1

federally now include all factors under one parent company and are subject to only one minimum fee at the parent company level.

The minimum fee is computed on M8A, which is on page 3 of Form M8.

File ElectronicallyOptions are available to electronically pre‑pare and file your S corporation 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 M8, complete federal Form 1120S and supporting sched‑ules. You will need to reference them.

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

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

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

Due DateFile your return and pay the taxes payable as soon as possible after the end of the tax year, but no later than the due date for filing your federal income tax return.

Generally, the due date is:• Calendar year returns: March 15, 2019,

or• Fiscal year returns: the 15th day of the

third month after the end of your tax year.

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

Extension of Time to FileAll S corporations are granted an automatic six-month extension to file Form M8, 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

2018 S Corporation Form M8 InstructionsS Corporation Information

Websitewww.revenue.state.mn.usPhone651‑556‑3075Emailbusinessincome.tax@state.mn.usWe provide our publications in other formats upon request to persons with dis-abilities.

ContentsGeneral Information . . . . . . . . . . . . . 1–3

Filing Requirements . . . . . . . . . . . . . 1Due Date . . . . . . . . . . . . . . . . . . . . . . 1Payment Options . . . . . . . . . . . . . . . 2Filing Reminders . . . . . . . . . . . . . . 2-3

M8 Instructions . . . . . . . . . . . . . . . . . 4–6Frequently Asked Questions . . . . . . 6

M8A Instructions . . . . . . . . . . . . . . . . 7–8KS Instructions . . . . . . . . . . . . . . . . . 9-12Nonconformity Adjustment . . . . . . 13-22

What’s New for 2018Federal AdjustmentsUnder 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 andAirway Extension Act of 2017 (Pub.L. 115‑63),

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

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

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

Because Minnesota has not yet adopted these federal changes, adjustments must be made to correctly determine your Minnesota taxable income. Use the new nonconformity Schedule KSNC to calculate any adjustments needed for your return.

Tax Credit for Owners of Agricultural AssetsOwners 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 de-ferred foreign incomeA new checkbox was added to the top of [indicate location of checkbox]. Federal law changes enacted in 2017 require U.S. share‑holders 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 fed‑eral return. This includes DFI reported for taxable year 2018 or any prior year.

Filing RequirementsCorporations doing business in Min-nesota that have elected to be taxed as S corporations under section 1362 of the Internal Revenue Code (IRC) must file Form M8.

Who Must FileAny corporation with a valid federal elec‑tion under IRC section 1362 is considered an S corporation for Minnesota purposes.

The entire share of an entity’s income is taxed to the shareholder, whether or not it is actually distributed. Each shareholder must include their share of income on their tax return. However, the S corporation taxes and minimum fee are paid by the entity.

A C corporation is required to file Form M4, Minnesota Corporation Franchise Tax, instead of Form M8.

Minimum FeeAn S corporation is subject to a minimum fee if the sum of its Minnesota source prop‑erty, payroll and sales or receipts is at least $990,000. S corporations that file as QSSS

Continued

2

General Information (continued)

Payment OptionsIf you’re required to pay any Minnesota business tax electronically, you must pay all taxes 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.

than the Minnesota automatic six-month ex‑tension, 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 the next page for details.

PaymentsThere are four types of tax payments an S corporation can make — extension, esti-mated tax, tax return and amended return payments. You can pay electronically, by credit or debit card or by check. (See Pay‑ment Options to the right.)

Note: If you’re currently paying electroni-cally using the ACH credit method, continue 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 instructions for lines 16 and 17 on pages 4 and 5).

If you’re filing after the regular due date, you can avoid penalties and interest by making an extension payment by the regular due date. See Payment Options on this page. If you’re paying by check, go to www.revenue.state.mn.us to create a voucher to print and submit with your check.

Estimated Tax PaymentsAn S corporation must make quarterly estimated tax payments if the sum of its estimated S corporation taxes, minimum fee, nonresident withholding and composite income tax for all nonresident shareholders electing to participate in composite 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 S cor‑poration taxes/minimum fee, composite income tax, and/or nonresident withholding, include all in the same quarterly payments.

To make an estimated payment, see Payment Options above. If you’re paying by check,

visit our website to complete and print a payment voucher to send along with your check.

For additional information, see the S Cor-poration Estimated Tax instructions.

Tax Return PaymentIf line 19 of Form M8 shows an amount due, you must make a tax return payment (see Payment Options above). If you’re not required to pay electronically, you may complete and print a payment voucher on our website to send along 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.

