Kentucky Schedule KCR, officially called the Kentucky Consolidated Return Schedule, is used by an affiliated group of corporations that elects to file a consolidated Kentucky corporation income tax return. The schedule brings together the Kentucky income calculations of the parent corporation and every subsidiary included in the affiliated group. Each corporation reports its own federal taxable income, Kentucky additions, Kentucky subtractions, and other required adjustments in a separate column. Intercompany amounts that would duplicate income, deductions, gains, losses, or other transactions within the group are reported in the Intercompany Eliminations column. After the separate member amounts and required eliminations are combined, the result is entered in the Consolidated Totals column. Schedule KCR therefore serves as the main reconciliation between the separate tax information of each affiliated corporation and the amounts reported on the group’s Kentucky consolidated return. Lines 1 through 40 calculate consolidated Kentucky net income, while Lines 41 and 42 report net non-apportionable income and Kentucky net non-apportionable income. The consolidated amounts from Lines 1 through 40 are transferred to the corresponding lines of Form 720, Part I. Schedule KCR must be attached to Form 720, together with all other applicable Kentucky schedules and supporting statements.
Who Must Complete Kentucky Schedule KCR?
Schedule KCR must be completed by an affiliated group filing an elective consolidated Kentucky corporation income tax return.
The schedule is not intended for a corporation filing only a separate company return. It is used when a parent corporation and one or more subsidiaries are included in the same Kentucky consolidated filing group.
The group should prepare Schedule KCR using:
- Separate tax information for the parent corporation
- Separate tax information for every included subsidiary
- Schedule CR and Schedule CR Continuation information
- Kentucky additions and subtractions for each member
- Intercompany elimination workpapers
- Schedule A information for non-apportionable income
- Supporting schedules required for specific adjustments
How To File Kentucky Schedule KCR
Attach the completed Schedule KCR to Form 720, Kentucky Corporation Income Tax and LLET Return.
Follow these steps when preparing and filing the schedule:
- Determine every corporation included in the Kentucky affiliated group.
- Gather the federal and Kentucky tax records for the parent and each subsidiary.
- Complete Schedule CR and any required Schedule CR Continuation pages.
- Enter the parent corporation’s information in the Parent column.
- Enter each subsidiary’s information in its assigned subsidiary column.
- Use continuation pages when the group includes more than two subsidiaries.
- Enter applicable intercompany eliminations.
- Calculate the consolidated total for every line.
- Transfer the Consolidated Totals amounts from Lines 1 through 40 to the corresponding lines of Form 720, Part I.
- Attach all required explanations, schedules, Revenue Agent Reports, and supporting documents.
- Attach Schedule KCR and its continuation pages to Form 720.
Schedule KCR should not be filed separately from the consolidated Form 720.
How to Complete Kentucky Schedule KCR
How To Complete The Corporation Information Section
Name Of Corporation: Enter the complete legal name of the corporation filing the consolidated return. This is generally the parent or common parent corporation responsible for filing the return.
FEIN: Enter the filing corporation’s federal employer identification number.
Kentucky Corporation/LLET Account Number: Enter the corporation’s Kentucky Corporation or LLET account number. The number must contain nine digits. If the account number contains only six digits, add three zeros at the beginning. For example, enter 123456 as 000123456.
Use the same identifying information on every page of Schedule KCR and every continuation page.
How To Complete The Member Information Boxes
Each member column includes spaces for the corporation’s name, FEIN, and Kentucky Corporation or LLET account number.
Parent Name: Enter the full legal name of the parent corporation.
Parent FEIN: Enter the parent corporation’s federal employer identification number.
Parent Kentucky Corporation/LLET Account Number: Enter the parent’s applicable Kentucky account number.
Subsidiary Name: Enter the full legal name of the subsidiary assigned to the column.
Subsidiary FEIN: Enter that subsidiary’s federal employer identification number.
Subsidiary Kentucky Corporation/LLET Account Number: Enter the subsidiary’s applicable Kentucky account number.
Use a consistent column for each corporation throughout the schedule. A subsidiary reported in the first subsidiary column on the additions page should remain in the corresponding column on the subtractions page.
How To Use The Schedule KCR Columns
Consolidated Totals Column
Enter the final consolidated amount for the affiliated group on each applicable line. The amount should reflect the parent, all subsidiaries, and the related intercompany eliminations.
The Consolidated Totals amounts on Lines 1 through 40 are carried to Form 720, Part I, Lines 1 through 40.
