HAR §18-235-95. Partnership returns

(a) Filing returns. (1) In general. Except as provided in subsection (b) with respect to certain organizations excluded from the application of chapter 1 (subchapter K) of the Internal Revenue Code of 1986, as amended, and certain partnerships having no business in the State, an unincorporated organization defined as a partnership in section 761, IRC, (partnership defined), through or by means of which any business, financial operation, or venture is carried on, shall file a return for each taxable year as prescribed by the department. Every partnership engaging in trade or business, or having income from sources within the State, shall file a partnership return pursuant to section 235-95, HRS, and this section, regardless of the partnership’s principal place of business or the residency status of the partners. A partnership return shall be filed in the first year the partners formally agree to engage in joint operation, or in the absence of a formal agreement, the first taxable year in which the organization receives income or makes or incurs any expenditures treated as deductions for Hawaii income tax purposes. The partnership return shall include and state specifically: gross income of the partnership; allowable deductions; the names and addresses of all partners; and the amount of the distributive shares of income, gain, loss, deduction, or credit allocated to each partner. (2) Exception. Special election; in general. An unincorporated organization may elect to be excluded from the application of subchapter K if the organization is used for: (A) Investment purposes only and does not actively conduct business activity; (B) The joint production or use of property (including natural resources), but not for the sale of services or property which is produced; or (C) Underwriting, selling, or distributing a particular issue of securities by securities dealers for a short period of time. Any unincorporated organization excluded from the application of part of subchapter K shall file a Form N-20 and provide such information as the director of taxation or designee may require. (3) Making the election. If an unincorporated organization qualifies and elects to be excluded from the application of subchapter K, the following information must be attached to, or incorporated in, a properly executed partnership return in lieu of the usual tax information, in the first taxable year in which exclusion is desired: HRS §235-94 HRS §235-95 INCOME TAX LAW §18-235-95 235- 125 (Unofficial Compilation as of 12/31/2025) (A) The name or other identification and the address of the organization, together with information on the return; (B) The names, addresses, and identification numbers of all the members of the organization; (C) A statement describing the activities of the organization that qualify it for exclusion from section 761, IRC; (D) A statement that all members of the organization elect to be excluded from subchapter K; and (E) A statement indicating where a copy of the agreement under which the organization operates is available, or if the agreement is oral, from whom the provisions of the agreement may be obtained. Thereafter, if the election remains in effect, annual partnership tax returns need not be filed. (4) Failure to make election. If an unincorporated organization does not make the election as prescribed by this section, the organization shall nevertheless be deemed to have made the election if it can be shown from all the facts and circumstances that at the time of its formation, the members of the organization intended to secure exclusion from all of subchapter K, beginning with the first taxable year of the organization. Either of the following facts, although not conclusive, may indicate the requisite intent: (A) At the time of the formation of the organization, the members agree that the organization shall be excluded from subchapter K beginning with the first taxable year of the organization; or (B) The members of the organization owning substantially all of the capital interests report their respective shares of income, deductions, and credits from the organization on their respective income tax returns, making such elections as to individual items as may be appropriate, in a manner consistent with the exclusion of the organization from subchapter K beginning with the first taxable year of the organization. (5) Effect of election. An election to be excluded from subchapter K shall be effective, unless within ninety days after the formation of the organization, any member of the organization notifies the director of taxation that the member desires subchapter K to apply to the organization, and also advises the director that all other members of the organization have been notified of the change by registered or certified mail. As long as the organization remains qualified under section 761(a), IRC, the election is irrevocable. Application for permission to invoke the election must be submitted to the director. (6) When to file. Partnership returns, including returns filed by unincorporated organizations electing to be excluded from subchapter K, shall be filed on or before the twentieth day of the fourth month following the close of the taxable year of the partnership. The return shall be made on the form as prescribed by the department, and shall be for the taxable year of the partnership or unincorporated organization, irrespective of the partners’ taxable years. (7) Where to file. Partnership returns shall be filed with the director of taxation or designee in the district in which the principal place of business is located, or if the organization has no principal place of business in the State, then the return shall be filed with the director in Honolulu. (8) Accounting period. Where an organization, as described in federal Treasury Regulation section 1.761-2(a), has not adopted an accounting period, the organization’s taxable year shall be the calendar year as set forth in section 441(g), IRC. (b) Partnerships having no business in the State. (1) No partnership return required. A partnership carrying on no business in the State and deriving no income from sources within the State need not file a partnership return. However, even where a partnership has no business in the State and derives no income from sources within the State, if a resident partner receives distributions from the partnership subject to taxation under chapter 235, HRS, the partnership shall file a partnership return with the department unless the partnership elects to be excluded from subchapter K. A return of information filed by a resident partner shall constitute a filing by the partnership. (2) Returns required of resident partners. Pursuant to section 235-4, HRS, all resident partners shall report all taxable income derived from any partnership and unincorporated organization excluded from subchapter K, irrespective of whether the partnership or organization is required to file a partnership return. [Eff 2/16/82; am 6/28/93] (Auth: HRS §§231-3(9), 235- 118) (Imp: HRS §235-95) §18-235-96 INCOME TAX LAW 235- 126 (Unofficial Compilation as of 12/31/2025)