Under the 2008 guidance, which pass-through income qualified for South Carolina's reduced active-business income-tax rate?

View original ruling (PDF)

Plain-English summary

South Carolina allowed an individual, estate, or trust to elect a reduced income-tax rate for qualifying active trade or business income received from a pass-through business. Covered businesses included sole proprietorships, partnerships, S corporations, and LLCs taxed in one of those forms. The ruling described the phased rate as 6.5% for 2006, 6% for 2007, 5.5% for 2008, and 5% after 2008.

Not every item passing through qualified. The ruling excluded passive investment income, capital gains and losses, guaranteed payments for services, and amounts reasonably related to personal services. It distinguished the Internal Revenue Code § 1362(d) definition of passive investment income from the § 469 passive-activity rules: an owner did not have to materially participate if the entity's income otherwise met the active-business definition.

Owners who performed services had to remove additional personal-service income from the reduced-rate base. They could use an actual fair-market-value method or, if the statutory income limit was met, a safe harbor treating 50% of relevant pre-adjusted active business income as personal-service income. The ruling also explained loss adjustments, composite returns, credit usage, and the treatment of rents, royalties, interest, and lending or financing receipts.

What this means for you

Pass-through business owners

The reduced rate was elective each year and applied only after separating qualifying active income from excluded investment, capital-gain, and personal-service amounts. A joint-return election applied to both spouses.

Service-business owners

Compensation and guaranteed payments for services were already outside the reduced-rate base. If the business did not pay a reasonable service amount, additional income could also have to be treated as personal-service income; failing to do so could subject all income from that business to the regular graduated rate under this guidance.

Composite-return filers

The reduced rate could be used on composite returns, but the calculation depended on whether a nonresident participant provided the required no-other-South-Carolina-income affidavit. The personal-service safe harbor was an owner-level choice, not an entity-level election.

Common questions

Q: Which entities counted as pass-through businesses?
A: Sole proprietorships, partnerships, S corporations, and LLCs taxed as one of those forms.

Q: Did passive owners automatically lose the reduced rate?
A: No. The ruling said Internal Revenue Code § 469 material participation was not the test; the relevant exclusion was passive investment income as defined through § 1362(d).

Q: Which common income items were excluded?
A: Passive investment income, capital gains and losses, guaranteed payments for services, and amounts reasonably related to personal services were excluded. Some rents, royalties, interest, and financing receipts could qualify when earned in the active ordinary course described in the ruling.

Q: How did the personal-service safe harbor work?
A: An eligible taxpayer with no more than $100,000 of the specified South Carolina taxable income could treat 50% of relevant pre-adjusted active business income as additional personal-service income. Joint filers were treated together for the test.

Q: Was the reduced rate always beneficial?
A: No. The ruling noted that an owner with an overall active-business loss, or income otherwise taxed below the reduced rate, might receive no benefit from the election.

Citations and references

• S.C. Code § 12-6-545 (optional rate, qualifying income, losses, personal-service rules, safe harbor, and credits)
• S.C. Code § 12-6-510 (regular graduated individual, estate, and trust rates)
• S.C. Code § 12-6-5030 (composite returns)
• S.C. Code § 12-6-3360 (job-tax-credit example)
• Internal Revenue Code §§ 1362(d), 469, 707(c), and 1231 (definitions and exclusions used by the ruling)

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR08-2.pdf

Original ruling text

State of South Carolina
Department of Revenue
301 Gervais Street, P. O. Box 125, Columbia, South Carolina 29214
Website Address: http://www.sctax.org
SC REVENUE RULING #08-2
SUBJECT:

Tax Rate Reduction on Active Trade or Business Income from a
Pass Through Business
(Income Tax)

EFFECTIVE DATE: Tax Years Beginning in 2006
SUPERSEDES:

SC Revenue Ruling #06-12 and all previous advisory opinions and
any oral directives in conflict herewith.

REFERENCES:

S. C. Code Ann. Section 12-6-545 (As Amended by Act No. 110,
Section 10 of 2007)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (Supp. 2000)
S. C. Code Ann. Section 1-23-10(4) (Supp. 2000)
SC Revenue Procedure #05-2

SCOPE:

The purpose of a Revenue Ruling is to provide guidance to the
public and to Department personnel. It is an advisory opinion
issued to apply principles of tax law to a set of facts or general
category of taxpayers. It is the Department’s position until
superseded or modified by a change in statute, regulation, court
decision, or another Departmental advisory opinion.

INTRODUCTION:
South Carolina Code Section 12-6-510 imposes an income tax rate upon South Carolina
taxable income of individuals, estates, and trusts at graduated rates ranging from 3% 1 to a
maximum rate of 7%.
Effective for tax years beginning in 2006, South Carolina Code Section 12-6-545 permits
individuals, estates, or trusts to use an “optional” income tax rate to compute the tax on
“active trade or business income or loss” received from a pass through business in lieu of
the “standard” income tax rate under Code Section 12-6-510. The reduced income tax
rate applicable to active trade or business income is 6.5% in 2006 and is reduced annually
by .5% until it reaches a 5% tax rate in 2009. Note: For simplicity and illustration
purposes, the “optional” income tax rate is referred to in this document as the “reduced
tax rate” or the “5% rate,” i.e., the final phased-in amount in 2009.
In 2007, the 2.5% tax bracket was reduced to 0%. Accordingly, beginning in 2007, the lowest tax rate
where tax is due is 3%.

1

1

The purpose of this advisory opinion is to address some common questions that have
arisen from persons that may be eligible for the reduced tax rate. For reference purposes,
the most recent version of the forms used to compute the reduced tax rate are attached.
As the forms are revised, the line number references may change, however, the concepts
discussed in this advisory opinion continue to apply. The forms may be obtained from the
Department’s website at www.sctax.org.