Intercompany Eliminations Column
Enter adjustments needed to remove the effect of transactions between corporations included in the consolidated group.
Intercompany eliminations may be needed when one group member reports income, gain, expense, deduction, or another amount connected with another included member. The eliminations should prevent the same economic activity from being improperly counted more than once in the consolidated calculation.
Maintain supporting workpapers explaining each elimination and how it affects the consolidated total.
Parent Column
Enter the parent corporation’s separate amount for every applicable line before combining it with subsidiary amounts and intercompany eliminations.
Subsidiary Columns
Enter each subsidiary’s separate amount on the applicable line. Pages 1 and 2 provide columns for two subsidiaries.
When the affiliated group includes more than two subsidiaries, use the Schedule KCR continuation pages. Each continuation set provides additional member columns for reporting Lines 1 through 42.
How To Complete The Page Numbers
Page 2 Of: Enter the total number of pages included in the completed Schedule KCR package.
Page Blank Of Blank: On each continuation page, enter the page number and the total number of Schedule KCR pages.
Arrange the pages in order and make sure the additions and subtractions pages for every member are included.
Kentucky Schedule KCR Line By Line Instructions
Federal Taxable Income And Additions
Line 1: Enter the federal taxable income amount from Schedule CR Continuation, Line 28, for the parent and each subsidiary in their respective columns. Enter any applicable intercompany elimination and calculate the consolidated amount in the Consolidated Totals column.
Line 2: Enter taxable interest income from state and local obligations that must be added to federal taxable income under Kentucky rules. Report each member’s amount separately, record applicable eliminations, and calculate the consolidated total.
Line 3: Enter state taxes measured by net income or gross income that were deducted in determining federal taxable income but must be added back for Kentucky purposes. Complete the entry for each applicable group member.
Line 4: Enter the Kentucky addition related to the depreciation adjustment. Use the amount that corresponds to Form 720, Part I, Line 4, for the parent and each subsidiary.
Line 5: Enter deductions connected with income that Kentucky treats as nontaxable. Include only the amount required to be added back under the applicable Kentucky rules.
Line 6: Enter related-party expenses that must be added to federal taxable income for Kentucky purposes. Report the required adjustment separately for each affected corporation and account for any applicable intercompany elimination.
Line 7: Enter the dividend-paid deduction claimed by a real estate investment trust when that deduction must be added back for Kentucky purposes. Leave the line blank when it does not apply.
Line 8: Enter an increase to federal taxable income resulting from a Revenue Agent Report, also known as Form 4549. Use this line only when amending Form 720 because of a federal Revenue Agent Report adjustment. Attach a copy of the report to the amended return.
Line 9: Enter the Kentucky capital gain from Kentucky Schedule D, Line 18, for each applicable corporation. Report intercompany eliminations when a transaction occurred between included group members.
Line 10: Enter the loss from Form 4797 that is included on federal Form 1120, Line 9. This federal loss is added back as part of the Kentucky calculation before the applicable Kentucky gain or loss is reported separately.
Line 11: Enter the gain from Kentucky Form 4797, Part II, Line 17, for the parent and each applicable subsidiary.
Line 12: Enter the depletion deduction allowed on federal Form 1120, Line 21, that must be added back when calculating Kentucky taxable income.
Line 13: Enter the federal charitable contribution deduction reported on Form 1120, Line 19. Kentucky contribution deductions are handled separately later in the schedule.
Line 14: Enter any required Terminal Railroad Corporation adjustment. Complete this line only for a corporation to which the adjustment applies.
Line 15: Enter the passive activity loss allowed for federal purposes that must be added back before calculating the Kentucky allowable passive activity loss.
Line 16: Enter the federal taxable loss of corporations included in the consolidated group that are exempt for Kentucky purposes. Report the applicable amount for each affected member.
Line 17: Do not enter an amount. This line is reserved for future use.
Line 18: Enter additions to federal taxable income reported to the corporation on Kentucky Schedules K-1. Combine all applicable K-1 additions for each member and report them in that member’s column.
Line 19: Enter additions required because Kentucky’s adopted Internal Revenue Code treatment differs from the treatment used on the federal return. Use the applicable Form 720 instructions and maintain a supporting calculation for each adjustment.
Line 20: Enter any other addition to federal taxable income that is not reported on Lines 2 through 19. Attach a clear explanation identifying the nature, authority, and calculation of each amount entered on this line.
