103 KAR 16:020. Qualified exempt organization under KRS 141.040(8).


      RELATES TO: KRS 141.040

      STATUTORY AUTHORITY: KRS 131.130, 141.018, 141.040

      NECESSITY, FUNCTION AND CONFORMITY: KRS 141.040(8) provides special rules for calculating taxable net income, gross receipts or Kentucky gross profits for corporations listed in KRS 141.010(24)(b) to (h) that are owned in whole or in part by a qualified exempt organization. KRS 141.040(8)(d) authorizes the department to promulgate an administrative regulation to further define "qualified exempt organization" to include entities created primarily for tax avoidance purposes with no legitimate business purposes. This administrative regulation further explains the term "qualified exempt organization."


      Section 1. Qualified exempt organization. As used in KRS 141.010(8), the term "qualified exempt organization" shall exclude any entity created primarily for tax avoidance purposes, with no legitimate business purpose.


      Section 2. Tax Avoidance Purposes. In determining if a corporation is created primarily for tax avoidance purposes, the Department of Revenue shall consider if:

      (1) The corporation has an identifiable place of business with supporting business records;

      (2) The corporation maintains books and related accounting records;

      (3) The corporation has a staff of employees or engaged contractors adequate in number and with sufficient expertise to conduct its business affairs;

      (4) The corporation's finances, policies, and business activities are so controlled and dominated by its parent corporation that the corporation has virtually no separate existence;

      (5) The form employed by the corporation for doing business is not a sham; and

      (6) A reasonable possibility of the corporation of obtaining a profit exists, apart from achieving tax benefits. (32 Ky.R. 1819; 33 Ky.R. 59; eff. 8-7-2006.)