LAW:
Code Section 12-6-545 states:
(A) As used in this section:
(1) “Active trade or business income or loss” means income or loss of an
individual, estate, trust, or any other entity except those taxed or
exempted from tax pursuant to Sections 12-6-530 through 12-6-550
resulting from the ownership of an interest in a pass-through
business. Active trade or business income or loss does not include:
(a)(i) passive investment income as defined in Internal Revenue
Code Section 1362(d) generated by a pass-through business
and income of the same type regardless of the type of passthrough business generating it; and (ii) expenses related to
passive investment;
(b)

capital gains and losses;

(c)

payments for services referred to in Internal Revenue Code
Section 707(c);

(d)

amounts reasonably related to personal services. All amounts
paid as compensation and all guaranteed payments for services,
but not for the use of capital, as defined in Internal Revenue
Code Section 707(c) are deemed to be reasonably related to
personal services. In addition, if an owner of a pass-through
entity who performs personal services for the entity is not paid
a reasonable amount for those personal services as
compensation or payments referred to in Internal Revenue
Code Section 707(c), all of the owner’s income from the entity
is presumed to be amounts reasonably related to personal
services.
For purposes of this section, amounts reasonably related to
personal services include amounts reasonably related to the
personal services of the owner, the owner’s spouse, and any
person claimed as a dependent on the owner’s income tax
return.
2

(2) “Pass-through businesses” mean sole proprietorships, partnerships,
and “S” corporations, including limited liability companies taxed as
sole proprietorships, partnerships, or “S” corporations.
(B)(1) Notwithstanding Section 12-6-510, a taxpayer may elect annually to
have the income tax at the rate provided in item (2) of this subsection
imposed annually on the active trade or business income received by
the owner of a pass-through business. For joint returns, the election
is effective for both spouses. The amount subject to tax pursuant to
this section is not subject to tax pursuant to Section 12-6-510.
(2) The rate of the income tax imposed pursuant to this subsection is:
Taxable Year Beginning in

Rate of Tax

2006
2007
2008
after 2008

6.5 percent
6 percent
5.5 percent
5 percent

(C)

Notwithstanding any other provision of this chapter, active trade or
business loss must first be deducted, dollar for dollar against active
trade or business income. Any remaining active trade or business
loss is deductible from income taxed under Section 12-6-510 if
otherwise allowable.

(D)

The department may issue guidance as to what expenses reduce
active trade or business income.

(E)(1) Notwithstanding item (A)(1)(d) of this section, if a taxpayer owns an
interest in one or more pass-through businesses and his total South
Carolina taxable income from pass through entities for which he
performs personal services is one hundred thousand dollars or less,
excluding capital gains and losses, then the taxpayer may elect,
instead of determining the actual amount of active trade or business
income related to his personal services, to treat fifty percent of his
active trade or business income as not related to his personal
services. For purposes of this item, the term “taxpayer” includes both
taxpayers who file a joint return.
(2) The department may provide other methods that may be used to
determine an amount that is considered to be unrelated to the
owner’s personal services if it determines that the benefits to the
State of taxing income from personal services at a higher rate are
insufficient to justify the burdens imposed on the taxpayer.

3

(F)

An income tax credit available to offset taxes due pursuant to
Section 12-6-510 also applies against taxes imposed by this section.

QUESTIONS AND ANSWERS:
General Provisions:

1. Q. Who qualifies for the reduced income tax rate in Code Section 12-6-545 on active
   trade or business income?
   A. A person who meets the following criteria is eligible to use the reduced tax rate:
2. Is an individual, a trust, or an estate taxed at the regular graduated tax rate of
   3% to 7% under Code Section 12-6-510 2;
3. Has an interest in a “pass through business”; and
4. Receives “active trade or business income” from the pass through business.
   Entities listed in Code Sections 12-6-530, 12-6-540, and 12-6-550 do not qualify
   for the reduced income tax rate since they are currently taxed at a rate of 5% or
   are exempt from South Carolina income tax. For example, a corporation
   (including a limited liability company or professional or other association taxed
   for South Carolina income tax purposes as a corporation), bank, building and loan
   association, insurance company, or tax exempt organization under Internal
   Revenue Code Sections 501 through 528 do not qualify for the reduced tax rate.
5. Q. What is a “pass through business”?
   A. A “pass through business” is defined as:
6. a sole proprietorship;
7. a partnership;
8. an S corporation; or
9. a limited liability company taxed as a sole proprietorship, partnership, or S
   corporation.

2

In 2007, the 2.5% tax bracket was reduced to 0%.

4

3. Q. What income qualifies for the reduced tax rate?
A. Only the South Carolina “active trade or business income” of a pass through
business that is received by the owner of an interest in a partnership or S
corporation, or received by a sole proprietor is eligible for the reduced tax rate. If
a pass through business is involved in both an active trade or business activity and
a passive investment, then only the active trade or business income or loss portion
received is eligible for the reduced tax rate. See Questions 8, 9, and 14 for income
that does not qualify for the reduced rate computation, including passive
investment income and amounts reasonably related to personal services.
Note: Whether an activity is an “active trade or business” or a “passive
investment” is determined at the entity level for purposes of the reduced
tax rate in Code Section 12-6-545.

4. Q. Is the reduced tax rate optional?
   A. Yes. A taxpayer may decide annually to have eligible “active trade or business
   income” taxed at the reduced rate under Code Section 12-6-545 or continue to use
   the standard graduated 3% to 7% rates under Code Section 12-6-510 to compute
   South Carolina tax. For taxpayers filing a joint return, the election to use the
   reduced rate in Code Section 12-6-545 is effective for both taxpayers. There is no
   formal election to be made by the taxpayer; the reduced tax rate and/or the
   standard tax rate are simply a mathematical computation made on the tax return
   when filed. South Carolina Form I-335, “Active Trade or Business Income –
   Reduced Rate Computation,” and applicable Worksheet 1 (Form I-335A) and
   Worksheet 2 (Form I-335B), are used to calculate the reduced tax.
   A taxpayer with an overall active trade or business loss from pass through
   businesses will receive no tax benefit from the reduced rate in Code Section 12-6545, therefore, there is no need to do the active trade or business income
   calculations discussed in this document; the standard graduated rates in Code
   Section 12-6-510 should be used in computing South Carolina taxable income.
   Further, a taxpayer would want to continue to use the standard rate instead of the
   reduced rate if he has taxable income from a pass through business, but overall
   has South Carolina taxable income subject to tax at a marginal rate less than the
   “reduced” rate. See Question 5 for the reduced rate amount.
5. Q. When does the reduced tax rate begin and what is the reduced rate amount?
   A. The reduced tax rate is phased in over a 4 year period and the first reduction is
   available for tax years of the individual, estate, or trust beginning in 2006.