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 Minnesota return.Continued

3

General Information (continued)

Composite Income TaxAn S corporation may pay composite Min‑nesota income tax on behalf of its nonresi‑dent shareholders who elect to be included in lieu of each shareholder filing his or her own Minnesota return. The electing individuals must not have any Minnesota source income other than the income from this S corporation and other entities electing composite filing.

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

If you are paying composite income tax for your electing shareholders, check the box for composite income tax on the front of Form M8 and see the line 3 instructions on page 4.

Nonresidents included in the composite income tax are not subject to the nonresi‑dent withholding requirements (see the next section).

Nonresident WithholdingS corporations are required to withhold Minnesota income tax for a nonresident shareholder if the shareholder:

• 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 S corporation; and

• has income that was not generated by a transaction related to the termination or liquidation of the S corporation in which no cash or property was distributed in the current or prior taxable year.

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

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.

An S corporation is an entertainment entity if it is paid compensation for entertainment provided by entertainers who are sharehold‑ers. An entertainer includes, for example, a musician, singer, dancer, comedian, thes‑pian, 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 M8.

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 shareholders are required under state law so the department can determine the share‑holder’s correct Minnesota taxable income and verify if the shareholder has filed a return and paid the tax. The Social Security numbers of the shareholders are required under M.S. 289A.12, subd. 13.

Assembling Paper ReturnsArrange your Minnesota schedules in the order they were completed and place them behind your Form M8. KS Schedules should be sorted with the largest share of Minnesota source income first. Include KSNC Schedules behind the KS that it re‑lates. 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 your Form M8 and all completed Minnesota and federal forms and schedules using a mailing label (below).

If you do not use the label, mail your forms to:

Minnesota S Corporation Income Tax Mail Station 1770 St. Paul, MN 55145-1770

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 M8X 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 re‑turn with your amended Minnesota return.

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

PLEASE 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

ALIGNWITH

UPPERRIGHT

CORNER

ALIGNWITH

LOWERRIGHT

CORNER

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

THIS POSITIVE PREPARED FOR: COURTESY REPLY

MINNESOTA REVENUES CORPORATION TAXMAIL STATION 1770SAINT PAUL MN 55145-1770

TO BE USED ONLY WITH FIM - A (Courtesy Reply Mail)AND ZIP CODE: 55145-1770 DP=99 CK=7

(c) 1989-2010 Envelope Manager version 3.021.005. Created September 15, 2010 10:08 AM

Use Envelope Manager's DAZzle Designer to create a complete courtesy or business reply mail artwork in minutes!

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PLACEMENT: Special care also must be taken to ensure FIMs andbarcodes are placed properly on the mail piece. Improper size orplacement ensures the mail piece will not meet USPS regulations anddefeat their purpose of automation compatibility.

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S Corporation Tax Mail Station 1770 St. Paul, Minnesota 55145-1770

Use this mailing label on your own envelope to mail your Form M8 and attachments. (Cut on the dotted line and tape to your envelope.)

Use a Mailing Label if Filing a Paper Return

4

Completing Form M8Before you complete Form M8, you must complete the following; you will need to reference them:

• Federal Form 1120S and supporting schedules, and

• Schedule KS for each nonresident shareholder and to any Minnesota shareholder who has adjustments to income (see page 9).

Check BoxesInitial Return. If this is the S corporation’s first return filed in Minnesota, check the box on the front of the form.

Composite Income Tax. If you are paying composite income tax for your electing shareholders, check the box for composite income tax on the front of your return and see the instructions for line 3.

Financial Institutions. If you are a finan‑cial institution electing to be taxed as an S corporation for federal purposes, check the box on the front of the form.

Qualified Subchapter S Subsidiary (QSSS)If you are including a qualified subchapter S subsidiary (QSSS) on this return, check the box on the front of your Form M8.

Out of Business (final return). If the S corporation is out of business and/or is not required to file Form M8 in future years, check the “Out of Business” box on the front of the Form M8.

If you checked the “S election termination” box on your federal Form 1120S, you must attach a copy of your federal return to your Form M8.

Installment Sale of Pass-through Assets or Interests. You are required to check the “Installment Sale of Pass-through Assets or Interests” box if the entity:

1) executed an installment sale, after December 31, 2016, of S corporation stock or partnership interests being reported on Form 6252; or

2) executed an installment sale, after December 31, 2016, of S corporation assets and is reporting the sale on Form 6252; or

3) owns an interest in an S corporation, partnership, or trust reporting installment sale gains on line 7 of schedule KPI, KS, 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 KS to report installment sale information to your shareholders.

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

Corporate Partners: When complet-ing Form M8 and Schedules KS, 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).

