article, determined as if all relevant entities are subject to tax under this article as corporations and are not corporations described in section 2.4 of this chapter. However, in the case of a partner and a corporate partnership, a unitary relationship shall be determined without regard to the corporate partner's percentage of ownership of the partnership.

(4) Nothing in this section shall affect the apportionment and allocation of income and receipts derived from partnerships other than qualified investment partnership income from investment partnerships.

(5) If a nonresident person, corporation, or other entity reasonably determines that it received qualified investment partnership income from an investment partnership and the partnership is determined to not be an investment partnership, the person, corporation, or entity shall be relieved of any penalty under IC 6-3-4-4.1, IC 6-5.5-7-1, or IC 6-8.1-10-2.1(b) resulting from the underpayment.

As added by P.L.230-2025, SEC.69.