5

South Carolina’s highest standard graduated tax rate of 7% is reduced by .5%
each year until a reduced tax rate of 5% is reached. The reduced tax rate phase in
is as follows:
Individual, Estate, or Trust Tax Year Beginning in
2006
2007
2008
2009 and after

Reduced Tax Rate
6.5 %
6.0 %
5.5 %
5.0 %

6. Q. How are credit amounts computed when a taxpayer uses both the standard rate
   and the reduced tax rate?
   A. The type of tax (e.g., individual income, corporate, license fee, etc.) a credit may
   be used against and the amount of the credit available for use depends on the
   particular tax credit. For example, the jobs tax credit in Code Section 12-6-3360
   states that it may be used only against taxes imposed under Code Section 12-6510 (individual income tax at the standard rate), Code Section 12-6-530
   (corporate income tax), insurance premium tax, or bank tax, and it states that the
   credit is limited to 50% of the taxpayer’s South Carolina income tax liability.
   Code Section 12-6-545, however, provides that an income tax credit available to
   offset taxes due under Code Section 12-6-510 also may be used to offset taxes due
   under Code Section 12-6-545. In this example, a taxpayer who uses the standard
   tax rate and/or the reduced tax rate would use the job tax credit to offset “total
   taxes” due, without regard to the any separate income or tax rate computations
   resulting from the application of Code Section 12-6-545.
7. Q. Can the reduced tax rate be used on composite returns?
   A. Yes. Code Section 12-6-5030 allows S corporations and partnerships to separately
   compute South Carolina income and tax attributable to each participating
   nonresident shareholder or partner and report the total tax due on a single return.
   The pass through business is not required to withhold income tax pursuant to
   Code Section 12-8-590 on behalf of any nonresident shareholder or partner whose
   income is reported on the composite return.
   If the participant provides an affidavit (see Form I-338) stating that he has no
   other South Carolina income (other than from the pass through business), then the
   pass through business may determine each eligible participant’s tax due by one of
   the following methods:
8. Compute the pro rata share of the standard deduction or itemized deduction
   and personal exemption amount for each participant pursuant to Code Section
   12-6-1720(2) in the same manner as if it was being separately reported, or
9. Compute each participant’s share of South Carolina income without regard to
   any deductions or exemptions.
   6

The reduced tax rate may then be used to compute the tax on “active trade or
business income” received from the pass through business and the standard tax
rate is used to compute the tax on other income received from the pass through
business.
Code Section 12-6-5030(B)(1)(b) provides that if a participant does not provide
an affidavit (see Form I-338) stating he has no South Carolina income other than
from the pass through business, then this participant’s South Carolina income tax
is computed on active trade or business income using the reduced tax rate under
Code Section 12-6-545 and on other income using the 7% standard tax rate,
without regard to the standard or itemized deductions and personal exemptions.
(See Questions 16 - 18 for information on a safe harbor provision applicable to
eligible participants of a composite return.)

Active Trade or Business Income Determination:

8. Q. What is “active trade or business income or loss” of a pass through business?
   A. “Active trade or business income or loss” is gross income from the pass through
   business minus the specifically listed items excluded from the reduced rate
   computation (see excluded items discussed below) and minus deductions related
   to the active trade or business.
   The items listed below are not “active trade or business income or loss” and are
   excluded from the reduced rate computation:
9. “Passive investment income” generated by a pass through business and
   expenses related to passive investment.
   For purposes of Code Section 12-6-545, the definition of “passive investment
   income” has the same meaning as used in the S corporation provisions in
   Internal Revenue Code Section 1362(d). 3 The definition of “passive
   investment income” contained in the S corporation provisions of Internal
   Revenue Code Section 1362(d) is also applicable to income generated by a
   sole proprietorship or partnership, and applicable to expenses related to those
   passive investments.
   In general, “passive investment income” is gross receipts derived from: (1)
   royalties, (2) rents, (3) dividends, (4) interest, (5) annuities, and (6) sales or
   exchanges of stock or securities to the extent of gains. (See Question 9 below
   for more information.)
   Internal Revenue Code Section 1362(d) is applied at the S corporation level and is also applied at the
   “pass through business” level for purposes of Code Section 12-6-545.

3

7

Note: “Passive investment income” defined in Internal Revenue Code Section
1362(d) should not be confused with a “passive activity” defined in Internal
Revenue Code Section 469. Internal Revenue Code Section 469 passive
activity provisions are not applicable for purposes of Code Section 12-6-545;
an owner, partner, shareholder, or member can use the reduced tax rate even if
he does not materially participate in the pass through business. For example, a
limited partner in a partnership that generates “active trade or business
income” under Internal Revenue Code Section 1362(d) is not disqualified
from using the reduced tax rate in Code Section 12-6-545 even though the
partner is considered passive under Internal Revenue Code Section 469 with
regard to the activity of the partnership.

2. Capital gains and losses, including Internal Revenue Code Section 1231 gains
   and losses from property used in the trade or business that receive capital gain
   and loss treatment;
3. Guaranteed payments for services as defined in Internal Revenue Code
   Section 707(c); and
4. Amounts reasonably related to personal services.
5. Q. What is passive investment income?
   A. Note: Internal Revenue Code Section 1362(d) defines passive investment income
   and provides exceptions. The regulations under Internal Revenue Code Section
   1362, and other guidance such as federal rulings and cases, should be consulted in
   determining whether income is “passive investment income.”
   The following are examples of the six types of “passive investment income” that
   do not qualify for the reduced tax rate:
6. Royalties. Royalties mean all royalties, including mineral, oil, and gas
   royalties, and amounts received for the privilege of using patents, copyrights,
   secret processes and formulas, goodwill, trademarks, tradebrands, and
   franchises.
   Passive investment income does not include royalties derived in the ordinary
   course of a trade or business of franchising or licensing property or active
   business computer software royalties. Accordingly, such royalties are active
   trade or business income eligible for the reduced rate.
7. Rents. In general, rents are amounts received for the use of, or right to use,
   real or personal property of the pass through business. An example of rent that
   is “passive investment income” is the net lease of a building.
   Passive investment income does not include rents derived in the active trade
   or business of renting property if, based on all the facts and circumstances, the
   pass through business (1) provides significant services or (2) incurs substantial
   8

costs in the rental business. Accordingly, such rents are active trade or
business income eligible for the reduced rate. This determination is based, in
part, on the number of persons employed to provide the services and the types
and amounts of costs and expenses incurred, other than depreciation.
Examples of rents that are “active trade or business” include operating a hotel
or a short term car rental business.