M8, Line 1—S Corporation TaxesEnter the total of the following S corpora‑tion taxes on line 1, and check the applica‑ble boxes to indicate the tax types included. Show the detail for each type of tax and the percentage apportioned to Minnesota. Mul‑tiply that amount by 9.8 percent (.098)—the corporate tax rate—to determine your Min‑nesota tax. For each tax, enclose a separate schedule showing your computation.

• Determine the tax on the Minnesota portion of passive income subject to federal tax. Enclose a copy of the federal schedule used to figure your federal tax.

• Determine the tax on the Minnesota por‑tion of recognized built‑in gain and net capital gain subject to federal tax.

• If the S corporation is paying the LIFO recapture tax (figured for the last year the corporation was a C corporation) over a four‑year period, include this year’s installment.

M8, Line 2—Minimum FeeComplete M8A of Form M8 to determine the minimum fee to enter on line 2. See the M8A instructions beginning on page 7.

M8, Line 3—Composite Income TaxTo determine line 3, you must first figure the amount of composite tax attributed to each electing shareholder. See the instruc‑tions for line 33 of Schedule KS on page 11.

Add the composite income tax attributed to all electing shareholders (the total of lines 33 from all KS schedules), and enter the result on line 3 of Form M8.

M8, Line 4—Nonresident Withhold-ingTo determine line 4, you must first figure the amount to withhold for each nonresi‑dent shareholder. See the instructions for line 34 of Schedule KS on page 11.

Add the withholding required for all non‑resident shareholders (the total of lines 34 from all KS schedules), and enter the result on line 4 of Form M8.

If you received a signed and dated Form AWC, Alternative Withholding Certificate, from one or more shareholders, check the box provided on line 4 of Form M8. You must include the certificate(s) when you file your return.

M8, Line 6—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.

Enter the amount of the credit that is being claimed directly by the S corporation and not passed through to the shareholders.

Line 6 cannot exceed the total of S corpora‑tion taxes and the minimum fee (sum of lines 1 and 2).

M8, Line 7—Tax Credit for Owners of Agricultural AssetsIf you received a credit certificate from the Minnesota 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 7.If you have multiple credits, enter the certificate number your partnership received directly from the Rural Finance Authority within the certificate number box. If you have 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 all credit amounts on Line 7.

M8, Line 10—Minnesota Nongame Wildlife FundYou can help preserve Minnesota’s rare and endangered animals and plants by donating to this fund. Your donation will be added to your total tax and will decrease your refund or increase your balance due. Monies do‑nated are deductible the following year.

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

M8, Line 12—Enterprise Zone CreditIf your business has been certified and approved by the Minnesota Department of Employment and Economic Development (DEED) as employment property in an en‑

Continued

5

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 23, 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 principal officer of the corporation.

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 S corporation, 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.

Completing Form M8 (continued)

You may also owe an additional charge if the sum of lines 1 and 2 (less any credits on lines 10 through 11), composite income tax on line 3 or nonresident withholding on line 3, is more than $500.Complete Schedule EST, Additional Charge for Underpayment of Estimated Tax, to determine the additional charge for underpaying estimated tax. Compute the underpayment charge separately for the S corporation taxes/minimum fee and for each nonresident shareholder who has $500 or more of either composite income or nonresident withholding tax.

Enter the total charge, if any, on line 16. Enclose the schedule with your return.

M8, Line 19—Amount DueAdd lines 15 through 18. This is the amount of tax you owe. Be sure to check the ap‑propriate box on line 19 to indicate your method of payment. See Payment Options on page 2.

M8, Line 20—OverpaymentIf line 14 is more than the sum of lines 11 and 18, subtract line 11 and line 18 from line 14.

If you have an overpayment, 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.

M8, Line 21—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 20 you want to apply toward your 2019 estimated tax.

M8, Line 22—RefundIf you want to request your refund to be direct deposited into your bank account, complete line 23. Your bank statement will indicate when your refund was deposited to your account. Otherwise, skip line 23 and your refund will be sent to you in the mail.

M8, Line 23—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. Continued

terprise zone, enter the credit that is being claimed directly by the S corporation and not passed through to the shareholders.

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

M8, Line 13—Estimated Tax and Extension PaymentsEnter your total prepayments, including:• your total 2018 estimated tax payments

made in 2018 and 2019, paid either elec‑tronically or with a payment voucher

• any 2018 extension payment, paid electronically or with a payment voucher, that was made by the regular due date when filing under an extension; or

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

M8, Line 16—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 16.

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 15.

Late Filing. If you file 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 15.

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 15.

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.

M8, Line 17—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

M8, Line 18—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 can find your bank’s routing number and account number on the bottom of your check.