Line 21: Add Lines 1 through 20 for each column. Enter the parent total, each subsidiary total, the applicable intercompany elimination total, and the final consolidated total.
Subtractions From Federal Taxable Income
Line 22: Enter qualifying interest income from obligations of the United States that may be subtracted from federal taxable income for Kentucky purposes.
Line 23: Enter dividend income eligible for subtraction under Kentucky rules. Report the amount separately for each corporation and include any necessary intercompany elimination.
Line 24: Do not enter an amount. This line is reserved for future use.
Line 25: Enter the Kentucky subtraction related to the depreciation adjustment. Use the amount corresponding to Form 720, Part I, Line 25, for each member.
Line 26: Enter a decrease to federal taxable income resulting from a Revenue Agent Report, Form 4549. Use this line only when amending Form 720 because of a federal Revenue Agent Report adjustment. Attach a copy of the report.
Line 27: Enter the capital gain reported on federal Form 1120, Line 8, that must be removed before the Kentucky capital gain is determined under Kentucky rules.
Line 28: Enter the gain from Form 4797 included on federal Form 1120, Line 9. This removes the federal amount before the Kentucky Form 4797 result is applied.
Line 29: Enter the loss from Kentucky Form 4797, Part II, Line 17, for each applicable corporation.
Line 30: Enter 50 percent of qualifying gross royalty income from the disposal of coal with a retained economic interest under Internal Revenue Code Section 631(c), together with the applicable Internal Revenue Code Section 272 expenses, when the corporation elects not to use percentage depletion. Complete this line only when the corporation qualifies for and uses this treatment.
Line 31: Enter any applicable Terminal Railroad Corporation subtraction adjustment.
Line 32: Enter the passive activity loss allowable for Kentucky purposes. This amount replaces the federal passive activity loss added back on Line 15.
Line 33: Enter the depletion deduction allowable under Kentucky law. This amount replaces or adjusts the federal depletion amount added back on Line 12.
Line 34: Enter charitable contribution deductions allowed for Kentucky purposes. This line reports the Kentucky deduction after the federal contribution deduction was added back on Line 13.
Line 35: Do not enter an amount. This line is reserved for future use.
Line 36: Enter the federal taxable income of corporations in the affiliated group that are exempt for Kentucky purposes. This subtraction removes qualifying exempt corporation income from the Kentucky consolidated calculation.
Line 37: Enter subtractions from federal taxable income reported on Kentucky Schedules K-1. Combine the applicable K-1 subtraction amounts separately for the parent and each subsidiary.
Line 38: Enter subtractions caused by differences between Kentucky’s adopted Internal Revenue Code rules and the treatment used on the federal return. Prepare and retain a calculation supporting each amount.
Line 39: Enter any other subtraction from federal taxable income that is not reported on Lines 22 through 38. Attach an explanation showing the type of subtraction and how the amount was calculated.
Net Income And Non-Apportionable Income
Line 40: Subtract Lines 22 through 39 from Line 21 for each column. Enter the resulting net income for the parent, every subsidiary, intercompany eliminations, and the consolidated group.
The Consolidated Totals amount on Line 40 is transferred to Form 720, Part I, Line 40.
Line 41: Enter net non-apportionable income from Schedule A, Part II, Line 3. Enter the group amount in the Consolidated Totals column and report the applicable amounts in the parent and subsidiary columns.
Line 42: Enter Kentucky net non-apportionable income from Schedule A, Part II, Line 7. Enter the total group amount in the Consolidated Totals column and report the applicable amounts for the parent and each subsidiary.
How To Complete The Continuation Pages
Use the continuation pages when the affiliated group contains more than two subsidiaries.
The continuation pages provide additional columns for five subsidiaries at a time.
For every additional subsidiary, enter:
- The corporation’s legal name
- The corporation’s FEIN
- The Kentucky Corporation or LLET account number, if applicable
- The applicable amounts for Lines 1 through 42
Complete the additions continuation page for Lines 1 through 21 and the matching subtractions continuation page for Lines 22 through 42.
Include the additional subsidiaries when calculating the Consolidated Totals amounts on the main Schedule KCR pages.
Do not report a corporation on both the main page and a continuation column unless different sections of the same member’s information are being continued in the corresponding column position.
How To Calculate Consolidated Totals
For each line, begin with the parent corporation’s amount and add the amounts reported for every subsidiary. Then apply the related intercompany elimination.