3. Dividends. Dividends include dividends as defined in Internal Revenue Code
   Section 316 and personal holding company consent dividends described in
   Internal Revenue Code Section 565.
4. Interest. Interest is any amount received for the use of money, including tax
   exempt interest, amounts treated as imputed interest under Internal Revenue
   Code Sections 483 (“ Interest on Certain Deferred Payments”) or 7872
   (“Treatment of Loans with Below-Market Interest Rates”), and original issue
   discount.
   Passive investment income does not include interest on any obligation (1)
   acquired from the sale of property described in Internal Revenue Code Section
   1221(a)(1) or (2) from the performance of services in the ordinary course of a
   trade or business of selling the property or performing the services.
   Accordingly, such interest is active trade or business income eligible for the
   reduced rate.
5. Annuities. Annuities means the entire amount received as an annuity under an
   annuity, endowment, or life insurance contract, if any part of the amount
   would be includable in gross income under Internal Revenue Code Section 72.
6. Gross Receipts from Sales or Exchanges of Stock or Securities (to the extent
   of gains.) Stock or securities include shares or certificates of stock, stock
   rights or warrants, bonds, debentures, certificates of indebtedness, notes,
   municipal bonds, and an interest as a limited partner in a partnership.
   Passive investment income does not include gross receipts that are directly
   derived in the ordinary course of a trade or business of: (1) lending or
   financing; (2) dealing in property; (3) purchasing or discounting accounts
   receivable, notes, or installment obligations; or (4) servicing mortgages.
   Accordingly, such gross receipts are active trade or business income eligible
   for the reduced rate.
7. Q. What expenses reduce active trade or business income?
   A. Code Section 12-6-545(D) states the Department may issue guidance as to what
   expenses reduce active trade or business income subject to the 5% reduced rate.
   In general, business related expenses, including those listed on the federal
   Schedule C, “Profit or Loss from Business,” Schedule F, “Profit or Loss from
   Farming,” or Schedule E, “Supplemental Income and Loss,” are expenses that
   reduce “active trade or business income.”
   9

Examples include ordinary and necessary business expenses, interest expense on
funds used to acquire business assets, one-half of self employment tax (i.e., the
equivalent of FICA tax borne by the employer,) depreciation deductions, and
Internal Revenue Code Section 179 expense deductions.
However, expenses of a personal nature are used to reduce income subject to the
regular graduated tax rate of up to 7%. Examples include itemized deductions for
charitable contributions, home mortgage interest, and medical expenses; and
certain deductions allowed from “total income” in arriving at “adjusted gross
income” such as alimony paid, IRA’s, self employed health insurance, and self
employed SEP or qualified retirement plans.

11. Q. Is an adjustment to “active trade or business income or loss” from a pass through
    business made for current year losses, prior year suspended losses, or net
    operating loss carryforwards?
    A. Yes, depending on the taxpayer’s particular circumstances, an adjustment to
    “active trade or business income or loss” may be required in determining the
    amount subject to the reduced rate. The adjustment may be positive (i.e., increase
    active trade or business income subject to the reduced rate) or negative (i.e.,
    reduce active trade or business income subject to the reduced rate.) For example,
    a current year South Carolina loss resulting from the ownership of a partnership
    or S corporation interest that the taxpayer is not allowed to use because: (1) the
    taxpayer does not have basis, (2) the taxpayer does not have sufficient “at risk”
    amounts, or (3) the loss is a passive activity loss under Internal Revenue Code
    Section 469 4 will increase South Carolina active trade or business income subject
    to the reduced rate by the amount of the suspended loss (i.e., it is a positive
    adjustment.)
    However, previously suspended losses resulting from the ownership of an interest
    in a partnership or S corporation that the taxpayer is now allowed to use because
    (1) he now has basis, (2) he now has “at risk” basis, or (3) he may now use a net
    operating loss carryforward will decrease active trade or business income subject
    to the reduced rate, to the extent they are South Carolina “active trade or business
    losses.”
12. Q. How are Internal Revenue Code Section 1231 gains and losses used in the
    computation of “active trade or business income or loss”?
    A. Internal Revenue Code Section 1231 gains and losses that receive capital gain
    treatment do not qualify for the reduced tax rate and are excluded from the “active
    4
    “Passive investment income” defined in Internal Revenue Code Section 1362(d) should not be confused
    with a “passive activity” defined in Internal Revenue Code Section 469. Internal Revenue Code Section
    469 passive activity provisions are not applicable for purposes of Code Section 12-6-545; an owner,
    partner, shareholder, or member can use the reduced tax rate even if he does not materially participate in
    the pass through business.

10

trade or business income” computation. (A gain used in the computation of the
44% net capital gain deduction in Code Section 12-6-1150 is not eligible for the
5% reduced tax rate.)
Internal Revenue Code Section 1231 gains that are treated as ordinary gains
qualify for the reduced tax rate and are included in “active trade or business
income,” unless otherwise disqualified, e.g., passive investment income.
Internal Revenue Code Section 1231 losses treated as ordinary losses are “active
trade or business losses” and reduce “active trade or business income” subject to
the reduced tax rate.

13. Q. Are guaranteed payments for the use of capital eligible for the reduced tax rate?
    A. Yes. Guaranteed payments for the use of capital are “active trade or business
    income” and are eligible for the reduced tax rate, unless otherwise disqualified,
    e.g., as passive investment income. In order to assist in the computation of
    amounts eligible for the reduced tax rate, a pass through business should indicate
    on the K-1 the guaranteed payment amount for the use of capital.
14. Q. How is the “amount reasonably related to personal services” and “paid a
    reasonable amount for those personal services as compensation” determined for a
    person performing personal services for a pass through business?
    A. The statute provides that active trade or business income does not include
    amounts reasonably related to personal services. All compensation (e.g., wages,
    salaries, bonuses, etc.) and guaranteed payments for services are income related to
    personal services. These amounts have been deducted by the pass through
    business in arriving at taxable income and do not require an additional adjustment
    on SC Form I-335. However, the taxpayer may have “additional personal service
    income” that must be subtracted from “pre-adjusted active trade or business
    income” reflected on SC Form I-335 and Worksheets 1 and 2.
    Definitions. For purposes of this advisory opinion, the following terms have the
    meaning provided below:
    Pre-Adjusted Active Trade or Business Income – A taxpayer’s active trade or
    business income from a pass through business 5 after all deductions related to
    the active trade or business (including any deductions for compensation, e.g.,
    wages, salaries, bonuses, and guaranteed payments for services) except the
    deduction for additional personal service income. See SC Form I-335
    Worksheet 1, Line 3 and Worksheet 2, Line 22.

5

This amount also includes amounts for personal services of the taxpayer’s spouse if a joint return is filed.