6

Completing Form M8 (continued)

Q: I filed federal Form 2553 with the IRS to elect to become an S corporation. Do I also need to file a similar form with Min-nesota?

A: No. Once you have filed Form 2553 with the IRS and it has been approved, Minnesota automatically accepts your S corpo‑ration status.

Q: When determining composite income tax, can I reduce the taxable income by a prior year’s net operating loss?

A: No. Only the current year’s income is included when determin‑ing composite income tax.

Q: If the S corporation does business in a reciprocity state (Mich-igan or North Dakota) and the sole shareholder is a Minne-sota resident, does the shareholder have to file a return in the other state?

A: Yes. The shareholder would be required to file a return in the other state. The income earned by an S corporation does not qualify for exemption under the reciprocity agreements.

Q: What information will I need to pay taxes electronically?A: To pay electronically online or by phone you will need your

user name, password and your bank routing and account num‑bers. When paying electronically, you must use an account not associated with any foreign banks.

Frequently Asked Questions

7

Completing Form M8A Complete M8A to determine your Minne-sota source income and minimum fee.

Apportionment Factor Minnesota completed the transition to 100% sales apportioned state in 2014. For tax period 2014 and after please use the single factor formula not the three factor formula.

Under Minnesota Statute, the minimum fee still takes into account your Minnesota portioned 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 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 single‑sales factor formula does not properly and fairly reflect your Minnesota income, and that the alternative formula you have chosen does.

Qualified Subchapter S-SubsidiaryThe S corporation parent must now cal‑culate and report one minimum fee for all QSSS. The S corporation parent must also include all assets, liabilities, income, deduc‑tions, credits, and apportionment factors in‑cluding property, payroll, and sales factors, from all QSSS and federally disregarded QSSS under one M8 return.

Property FactorIf you are not required to complete federal Schedule L (Form 1120S), you may want to do so to determine the property factor. Enclose the completed federal Schedule L (Form 1120S) or a copy of the S corpora‑tion’s balance sheet with your return.

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 considered.

M8A, lines 1–3In column A, lines 1a - 1d, enter the total property items for your entire business in Minnesota.

Line 1a. Add the beginning and ending year inventories, divide by two and enter the result on line 1a. This is your average value of inventory for your business for the tax year.

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

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

Line 1d. For financial institutions only. See the apportionment instructions on page 8.

Line 2. Rented property is based on the actual rent you paid for property (land, buildings, equipment, etc.) used during the tax year. The rents you receive are included in the sales factor.

To determine the value of rented property, multiply the rent paid for the tax year by eight.

Payroll FactorM8A, line 4In Column A, enter your total payroll paid or incurred in Minnesota, for the tax year in connection with the business.

Sales FactorM8A, line 5The 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).

Financial Institutions: See Apportionment for Financial Institutions on page 8.

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 a purchaser within Minnesota and the S corporation is taxed in this state, regardless of the f.o.b. point or other condi‑

tions of sale, or the ultimate destination of the property.

Tangible personal property delivered to a common or contract carrier or foreign ves‑sel 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 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 traveled 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 Min‑nesota if the purchaser uses the property, or rights in the property, to conduct business within this state, regardless of the location of the purchaser’s customers.

If the property is used in more than one state, then the sales or royalties must be Continued

8

Completing Form M8A (continued)

apportioned to Minnesota pro rata based on the portion of use within this state.

If you cannot determine the portion of use in Minnesota, then exclude the sales or royalties from both the numerator and denominator 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.

Minimum FeeM8A, lines 6-9S corporations are subject to a minimum fee if the sum of its Minnesota source prop‑erty, payroll and sales or receipts is at least $990,000.

M8A, 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 6 of M8A. 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 1–5.

Subtract: • Any amounts included on lines 3, 4 or 5

that represent your share of the factors passed through from partnerships.

• For financial institutions only, the amount of intangible property listed on line 1d.

• The reduction of property owned for a short taxable year. To determine, multiply the sum of line 1 and line 2 by a fraction: the numerator is 365 minus the number

of days in the tax year; the denominator is 365.

Enclose a schedule showing the computa‑tion and pass‑through information of any adjustments listed on M8A, line 7.

Financial institution means any of the following: 1) Any corporation or other business entity regis‑

tered in one of these ways: • under state law as a bank holding company • under the federal Bank Holding Company

Act of 1956, as amended • as a saving.sand loan holding company under

the federal National Housing Act, as amended

2) Any regulated financial corporation; or a na‑tional bank organized and existing as a national bank association pursuant to the provisions of U.S.C., title 12, chapter 2.

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

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

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

6) Any agency or branch of a foreign depository as defined under United States Code, title 12, section 3101.

