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Withholding on Distributions and Composite Returns for Nonresident Shareholders, Partners, and Members of S-Corporations, Partnerships and Limited Liability Companies Tax FAQ - State of Georgia tax

Q. What code section and regulation provide guidance in this area?

A. Code Section 48-7-129 and Regulation 560-7-8-.34, Withholding on Distributions to Nonresident Members of Partnerships, S-Corporations, and Limited Liability Companies, provide guidance in this area.


Q. Are s-corporations, partnerships, and limited liability companies required to withhold 4% from the distributions paid or distributions credited to its nonresident shareholders, partners, or members under Georgia Code Section 48-7-129?

A. Yes.


Q. When an entity has met the withholding requirement for a nonresident shareholder, partner, or member, must the shareholder, partner, or member still file a Georgia income tax return?

A. Yes. The withholding does not relieve the shareholder, partner, or member of the requirement to file a tax return. The shareholder, partner, or member should attach to its return a copy of the withholding statement received from the entity, and claim credit on the return for the Georgia income tax withheld.


Q. Can the shareholder, partner, or member file estimated tax payments in order to relieve the entity from the responsibility of the withholding requirement?

A. No. The filing of estimated tax payments by the shareholder, partner, or member does not relieve the entity from the responsibility of the withholding requirement.


Q. Are distributions paid or distributions credited to shareholders, partners, or members who are exempt organizations subject to withholding?

A. Only if the distributions paid or distributions credited result in unrelated business taxable income to the exempt organization. Any distribution paid or credited to an exempt organization that is not related to the purpose for which the organization received exempt status is taxable as unrelated business taxable income under Georgia Code Section 48-7-25(c)(1). Thus, any distribution paid or distribution credited which results in unrelated business taxable income to an exempt organization as defined by IRC Section 512 will be subject to withholding. Distributions paid or distributions credited to an exempt organization that do not result in unrelated business taxable income are not subject to withholding.


Q. Are distributions paid or distributions credited to shareholders, partners, or members who are insurance companies subject to withholding under Georgia Code Section 48-7-129?

A. If the insurance company pays a tax to Georgia on its premium income, it is not subject to Georgia income tax and the withholding requirements under Georgia Code Section 48-7-129.


Q. A shareholder's, partner's, or member's distributions that were paid or credited total more than $1,000.00 per year, but its I.R.C. Section 179 deduction will make its Georgia taxable income less than this amount. Is withholding required?

A. Yes. Since the I.R.C. Section 179 deduction may be limited at the Federal level, withholding is required before the I.R.C. Section 179 deduction.


Q. Subsection (c) of Georgia Code Section 48-7-24 provides an exemption from Georgia income taxation for a nonresident member who receives income from a resident limited partnership or similar nontaxable entity which derives income exclusively from buying, selling, dealing in, and holding securities on its own behalf and not as a broker. Do the withholding requirements of Georgia Code Section 48-7-129 apply to distributions paid or distributions credited in this situation?

A. Withholding is not required in this situation.


Q. Does subsection (c) of Georgia Code Section 48-7-24 apply to a family limited partnership or similar nontaxable entity?

A. No. This subsection does not apply to a family limited partnership or similar nontaxable entity the majority interest of which is owned by one or more natural or naturalized citizens related to each other within the fourth degree of reckoning according to the laws of descent and distribution.


Q. Does Georgia allow the filing of a composite return for the nonresident shareholders, partners, or members of an s-corporation, partnership, LLC, or similar nontaxable entity?

A. Yes, use Form IT-CR. Note on the company's income tax return when it is filed that you are filing a composite return on behalf of the nonresidents. The 4% withholding requirement of Georgia Code Section 48-7-129 does not apply to nonresidents who are included on the composite return.


Q. Is it necessary to get pre approval before filing a composite return?

A. No prior approval is necessary.


Q. If a composite return is being filed on behalf of nonresident shareholders of an s-corporation, is it necessary to have the consent agreements attached to the corporate tax return (Form 600S)?

A. Yes. A consent agreement for each shareholder shall be filed by the corporation with its corporate tax return in the year in which the Subchapter "S" corporation is first required to file a Georgia income tax return. A consent agreement for each shareholder shall be filed by the corporation with its corporate return in the year in which the Subchapter "S" corporation is first required to file a Georgia income tax return.  For a Subchapter "S" corporation in existence prior to January 1, 2008, the consent agreement shall be filed for each shareholder in the first Georgia tax return filed for a year beginning on or after January 1, 2008. A consent agreement shall also be filed in any subsequent year for any additional nonresident who first becomes a shareholder of the Subchapter"S" corporation in that year.


Q. Must all nonresident shareholders, partners, or members be included on the composite tax return?

A. No, only those who elect to do so are included.. Withholding is required on distributions paid or distributions credited to any nonresident shareholders, partners, or members who are not included on the composite tax return.
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