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13. My business reports on a fiscal year basis. How do I determine the amount to withhold?

A fiscal year business should calculate member withholding based on the year in which the fiscal year ends. For instance, if an entity's fiscal year is July 1, 2006 through June 30, 2007 , income for that period is considered income earned in 2007 for a calendar-year filing member. For 2006 purposes, withholding can be based either on 90% of income for the period 7/1/06 - 6/30/07 or 100% of the income for the period 7/1/05 - 6/30/06.

Example:

Partnership XYZ operates on a fiscal year ending on 9/30. Maine apportionment is 50%.

Partner A is not a resident of Maine and owns a 33% share of partnership XYZ. Partner A files a calendar year return.

IRS requires Partner A to include fiscal year partnership results in his calendar year return for the year during which the partnership year ends. Thus, XYZ results for fiscal year ended 9/30/07 would be included in Partner A's calendar year 2007 return.

XYZ had entity income amounting to $20,000 for FYE 9/30/06. Maine apportionment is $10,000 and Partner A's share is $3,333. XYZ's budget projections for FYE '07 estimate income of $30,000. Maine income would be $15,000 and Partner A's share would be $5,000.

Thus, the income base for calculating the withholding requirement for Partner A for calendar 2007 would be $3,333 (100% of prior year) or $4,500 (90% of current year). Assuming XYZ chooses to base withholding on 100% of prior year, they would remit $71 ([$3,333 x 8.5%]/4) for Partner A for each quarter during 2007. Although the entity may estimate current year income for purposes of withholding, penalties assessed on the entity will be based on current year actual income.

This method allows the entity to make one calculation for withholding at the beginning of the year that will last for the entire year. On the other hand, if they so choose, the entity could revise the calculation during the year to more closely reflect actual liability for the tax year.

Rev. 12/31/07