7) Any corporation or other business entity that is more than 50 percent owned, directly or indirectly, by any person or business entity described in clauses (1) to (6), other than an insurance company taxable under chapter 2971.

8) A corporation or other business entity that derives more than 50 percent of its total gross income for financial accounting purposes from finance leases. For the purposes of this clause, “gross income” means the average from the current tax year and immediately preceding two years and excludes gross income from incidental or occasional transactions. For purposes of this clause, “finance lease” means any lease transac‑tion that is the functional equivalent of an exten‑sion of credit and that transfers substantially all the benefits and risks incident to the ownership of property, including any direct financing lease or leverage lease that meets the criteria of Fi‑nancial Accounting Standards Board Statement No. 13, accounting for leases, or any other lease that is accounted for as financing by a lessor under generally accepted accounting principles.

9) Any other person or business entity, other than an insurance company taxable under chapter 2971, that derives more than 50 percent of its gross income from activities that an entity de‑scribed in clauses (2) to (6) or (8) is authorized to transact. For the purposes of this clause, gross income does not include income from nonrecur‑ring, extraordinary items.

Financial institutions complete M8A the same way as other S corporations, except for lines 1d and 5.

M8A, Line 1d—Property FactorThe property factor for financial institutions includes certain intangible property.

Apportionment for Financial InstitutionsThe following are considered Minnesota property:• coin and currency located in Minnesota• lease financing receivables, to the extent the

property is located in Minnesota• secured loans if real or tangible personal prop‑

erty is located in Minnesota• unsecured (or secured by intangible property)

consumer loans to Minnesota residents• unsecured (or secured by intangible property)

commercial loans if the proceeds are applied in Minnesota

• credit card receivables if the fees and charges are regularly billed to Minnesota

• receivables from merchant discount income if the merchant is located in Minnesota, and

• securities, money market instruments and sec‑ondary market assets apportioned to Minnesota, in the ratio of Minnesota deposits to all deposits if a regulated financial institution, or in the ratio of Minnesota gross business income to total gross business income if unregulated.

Secondary market assets are obligations that are not originally solicited or entered into by the owner. They include secured, consumer and com‑mercial loans and lease financing, credit card, and merchant discount receivables.

M8A, Line 5—Sales or Receipts FactorFinancial institutions use a receipts factor instead of a sales factor.

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

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

tangible personal property located in Minnesota• interest on consumer loans not secured by real

or tangible personal property if the borrower is a Minnesota resident

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

• merchant discount income if the merchant is located in Minnesota

• receipts from travelers checks if purchased in Minnesota

• receipts from credit cards if regularly billed in Minnesota

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

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

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

• receipts from the performance of services if the services are received in Minnesota.

9

Completing Schedule KSComplete and provide Schedule KS to each nonresident shareholder and any Minnesota shareholder who has adjust-ments to income.

PurposeAn S corporation must provide each non‑resident shareholder, and any Minnesota shareholder with adjustments to income, with enough information for them to com‑plete a Minnesota income tax return and determine their correct Minnesota tax.

Schedule KS is used to provide sharehold‑ers with the information they need to file a Minnesota income tax return. The sched‑ule shows each shareholder their specific share of the S corporation’s income, credits and modifications. Be sure to provide the shareholder a copy of both the front and back of the completed Schedule KS and the instructions.

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

You must enclose with your Form M8 cop‑ies of the Schedules KS and attachments issued to your shareholders and copies of your federal Schedules K and K-1.

If you are required to amend your federal S corporation return or you have been audited by the IRS, you must file Form M8X and Schedules KS, if appropriate. See Reporting Federal Changes on page 3.

Line InstructionsEnter the name, address and identifying number of the shareholder. A $50 penalty will be assessed for each incorrect tax ID number used for a shareholder after being notified by the department that the number is incorrect.

Calculate lines 1–19 the same for all resident and nonresident shareholders. Calculate lines 20-34 for nonresident shareholders only.

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

All Shareholders— lines 1–19KS, line 1Determine the interest you received from all 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 municipal bonds.

Enter the shareholder’s pro rata share of this amount on line 1.

KS, line 2Determine the state income tax deducted in arriving at ordinary income or net rental income of the S corporation.

Do not include the minimum fee, the built-in gains tax, capital gains tax, LIFO recapture tax or excess net passive income tax in this amount.

Enter the shareholder’s pro rata share of this amount on line 2.

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

Enter the shareholder’s pro rata 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 KS. Do not include these expenses on line 3.

Enclose an explanation or statement show‑ing your computation.