The result is the amount entered in the Consolidated Totals column.
Use consolidation workpapers that show:
- The amount reported by the parent
- The amount reported by each subsidiary
- The source of every amount
- Each intercompany transaction identified
- The related elimination
- The final consolidated total
The Consolidated Totals column should agree with the amounts reported on Form 720 and the related Kentucky schedules.
How To Report Intercompany Eliminations
An intercompany elimination removes the effect of a transaction between two corporations included in the same consolidated filing group.
Examples may include:
- Intercompany sales
- Intercompany interest
- Intercompany rent
- Intercompany royalties
- Intercompany management fees
- Intercompany gains or losses
- Intercompany dividends
- Other transactions between included members
Enter the elimination on the same Schedule KCR line where the related income, deduction, gain, loss, addition, or subtraction is reported.
Maintain a separate schedule identifying:
- The corporations involved
- The type of transaction
- The amount reported by each member
- The elimination amount
- The Schedule KCR line affected
- The resulting consolidated treatment
Do not use the Intercompany Eliminations column for ordinary tax adjustments that do not arise from transactions between group members.
Amounts Transferred To Form 720
Transfer the Consolidated Totals amounts from Schedule KCR Lines 1 through 40 to the same numbered lines on Form 720, Part I.
For example:
- Schedule KCR Line 1 goes to Form 720, Part I, Line 1
- Schedule KCR Line 8 goes to Form 720, Part I, Line 8
- Schedule KCR Line 21 goes to Form 720, Part I, Line 21
- Schedule KCR Line 40 goes to Form 720, Part I, Line 40
Lines 41 and 42 support the treatment of non-apportionable income and should agree with Schedule A.
Supporting Documents To Attach
Attach all schedules required to support the consolidated return, including those used to calculate member amounts, Kentucky adjustments, and intercompany eliminations.
Supporting documents may include:
- Schedule CR
- Schedule CR Continuation
- Schedule A
- Kentucky Schedule D
- Kentucky Forms 4797
- Kentucky Schedules K-1
- Revenue Agent Reports
- Internal Revenue Code adjustment schedules
- Related-party expense schedules
- Intercompany elimination workpapers
- Other-addition explanations
- Other-subtraction explanations
- Continuation pages for additional subsidiaries
When Line 8 or Line 26 includes a Revenue Agent Report adjustment, attach a copy of Form 4549.
When Line 20 or Line 39 contains an amount, attach a written explanation and calculation.
Common Kentucky Schedule KCR Mistakes
Do not omit a subsidiary included in the Kentucky consolidated filing group.
Do not enter combined group amounts in the Parent column. The Parent column should contain only the parent’s separate amount.
Do not place subsidiary amounts in the Intercompany Eliminations column.
Do not calculate consolidated totals before accounting for applicable intercompany transactions.
Do not use Lines 17, 24, or 35 because they are reserved for future use.
Do not report a Revenue Agent Report amount on Line 8 or Line 26 unless the return is being amended because of that federal adjustment.
Do not enter a federal Form 4797 amount without also considering the related Kentucky Form 4797 adjustment.
Do not forget to include Kentucky Schedule K-1 additions on Line 18 and Kentucky Schedule K-1 subtractions on Line 37.
Do not report Internal Revenue Code additions and subtractions without maintaining supporting calculations.
Do not leave Line 20 or Line 39 unsupported when an amount is entered.
Make sure the Consolidated Totals amounts from Lines 1 through 40 agree with Form 720, Part I.
Kentucky Schedule KCR Filing Checklist
Before filing, confirm that:
- The affiliated group elected to file a consolidated Kentucky return
- The parent corporation’s information is complete
- Every subsidiary’s name and FEIN are entered
- Every applicable Kentucky account number contains nine digits
- Continuation pages are included for additional subsidiaries
- Schedule CR information is carried correctly to Line 1
- Kentucky additions are reported on Lines 2 through 20
- Line 21 equals the total of Lines 1 through 20
- Kentucky subtractions are reported on Lines 22 through 39
- Line 40 equals Line 21 minus Lines 22 through 39
- Lines 41 and 42 agree with Schedule A
- Intercompany eliminations are properly documented
- Consolidated totals include all group members
- Lines 1 through 40 agree with Form 720, Part I
- Revenue Agent Reports are attached when required
- Explanations for Lines 20 and 39 are attached
- All applicable schedules accompany Form 720