11

Additional Personal Service Income – The total amount of a taxpayer’s
income 6 related to personal services for a pass through business less the
taxpayer’s compensation 7 and guaranteed payments for services deducted by
the pass through business. See SC Form I-335, Line 4.
General Personal Service Rule. Accordingly, a taxpayer performing personal
services for a pass through business who chooses to use the reduced tax rate may
have to decrease pre-adjusted active trade or business income eligible for the
reduced rate by additional personal service income. There are two methods to
determine additional personal service income on SC Form I-335, Line 4 in
arriving at the amount eligible for the reduced rate:

1. The “actual” method. The taxpayer must determine the actual amount of
   additional personal service income for each applicable pass through business
   in which he performs personal services. 8 In determining this amount, the
   following process is used:
   Step 1. Determine Pre-adjusted Active Trade or Business Income.
   This amount is derived from SC Form I-335 Worksheet 1, Line 3, or
   Worksheet 2, Line 22. 9 See definition above.
   Step 2. Determine Additional Personal Service Income. This amount, if
   positive, is reflected on SC Form I-335, Line 4 to reduce pre-adjusted active
   trade or business income eligible for the reduced tax rate.
   Part A. The taxpayer (i.e., owner) must determine the total fair market value
   of all his personal services performed for the pass through business, including
   those performed by his spouse and dependents. Subtract any amount reported
   on a W-2 to the taxpayer, spouse, and dependents, or guaranteed payment for
   services to the taxpayer, spouse, or dependents. Compare the resulting amount
   to the pre-adjusted active trade or business income determined in Step 1
   above; the lesser amount is used in Step 2 – Part B below.
   Part B. If the amount in Part A is greater than $0, this amount is the
   “additional personal service income” entered on SC Form I-335, Line 4, and
   used to reduce pre-adjusted active trade or business income to determine the
   amount eligible for the reduced rate (SC Form I-335, Line 5).

6

This amount also includes amounts for personal services of the taxpayer’s spouse and his dependents.

7

This amount also includes amounts for personal services of the taxpayer’s spouse and his dependents.

A pass through business for which the taxpayer does not perform personal services or for which the
taxpayer has a taxable loss are ignored.

8

9

This amount also includes amounts from the taxpayer’s spouse if a joint return is filed.

12

If the amount in Part A is $0 or less than $0 (e.g., the shareholder/partner
received a W-2 or guaranteed payment in excess of the amount reasonably
related to personal services), then there is no “additional personal service
income” to enter on SC Form I-335, Line 4. As a result, the pre-adjusted
active trade or business income amount determined in Step 1 is the amount of
active trade or business income eligible for the reduced tax rate.

2. The “safe harbor” method. The taxpayer, if eligible, may choose to treat 50%
   of his pre-adjusted active trade or business income as additional personal
   service income. See Questions 15 and 16 for more information on the safe
   harbor method and to determine if a taxpayer is eligible to use the safe harbor
   based upon the SC taxable income dollar limitation test.
   Actual Method. For most taxpayers who perform personal services for the pass
   through business and do not use the safe harbor method there is generally no
   single factor decisive in determining additional personal service income. Each
   situation must be considered as a whole and consideration must be given to all the
   facts and circumstances of the pass through business activity. Further, the amount
   determined may change each year based on the facts and circumstances.
   Facts and circumstances to use in making this determination include, but are not
   limited to, the following:
3. Amounts that would be paid to obtain comparable services from a person not
   having an ownership interest in the pass through business;
4. Prevailing rates of compensation paid for comparable positions in comparable
   businesses;
5. Salary policy of the pass through business as to all employees;
6. Size and complexity of the business;
7. Employee’s/owner’s qualifications and skills;
8. Managerial responsibilities; or
9. Amounts related to personal services that can reasonably be identified from
   the pass through business’s books and records kept in the regular course of
   business, e.g., payments related to hours worked, quantity or quality of
   services performed, number of items sold, or collections for services.
   Caution: If a taxpayer has additional personal service income from a pass
   through business and does not treat that amount as reasonably related to personal
   services, then all income from the pass through business is subject to tax at the
   regular graduated tax rate.

13

Examples. The following examples illustrate the computation of pre-adjusted active
trade or business income, additional personal service income, and the active trade or
business income eligible for the reduced rate. Each example assumes that the
taxpayer has an interest only in the pass through business illustrated, has $60,000 preadjusted active trade or business income, and is based on the stated facts.
Example 1 illustrates the computation for a taxpayer who does not perform personal
services for the pass through business.
Examples 2 and 4 illustrate the actual method for computing additional personal
service income. In Example 2 the taxpayer has determined, based on the facts and
circumstances, the fair market value of his personal services for the pass through
business is $45,000 and includes $20,000 of W-2 wages. Whereas, in Example 4 the
taxpayer has determined the fair market value of his personal services for the pass
through business is $20,000 and $20,000 is reflected on his W-2 as wages.
Example 3 illustrates the safe harbor method for computing additional personal
service income.
Example 1 No Personal
Services
Performed by
Taxpayer

Pre-adjusted Active Trade
or Business Income (See
Form I-335, Worksheet 1
or Worksheet 2)
Less: Additional Personal
Service Income (See Form
I-335, Line 4)
Active Trade or Business
Income (See Form I-335,
Line 5)

*

No additional
personal service
income
computation
necessary
$60,000

$0
N/A - No
personal services
performed
$60,000

Example 2 Personal Services
Performed by
Taxpayer
“Actual Method”
Used to Compute
Additional
Personal Service
Income

Example 3 Personal Services
Performed by Taxpayer
“Safe Harbor Method”
Used to Compute
Additional Personal
Service Income

Example 4 Personal Services
Performed by
Taxpayer
“Actual Method”
Used to Compute
Additional
Personal Service
Income

$60,000

$60,000

$60,000

($25,000) *

($30,000)

$0 **

$35,000

50% x pre-adjusted
active trade or business
income
$30,000

$60,000

$45,000 actual fair market value of all personal services performed for the pass through
business - $20,000 W-2 wages = $25,000 additional personal service income

** $20,000 actual fair market value of all personal services performed for the pass through
business - $20,000 W-2 wages = $0. Note: The answer would be the same if the actual fair
market value of the personal services was $15,000 and the W-2 wages were $20,000.