KS, 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 shareholders must add back to Minnesota 80 percent of the difference between the expensing allowed for federal and for state tax purposes. Your shareholders will be al‑lowed 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 S corporation must complete a Minnesota NC 4562 (see the Worksheet for line 3a – Section 179

Expensing from the M8 Nonconformity Ad‑justment Instructions). You must adjust your Minnesota allowable section 179 deduction on Schedule KSNC due to the difference between federal and Minnesota thresholds, limitations, and qualifying property.

Use the Minnesota NC 4562 that you com‑pleted using the M8 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 shareholder’s distributive share of the amount on line 12 of the Minnesota Form 4562 on line 4 of Schedule KS.

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

Before completing the below steps, the S corporation must complete a Minnesota NC 4562 (see the Worksheet for Line 2a - Bonus Depreciation from the M8 Nonconformity Adjustment Instructions).

Follow the steps below to determine the shareholder’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 shareholder’s percentage of ownership interest . . . . . . . . . .

Enter the result from step 2 on line 5 of the shareholder’s Schedule KS.

Continued

10

Completing Schedule KS (continued)

Federal bonus depreciation subtraction. For five years following the addback year, your shareholders 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.

KS, line 6Enter the shareholder’s pro rata 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.

KS, line 7aEnter shareholder’s share of the gross profit from any installment sale of S corporation stock or assets, or partnership interests or assets executed after December 31, 2016.

If the sale was completed by the entity completing this schedule, the total gross profit to be allocated amongst shareholders 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 trust receives installment payments from multiple sales executed after Decem‑ber 31, 2016, attach a schedule to Form M3 detailing the different sales and distributive allocations.

KS, line 7bEnter shareholder’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 reported to this entity on all Schedules KF, KS, and KPC.

KS, line 8Enter the amount from the Schedule KSNC, line 27. Use this amount in calculating composite tax and nonresident withholding. If the amount from Schedule KSNC, line 27 is negative, enter it as a positive number on Line 10.

KS, line 9Interest earned on certain direct federal obli‑gations 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. gov‑ernment, such as savings bonds and treasury notes, that are held directly by the S corpora‑tion. Do not include obligations where the U.S. government is only a guarantor. Be sure to subtract any investment interest and other expenses you deducted on the federal return that relate to this income.

Enter the shareholder’s pro rata share of this amount on line 9.

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

KS, line 11Enter the shareholder’s pro rata share of the 2018 credit for increasing research activities that is passed through to the shareholders.

If the business qualifies, the credit cannot be claimed by the S corporation and the full credit must be passed through to the shareholders.

KS, line 12Enter the Shareholder’s pro rata share of the Tax Credit for Owners of Agricultural Assets that is passed through to the shareholders.

If the shareholder has multiple credits, enter the certificate number your S corporation received directly from the Rural Finance Authority within the certificate number box. If the shareholder has multiple credits and received all credits from other pass‑through entities, enter the certificate number relating to the largest credit amount within the certif‑icate number box. Subtotal the shareholder’s share of all credit amounts on Line 12.

KS, line 13Enter the shareholder’s share of the Historic Structure Rehabilitation Credit based on the shareholder’s share of the S corporation’s assets, or as specifically allocated in the S corporation’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.

KS, line 14Enter the shareholder’s pro rata share of the Employer Transit Pass Credit that is passed through to the shareholders.

KS, line 15Enter the shareholder’s pro rata share of the Enterprise Zone Credit that is passed through to the shareholders.

KS, 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 shareholder’s pro rata 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.

KS, 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 shareholder’s pro rata share of the aggregate amount of gross income within the meaning of section 613(a) from all oil, gas and geothermal properties that was received or accrued during the tax year.

Continued

11

Completing Schedule KS (continued)

KS, 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 shareholder’s pro rata share of any deductions allocable to oil, gas and geothermal properties. Do not include any deductions for nonproductive wells.

KS, line 19In the case of oil wells and other wells of nonintegrated oil companies, enter the shareholder’s pro rata 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 Shareholders Lines 20-34KS, line 20Enter the shareholder’s pro rata share of the S corporation’s Minnesota source gross income. Minnesota source gross income is the total amounts apportioned to Minnesota included on line 3, 4, and 5 (other than losses) of federal Form 1120S; lines 18a, 19, and 20 (other than losses) of federal Form 8825; line 9 of Schedule F (1040); lines 3a, 4, 5a, 6, 7, 8a, 9, and 10 of Sched‑ule K (1120S).

KS, lines 21–30From the nonresident shareholder’s federal Schedule K-1 (1120S), enter the Minnesota portion of the amounts on lines 21 through 30.

On line 29, include the Minnesota portion of any items from the Schedule K-1 that are not specifically labeled on lines 21-28.

