Utah Partnerships with Resident Individual Partners May Have a Utah Tax Return Filing Requirement

In the past, partnerships owned 100% by Utah resident individual partners have not been required to file a Utah partnership tax return.  Beginning with the 2011 form instructions, the Tax Commission clarified that a partnership that is a pass-through entity taxpayer is required to file a Utah partnership tax return, even if all its partners are Utah resident individuals.

A pass-through entity is an entity whose items of income, deductions, and credits flow through to the tax returns of its owners via Schedule K-1 (partnerships, limited liability companies taxed as partnerships, S corporations, trusts, and estates).  A pass-through entity taxpayer is an entity that is an owner in another pass-through entity.  For example, Partnership B is a partner in Partnership A.  Partnership B is referred to as a “second tier partnership” and is classified as a pass-through entity taxpayer.  Partnership B is now required to file a partnership tax return even though all its partners may be Utah resident individuals.  This is true regardless of whether Partnership A withheld any Utah tax on the income allocated to Partnership B.