14

Safe Harbor:

15. Q. What is the “safe harbor” calculation to determine “amounts reasonably related to
    personal services”?
    A. A qualifying taxpayer may choose one of the following methods to determine
    additional personal service income:
16. The actual method. See Question 14 above and Example B below or
17. The “safe harbor” method. See Example A below. This method may be used
    only if certain conditions discussed in Question 16 are met. The safe harbor
    allows a taxpayer to determine additional personal service income by simply
    treating 50% of his pre-adjusted active trade or business income 10 received
    from each pass through business in which he performs personal services and
    has income as “additional personal service income.” This amount would be
    reflected on SC Form I-335, Line 4, and used to reduce active trade or
    business income eligible for the reduced tax rate.

Pre-adjusted active trade or business income means a taxpayer’s active trade or business income from a
pass through business after all deductions related to the active trade or business (including any deductions
for compensation, e.g., wages, salaries, bonuses, and guaranteed payments for services) except the
deduction for additional personal service income. This amount also includes amounts for personal services
of the taxpayer’s spouse if a joint return is filed. See SC Form I-335 Worksheet 1, Line 3, and Worksheet 2,
Line 22.
10

15

Example A – Safe Harbor Method. The following example is provided to
illustrate the computation to use by taxpayers filing a joint individual income tax
return who opt to use the “safe harbor” method for determining amounts related to
personal services. This example assumes the husband and wife each have several
interests in South Carolina pass through businesses and perform personal services
for the businesses noted. It also assumes the safe harbor dollar limitation
explained in Question 16 has been met.
Column 1
SC Pre-adjusted active
trade or business income
(From information on
Taxpayers Worksheet 1 and
all Worksheets 2)
($25) Partnership #1
$200 Partnership #2
$100 Schedule C
$ 50 Partnership #3
($15)* S Corporation K-1
$310 Total Column 1

Column 2
“Total Relevant” SC active
trade or business income 11

N/A – Loss K-1
N/A – No personal services
performed
$100 – personal services
performed
$50 - personal services
performed
N/A – Loss K-1
$150 Total Column 2

Column 3
Safe Harbor Method
Used

Column 4
Additional Personal
Service Income

Column 2 x 50%

Result of Column 3

50% of “Relevant” SC
active trade or business
income
$150 x 50% = $75

$75 (To Form I-335,
Line 4)

• The SC pre-adjusted active trade or business income or loss amount is obtained from SC Form I-335 Worksheet
  1, “Pass Through Income from a Sole Proprietorship” or Worksheet 2, “Pass Through Income from a Partnership
  or S Corporation” and is a taxpayer’s active trade or business income from the pass through business after all
  deductions (including any deductions for compensation or guaranteed payments for services), except the
  deduction for additional personal service income.

Note: If a taxpayer uses the safe harbor method of determining the “amount
related to personal services,” the following guidelines are important to remember:

1. Pass through businesses for which the taxpayer does not perform personal
   services are ignored. (See Partnership #2 K-1 in the example above.)
2. Pass through businesses for which the taxpayer has a pre-adjusted trade or
   business loss are ignored. (See Partnership #1 K-1 and S Corporation K-1 in
   the example above.)
3. Compensation or guaranteed payments for services that are deducted by the
   pass through business do not require an additional adjustment on SC Form I335.

Total relevant South Carolina active trade or business income means the pre-adjusted active trade or
business income without regard to income from a pass through business in which the taxpayer, his spouse,
or his dependents did not perform personal services and without regard to a pass through business for
which the taxpayer had a pre-adjusted active trade or business loss.
11

16

Example B – Actual Method. The following example is provided to illustrate the computation for
determining amounts related to personal services when taxpayers filing a joint individual income tax
return use the “actual” method. This example assumes the husband and wife each have several
interests in South Carolina pass through businesses and perform personal services for the businesses
noted. Example A illustrates the safe harbor method results in a $75 additional personal service
income adjustment whereas Example B illustrates the actual method results in a $30 additional
personal service income adjustment.
Column 1
SC Pre-adjusted active
trade or business
income (From
information on taxpayers
Worksheet 1 and all
Worksheets 2)

Column 2
“Total Relevant” SC
active trade or business
income (i.e. “Pre-adjusted
Active Trade or Business
Income” disregarding any
pass through businesses
with no personal services or
losses)

Column 3 - Actual Method Used

($25) Partnership #1
$200 Partnership #2
$100 Schedule C
$ 50 Partnership #3

N/A – Loss K-1
N/A – No personal services
$100 – personal services
$50 – personal services

N/A
N/A
FMV $30 FMV $15 -

($15) S Corporation K-1
Total $310

N/A – Loss K-1
Total $150

N/A

Fair Market Value (FMV) –
Compensation (e.g., W-2 or
guaranteed payments for
services)

$0 comp
Guaranteed
Payment
$20

$30
($5)

Column 4
Additional Personal
Service Income
*Compare column 2 and
result in column 3 – use
lesser number; if negative,
no adjustment is made,
enter 0 (See Question 14 for
details)

$30
$0
Negative = No adjustment
$30 (To Form I-335, Line
4)

16. Q. Who is a qualifying taxpayer that may use the “safe harbor”?
    A. The safe harbor is available to a taxpayer if total South Carolina taxable income
    from all pass through businesses in which the taxpayer performs personal services
    is $100,000 or less, excluding capital gains and losses. Note: For purposes of the
    safe harbor, including the taxable income dollar limitation, the “taxpayer” is both
    taxpayers who file a joint return.
    The limitation test only determines if a taxpayer is eligible to use the safe harbor
    method to compute additional personal service income. The limitation test does
    not compute the amount of personal service income under the safe harbor method
    or the actual method. See Question 14 above for guidance and examples that
    illustrate the calculation of the amount of additional personal service income.
    Safe Harbor Income Limitation Test and Examples. Pursuant to Code Section
    12-6-545(E)(2), the Department has approved a method to compute the safe
    harbor income limitation.