Line 30 refers to the Minnesota apportioned amount of federal section 179 expense from the federal Schedule K-1, not the amount calculated on line 4 for the Minnesota ad‑dition.

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

Composite Income Tax and Nonresident WithholdingKS, line 32Follow the steps below to determine line 32:

1. The difference between line 4 of Schedule KS (M8) and the shareholder’s section 179 deduction from Minnesota NC 4562 line 12. . . . . . . . . . .

2. Federal bonus depreciation amount from line 5 of the share‑ holder’s Schedule KS . . . . . .

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

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

apportionment factor from line 31 of Schedule KS . . . . .

8. Combine lines 21‑29 of the shareholder’s Schedule KS . .

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

enter one-fifth of the shareholder share of the section 179 expensing that was added back in a year the shareholder elected to be included in composite tax or nonresident withholding was required . . .

11. To the extent allowed by law, enter one-fifth of the federal bonus depreciation that was added back in a year the shareholder elected to be included in composite income tax or nonresident withholding was required . . .

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

13. Add steps 10, 11, and 12 . . . 14. Multiply step 13 by the

apportionment factor from line 31 of the shareholder’s Schedule KS . . . . . . . . . . . . .

15. Enter amount from line 30 of shareholder’s Schedule KS

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

17. Subtract step 16 from step 9 .

Enter the result from step 17 on line 32 of the shareholder’s Schedule KS. This amount is the shareholder’s adjusted Min‑nesota source distributive income.

KS, line 33Composite Income TaxNonresident shareholders must pay tax if their Minnesota source gross income is more than the minimum filing requirement for the year ($10,650 for 2018).

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

Skip this line if the nonresident shareholder did not elect the S corporation to pay com‑posite income tax on his or her behalf.

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

1. Multiply line 32 of Schedule KS by 9.85% (.0985) . . . . . . . .

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

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 shareholder. Enter this amount on line 33 of the shareholder’s Schedule KS and check the box to indicate the shareholder’s elec‑tion to be included.

If the shareholder elects to be included in composite income tax but has zero tax due, enter zero on line 33. Even though the amount may be zero, be sure to check the box to indicate the election.

Once you have completed all the KS sched‑ules for your electing nonresident share‑holders, add the amounts on line 33 of all the schedules and enter the total on line 3 of Form M8. This is the amount of compos‑ite income tax you are required to pay on behalf of your electing shareholders.

KS, line 34Nonresident WithholdingNonresident shareholders who are not included in the composite income tax may be subject to withholding. See Nonresident Withholding on page 3 to determine if your nonresident shareholders are subject to Minnesota withholding.

Continued

12

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

1. Multiply line 32 of Schedule KS by 9.85% (.0985) . . . . . . . .

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

3. Subtract step 2 from step 1 . . .

The result in step 3 is the amount you are required to withhold from the nonresident shareholder, unless the individual sub‑mits 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 34 of the shareholder’s Schedule KS and also on line 4 of Form M8. Be sure to enclose a copy of the certificate when you file your return.

Completing Schedule KS (continued)

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 shareholders that they must include their Schedule KS when they file their Form M1 to claim the Min‑nesota withholding. If the schedule is not included, the department will disallow the withholding and assess the tax or reduce their refund.

13

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 KSNC for your shareholders. Enter the shareholder’s pro rata share of each line adjustment on Schedules KSNC.

Who Must File Schedule KSNCYou must distribute nonconformity adjust‑ments to your shareholders if any of the federal provisions included in the following federal acts affect the amount of taxable income reported on your 2018 federal Form 1120S, U.S. Income Tax Return for an S Corporation:

• 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 KSNC for your shareholders’ 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 a 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 M8 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, & Dis-tilled 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.

14

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 Minnesota 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.

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 shareholder’s pro rata share of the

amount on Schedule KSNC 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 noncon‑formity 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 deprecia‑tion amount on Line 2b. Step 8 – The TCJA increased the percentage of bonus depreciation to 100% of the depreciable base. For Min‑nesota purposes, the percentage is 40% of the depreciable base for assets placed in service after 2017. Enter the amount of federal bonus depreciation claimed that exceeds 40% of the depreciable base.Step 10 – Enter the amount of public utility property and vehicle dealer property for which you are claiming bonus depreciation under 2016 IRC. If you do not choose to claim bonus depreciation for this type of property, enter zero. Step 11 – Enter 40% of the depreciable basis of any property for which you are claiming bonus depreciation for Minnesota purposes. You may only claim bonus depreciation for Minnesota purposes if all of the 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 sharehold-er’s pro rata share of the amount on Schedule KSNC line 2a. Step 16 – Enter the total Federal bonus depreciation from any entity from which you have received a Minne‑sota 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 Sched‑ule 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 shareholder’s Minnesota modification on Schedule KS.