17

This method to determine the total South Carolina taxable income from all pass
through businesses for which he performs personal services, excluding capital
gains and losses, is computed as follows:

1. include all types of income items from the pass through business, e.g., W-2
   income, guaranteed payments for services or for the use of capital, active trade
   or business income, portfolio income, passive income, ordinary losses,
   Section 1231 gains and losses treated as ordinary gains and losses, etc., unless
   otherwise listed below as disregarded,
2. include all types of deductions from the pass through business, such as
   Section 179 deductions,
3. disregard all capital gains and capital losses, and
4. disregard Section 1231 gains and losses treated as capital gains and capital
   losses.
   Examples 1, 2, and 3 below use this method.
   Caveat: The examples are simplified to illustrate the basic concepts used in
   computing the safe harbor income limitation, e.g., they do not show all items of
   income or deduction that may exist on a K-1, they show different types of income
   and deductions, etc. They are intended to illustrate the mechanics of the safe
   harbor limitation test method approved by the Department. See Question 14
   above for guidance and examples that illustrate the calculation of the amount of
   “additional personal service income”, if any, that must be subtracted from “preadjusted active trade or business income” reflected on SC Form I-335 and
   Worksheets 1 and 2 in determining the amount eligible for the reduced rate.
   Example 1: This example illustrates the following:
   a. only amounts from a pass through business in which the taxpayer performs personal
   services are included when determining if a taxpayer qualifies to use the safe harbor
   method, even if compensation (e.g., wages, salaries, bonuses, guaranteed payments,
   etc.) is not received. Therefore, the amounts from Partnership 2 below are included
   in the safe harbor limit test even though the taxpayer did not receive a guaranteed
   payment for his personal services. Further, all items from S corporation 1 below are
   disregarded in this computation since the taxpayer did not perform personal services
   with respect to S corporation 1;
   b. the guaranteed payment is included in the safe harbor income computation test to
   determine the taxpayer’s SC taxable income from Partnership 1 since the partnership
   deducted this amount in arriving at its ordinary income; and
   c. all capital losses are disregarded from the safe harbor income computation test.

18

W-2
Guaranteed Payment
Ordinary Income
Interest Income
Rental Income
Capital Gain and Loss,
including §1231 gains and
losses treated as capital
gains and losses
§179 Deduction and Other
Deductions
Net SC amount used in safe
harbor income limit test
Is Safe Harbor Available to
the Taxpayer?

Partnership 1

Partnership 2

S Corporation 1

Personal
Services
Performed

Personal Services
Performed (see
item a above)

No Personal Services
Performed (see item a
above)

N/A
$15,000 (see
item b above)
$25,000
$15,000
$0
$0

N/A
$0

N/A
N/A

Total SC Amounts Used
in Safe Harbor Limit
Test from All Pass
Through Businesses in
Which Taxpayer
Performs Personal
Services
$0
$15,000

$0
$0
$80,000
($30,000)
Disregard in safe
harbor income
limit test (see item
c above)

N/A
N/A
N/A
N/A

$25,000
$15,000
$80,000
N/A

$80,000

N/A

$130,000

N/A

No
$130,000 net SC amount
used in safe harbor
income limit test >
$100,000 limit

($5,000)
$50,000

($5,000)

Example 2: This example illustrates the following:
a. although the taxpayer did not receive a guaranteed payment from the Partnership 1
below, since he performs personal services for the partnership he must determine the
amount, if any, reasonably related to personal services;
b. the “netting” principles used to obtain a total SC amount from all pass through
businesses in which the taxpayer performs personal services, i.e., pass through
businesses in which the taxpayer has a loss are not ignored for purposes of safe
harbor limit test;
c. the applicability of the safe harbor option for an individual who has ownership
interests in several pass through businesses, with one having taxable income over the
$100,000 limit;
d. the W-2 amount is included in the safe harbor income computation test since the
wage amount was deducted by the S corporation in arriving at its ordinary income;
and
e. all capital gains, including Section 1231 gains and losses treated as capital gains and
capital losses are disregarded from the safe harbor income computation test.

19

W-2
Guaranteed Payment
Ordinary Income
Interest Income
Rental Income
Capital Gain and Loss, including
§1231 gains and losses treated as
capital gains and losses
§179 Deduction and Other
Deductions
Net SC amount used in safe harbor
income limit test
Is Safe Harbor Available to the
Taxpayer?

Partnership 1

S Corporation 2

Personal Services
Performed

Personal Services
Performed

N/A
$0 (see note a)
$110,000
$12,000
$10,000
$90,000
Disregard in safe
harbor income limit
test (see note e)
($2,000)

$25,000 (see note d)
N/A
($60,000)
$0
$0

$130,000 (see note c)

($35,000)

Total SC Amounts Used in
Safe Harbor Limit Test from
All Pass Through Businesses in
Which Taxpayer Performs
Personal Services
$25,000
$0
$50,000
$12,000
$10,000
N/A

($2,000)
$95,000 (see note b)
Yes
$95,000 net SC amount used in
safe harbor income limit test ≤
$100,000 limit

Example 3: This example illustrates the following:
a. although the taxpayer did not receive a guaranteed payment from the partnership,
since he performs personal services for the partnership he must determine the amount,
if any, reasonably related to personal services and
b. all capital gains, including Section 1231 gains treated as capital gains are disregarded
from the safe harbor income computation test.
Partnership 1
Personal Services
Performed
W-2
Guaranteed Payment
Ordinary Income
Interest Income
Rental Income

Capital Gain and Loss, including §1231
gains and losses treated as capital gains
and losses

§179 Deduction and Other
Deductions
Net SC amount used in safe harbor
income limit test
Is Safe Harbor Available to the
Taxpayer?

N/A
$0 (see note a)
$75,000
$75,000
$0
$2,000
Disregard in safe harbor
income limit test (see note b)
($50,000)
$100,000

Total SC Amounts Used in Safe
Harbor Limit Test from All Pass
Through Businesses in Which
Taxpayer Performs Personal
Services

N/A
$0
$75,000
$75,000
$0
N/A

($50,000)
$100,000
Yes
$100,000 net SC amount used in
safe harbor income limit test ≤
$100,000 limit

20

17. Q. Is the use of the safe harbor optional?
A. Yes. The decision to use the safe harbor may be made each year. For taxpayers
filing a joint return, the decision to use the safe harbor is effective for both
taxpayers.

18. Q. Does the safe harbor apply to participants in a composite return?
    A. The decision to use or not use the safe harbor provided in Code Section 12-6-545
    is made by a qualifying partner, shareholder, or member; it is not an entity level
    election. The safe harbor applies to composite return participants as follows:
19. No other South Carolina income by the partner, shareholder, or member and
    an affidavit is provided. The safe harbor can be used by the individual
    participant if he informs the pass through business of his safe harbor election.
    The participant must provide the pass through business an affidavit that he has
    no other South Carolina income. (See SC Form I-338.)
20. Other South Carolina income by the partner, shareholder, or member. The safe
    harbor cannot be used as a basis for determining the tax on the composite
    return by any person who has South Carolina income from sources other than
    the pass through business filing the composite return.
    Note: The shareholder, partner, or member may, however, choose to
    participate in the composite return, report the income on his individual income
    tax return (where he may elect the safe harbor) and take credit for any tax paid
    on his behalf on the composite return.
21. No other South Carolina income by the partner, shareholder, or member but
    affidavit is not provided. Same as item 2 above.