15

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

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

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

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

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

Net the amount of adjustments above on line 3b.

Line 3cThis line is intentionally left blank.

Line 4 – Other Depreciation Modifica-tions (TCJA Sec. 13202, 13203, 13204, 13205)Line 4a. If 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—

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 shareholder’s pro rata

share of the amount on Schedule KSNC 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 nonresi‑dential 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 – Sec‑tion 179 Expensing (up to Minnesota limitations).For amounts that exceed the Minnesota NC 4562 line 5 limitation, you may use any MACRS depreciation method allowable under 2016 IRC.Report your Minnesota cost allowable under 2016 IRC section 179 on line 6 and 7 of Minnesota 4562NC.Enter the amount from line 12 of the Minnesota NC 4562 on Step 13 of this worksheet.

16

Nonconformity Adjustment Instructions (continued)

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

• $16,000 for the second year,

• $9,600 for the third year, and

• $5,760 for each later taxable year in the recovery period.

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

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

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

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

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

Recovery Period for Real Property Short-ened (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 deprecia-tion 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 Short-ened (TCJA Sec. 13204) and ADS for Elect-ing 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 1120S.

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

Continued

17

Nonconformity Adjustment Instructions (continued)

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.

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 Treat-ment (TCJA Sec. 13303)Use Minnesota Schedule LK to calculate your nonconformity adjustment for like‑kind exchange treatment of personal prop‑erty. The Schedule LK should be completed at the S corporation 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 nonconformity adjustments pro rata to each shareholder on Schedule KSNC.

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 adjustments 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 Trans-portation 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 Provi-sions (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

Continued

18

which the taxpayer is a member with respect to any such legislation or proposed legislation which is of direct interest to the taxpayer and to such organization, or

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

If you incurred expenses described in items (1) or (2) that qualify as a deduction under 2016 IRC section 162, and do not qualify as a deduction under 2018 IRC, enter the amount as a negative number on line 10.

Prohibition on Cash, Gift Cards, and Other Nontangible Personal Property as Employ-ee 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—

Nonconformity Adjustment Instructions (continued)

(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 Na-tive 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.Continued

19

Line 15a – Section 965 Deferred For-eign Income (TCJA Sec. 14103) Under the Tax Cuts and Jobs Act, U.S. shareholders are required to pay a fed‑eral transition tax on the untaxed foreign earnings of certain specified foreign corporations as if those earnings had been repatriated to the United States (referred to as deferred foreign income (DFI)). For federal income tax purposes, these deemed repatriated amounts are subject to a transi‑tion tax for the taxable year of the taxpayer in which the foreign corporation’s taxable year ends.

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

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 Repa-triated 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 Intan-gible 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 De-rived 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.

Nonconformity Adjustment Instructions (continued)

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

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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.

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, 13312, 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.

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

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

If you include the above contributions to capital, and the contributions are excluded under 2016 IRC, enter the amount as a negative number on line 22.

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

Nonconformity Adjustment Instructions (continued)

Under 2016 IRC, a corporation that sold publicly traded securities can elect to post‑pone all or part of the gain on that sale if it bought common stock or a partnership inter‑est in a specialized small business invest‑ment 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 (including ex‑tensions) 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 election, the corpo‑ration may make the election on an amended return filed no later than 6 months after the original due date (excluding extensions). Write “Filed pursuant to TCJA Section 13313” at the top of the Minnesota 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 patented)• secret formal or processTherefore, these assets are no longer eligible for federal capital gain treatment.Continued

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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.

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 Part-nerships (TCJA Sec. 13504)Enter the value from Schedule KPCNC 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 Premi-ums (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 below, enter the amount on line 23. If more than one provision listed below requires an adjustment, net the adjustments 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 Medi-cal 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.

Nonconformity Adjustment Instructions (continued)

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

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

If you claimed the energy credit relating to any of the above listed energy properties, adjust the energy property’s basis without regard to the 50% basis reduction required for energy property under the federal credit. Enter any adjustments to FTI as a result of this Minnesota change in basis on line 23.

Nonconformity Adjustment Instructions (continued)

Line 24 - Other Adjustments to Fed-eral 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 sharehold‑ers’ pro rata share on Schedules KSNC.

If the result is positive, also enter the number on Schedule KS, line 8 for your shareholders’ pro rata share of nonconfor‑mity adjustments. If the result is negative, enter it as a positive number on Schedule KS, line 10 for your shareholders’ pro rata share of nonconformity adjustments.