SOUTH CAROLINA DEPARTMENT OF REVENUE
s/Ray N. Stevens
Ray N. Stevens, Director
January 11
, 2008
Columbia, South Carolina

21

135
0

STATE OF SOUTH
CAROLINA
DEPARTMENT OF

1-

ACTIVE TRADE OR BUSINESS INCOME
REDUCED RATE COMPUTATION

(Complete one 1-335 for each return)
(Attach 1-335 and all supporting Worksheets to SC1040 or SC 1041)
For the year January 1 - December 31, 2007, or fiscal tax year beginning
2007 and
Print your

Spouse's first

(Rev.
/ / )

341
200

Your Social Security
b

Spouse's Social Security number

la. Enter amount from Worksheet 1, line 3

la. $

.0

1b. Enter total of amounts from Worksheets 2, line 22, Column C

1b. $

.0

1 c. Add lines 1 a and 1 b

1c. $

.0

2a. Enter any adjustments necessary because of at-risk rules, South Carolina
net operating losses, and/or passive activity losses. Enter -0- if no adjustments are necessary
2a. $

.0

2b. Enter the amount of one half of self-employment tax on partnership
income related to South Carolina. Do not include the amount on line 2
of Worksheet 1.

2b. $

.0

2c. Line 2a minus line 2b.

2c. $

.0

3.

Add lines 1c and 2c. If zero or negative, STOP - DO NOT PROCEED ...

3. $ Pre-adjusted .0

4.

Enter amounts reasonably related to personal services of the taxpayer,
the taxpayers spouse, or any person claimed as dependent on the
taxpayer's income tax return (see Rules for Using Safe Harbor below).
Do not include amounts from W-2s or 1099s or guaranteed payments
for personal services

4. $ Additional

active trade or
business income

.0

active trade or
business income

□ Check here if using Safe Harbor
Subtract line 4 from line 3. If greater than zero, enter on SC1 040, line 44;
Schedule NR, line 39; or SC1 041, Part 1, line 2d. If zero or negative,
STOP - DO NOT PROCEED

5. $ or business

6.

Tax Year 2007 rate on qualifying active trade or business income

6.

7.

Multiply line 5 by line 6 (enter here and on SC1 040, line 8; or on SC1 041,
line 9)

7. $ Reduced tax .0

5.

L

3410102

22

Active trade

income

.0

6%
on active trade
or business income

I

F

135

STATE OF SOUTH
DEPARTMENT
OF
C
O

1-

WORKSHEET
PASS-THROUGH INCOME
A SOLE

(Rev.
9/28/07)
342

(Complete one Worksheet 1 for all Schedules C, C-EZ and F)
(Attach Worksheet 1 to your return)

For the year January 1 - December 31, 2007, or fiscal tax year beginning
Print your

2007 and

200

Your Social Security
b

Spouse's first

Spouse's Social Security number

In order to use the flat tax rate on active trade or business income, an individual, estate or trust with
pass-through income from one or more sole proprietorships or single-member LLCs not taxed as
corporations must complete Worksheet 1.
A taxpayer needs to complete only one Worksheet 1 for all federal Schedules C, C-EZ and F.

1. South Carolina net profit (loss) all federal Schedules C, C-EZ and F

1.
$

2. One half of the self-employment tax related to line 1 (enter the amount from
   line 27 of federal Form 1040 if all business income is taxable to
   South
   2.
   $
3. Subtract line 2 from line 1 and enter here and on 1-335, line 1 a
   3.
   $
   Instructions to Worksheet 1
   Line

.0

.0
.0

Enter total of South Carolina amounts from federal Schedule C, line 31; Schedule C-EZ
line 3; and Schedule F, line 36.

Line 2 Enter the amount from Form 1040, line 27 that applies to line 1. The entire amount
applies unless one or more of the Schedules C and F are from a multi-state business
or business not taxable to South Carolina.
Line3 Subtract line 2 from line 1. Enter this amount on 1-335, line la.

L

3421102

23

I

F

135
0

STATE OF SOUTH CAROLINA
DEPARTMENT OF REVENUE

1-

WORKSHEET
PASS THROUGH INCOME FROM A PARTNERSHIP
OR S

(Rev.
9/28/07)
342

(Complete a separate Worksheet 2 for each SCK-1)
(Attach each Worksheet 2 to vour return)

For the year January 1 - December 31, 2007, or fiscal tax year beginning
Print your

2007 and

200

Your Social Security
b

Spouse's first

Spouse's Social Security number

In order to use the flat rate on active trade or business income, an individual, estate or trust with
pass-through income from one or more partnerships, S corporations, or LLCs taxed as partnerships
or S corporations must complete a separate Worksheet 2 for each partnership, S corporation or LLC.
Complete a separate Worksheet 2 for each SCK-1.
Name of business:

Column A
Federal K-1
amounts

Column B
SCK-1 amounts

1. Ordinary business income (loss)
2. Net rental real estate income (loss)
3. Other net rental income (loss)
4. Guaranteed payments *
5. Interest income
6. Ordinary/qualified dividends
7. Royalties
8. Net short-term capital gain (loss)
   9a. Net long-term capital gain (loss)
   9b. Collectibles (28%) gain (loss)
   9c. Unrecaptured section 1250 gain
   1 0. Net section 1231 gain (loss)
   1 1. Other income (loss)
9. Section 179 deduction
   13 Other deductions
10. Self-employment earnings (loss) *
11. Credits
12. Foreign
    i
13. Alternative
    minimum tax (AMT) items
14. Tax exempt income and nondeductible
    expenses*
15. Distributions *
16. Items affecting shareholder basis **
17. Other information
18. Total of Column C

Column C
SC active trade or
business amounts
1.
2.
3.
4.
5.
7.

10.
11.
12.

16

Note: Worksheet 2 combines elements of federal K-1s for Forms 1065 and 1120-S.

• identifies items on Form 1065, Schedule K-1 but not on Form 1 1 20-S, Schedule K-1.
  ** identifies items on Form 1 1 20-S, Schedule K-1 but not on Form 1065, Schedule K-1.
  Ownership Interest:

L

3422102
8

%

24

I