Form DER-1 General Information
What’s New for 2016?
● The 2015 Montana legislature passed legislation revising the
requirements to remit tax or pay composite tax on behalf of
its owners.
● Beginning in tax year 2016, pass-through entities are required
to withhold on behalf of their owners that are also pass-
through entities, also known as a second-tier pass-through
entity. An owner that qualies as a domestic second-tier pass-
through entity may le Form PT-AGR to request a waiver
from the withholding requirement. A domestic second-tier
pass-through entity is a pass-through entity whose interest
is entirely held, either directly or indirectly, by one or more
resident individuals.
● The second tier pass-through entity owner statement, Form
PT-STM, has been eliminated. Multi-year waiver requests
led in preceding tax years will be void for tax year 2016. The
pass-through entity owner tax agreement, Form PT-AGR,
has been expanded and now includes the new entity type,
domestic second-tier pass-through entity.
● Withholding is only required on behalf of owners whose
distributive share of Montana source income is $1,000
or more.
What is a disregarded entity?
A disregarded entity is a business entity that is disregarded as a
separate entity from its business owner for federal tax purposes. If
an entity is disregarded as a separate entity for federal income tax
purposes, it is also disregarded as a separate entity for Montana
income tax purposes.
Examples of disregarded entities include a domestic single
member limited liability company (SMLLC) that does not elect
to be classied as a corporation for federal tax purposes, a
corporation that is a qualied REIT subsidiary, and a corporation
that is a qualied subchapter S subsidiary.
Who is required to le Form DER-1?
Single member limited liability company: An SMLLC treated as a
disregarded entity, whether formed in Montana or in another state
or country, is required to le Form DER-1, Montana Disregarded
Entity Information Return, each year the entity does business in
Montana or has Montana source income.
Exception: Form DER-1 is not required if the disregarded entity
is an SMLLC whose sole member is an individual, estate or trust
who has been a full-time Montana resident during the applicable
reporting period.
IRC § 761 electing partnership: A section 761 electing partnership
is required to le Form DER-1, Montana Disregarded Entity
Information Return, each year the entity does business in
Montana or has Montana source income.
Qualied subchapter S subsidiary as dened in IRC § 1361(b)(3):
Any corporation described in IRC § 1361(b)(3) whose parent
elects to have the subsidiary be treated as a qualied subchapter
S subsidiary is required to le Form DER-1, Montana Disregarded
Entity Information Return, each year the entity does business in
Montana or has Montana source income.
Qualied real estate investment trust subsidiary as dened in IRC
§ 856(i)(2) (REIT): Any corporation dened as a qualied REIT
subsidiary in IRC § 856(i)(2) that has Montana source income
and has assets, liabilities, and items of income, deductions, and
credits that are included in the federal income tax return of its
parent REIT, must le Form DER-1 on or before the due date of
its parent REIT’s information return.
Real estate mortgage investment conduit as dened in IRC §
860D (REMIC): Every unincorporated REMIC described in IRC
§ 860D that has Montana source income must le a copy of its
federal Form 1066 (Real Estate Mortgage Investment Conduit
Income Tax Return) on or before the federal due date (including
extensions). Generally, REMICs must le the Form 1066 by April
15. However, if the entity is ling its nal return, Form 1066 is due
by the 15th day of the fourth month following the date the REMIC
ceased to exist.
What is Montana Source Income?
In general, Montana source income is the separately and non-
separately stated income, gain, loss, deduction or credit, or items
of income, gain, loss, deduction or credit that you have derived
from a trade, business, occupation or profession carried on in
Montana or that was derived from the sale or other transfer, or the
rental, lease, or other commercial exploitation of property located
in Montana.
What is the due date of Form DER-1?
If the Disregarded Entity is a: Then the Form DER-1 is due:
Single Member Limited Liability Company whose single
member owner is a:
• C corporation,
• S corporation,
• Real Estate Investment
Trust (REIT)
On or before the 15th day of
the third month following the
close of the owner’s annual
accounting period.
Qualied Subchapter S
Subsidiary
On or before the due date
of the parent S corporation’s
information return.
Qualied REIT Subsidiary On or before the due date of
the parent REIT’s information
return.
• Individual
• Estate
• Non-Grantor Trust
• Partnership
• Real Estate
• Mortgage Investment
Conduit (REMIC)
On or before the 15th day of
the fourth month following the
close of the owner’s annual
accounting period.
Electing IRC § 761 Partnership On or before the 15th day of
the fourth month following the
close of the owner’s annual
accounting period.
Any other single member LLC
not described above.
On or before August 31, 2017
If the Disregarded Entity is a: Then the Form DER-1 is due:
Entity Type Other than Single Member Limited Liability
Company
IRC § 761 Electing
Partnership (Syndicate,
Group, Pool, Joint Venture
or other Unincorporated
Organization)
On or before the 15th day of
the fourth month following the
close of the owner’s annual
accounting period.
Qualied Subchapter S
Subsidiary as dened in IRC
§ 1361(b)(3)
On or before the 15th day of
the third month following the
close of the owner’s annual
accounting period.
Qualied Real Estate
Investment Trust Subsidiary
as dened in IRC § 856(i)(2)
(REIT)
Real Estate Mortgage
Investment Conduit as
dened in IRC § 860D
(REMIC)
See “Who is required to le
Form DER-1?” regarding due
dates.
► If the due date falls on a holiday that defers a ling date as
recognized by the IRS, the return may be led on the rst
business day after the holiday.
Where to File
File Form DER-1 FREE through our website. For more
information, visit revenue.mt.gov and click on
TransAction Portal (TAP).
Or mail the Form DER-1 to:
Montana Department of Revenue
P.O. Box 8021
Helena, MT 59604-8021
Extension of Time to File
The disregarded entity can obtain an automatic extension of
time to le its information return if its owner has a valid extension
of time. The extended due date is the same as the owner’s
federal extended due date. The disregarded entity is allowed
an automatic extension to le its information return of up to six
months if the owner is not required to le a federal information
return.
What forms have to be led?
Additional ling requirements are listed below for a disregarded
entity that has a nonresident individual, nonresident estate,
nonresident trust, foreign C corporation or a partnership, S
corporation, second-tier pass-through entity or disregarded entity
as its owner during the year. These ling requirements are:
• Schedule I (Montana Disregarded Entity Owner Information)
identies the owner or owners of the disregarded entity. If one
of the owners is a nonresident individual, nonresident estate,
nonresident trust, foreign C corporation, or second tier pass-
through entity, the entity may be required to pay tax to the
Montana Department of Revenue on behalf of the owner as
provided in Montana Code Annotated 15-30-3313.
• Form PT-AGR (Montana Pass-Through Entity Owner Tax
Agreement) is completed by the nonresident individual,
nonresident estate, nonresident trust, foreign C corporation or
domestic second-tier pass-through entity that agrees to timely
le a Montana tax return, pay all taxes and be subject to the
personal jurisdiction of Montana. A new Form PT-AGR is not
required to be led each year. The Form PT-AGR must be led
by the due date of the disregarded entity’s return. The Form
PT-AGR is led separately; it is not attached to the Form DER-
1. A disregarded entity needs to retain the agreements as part
of its tax records.
• The disregarded entity is required to withhold on a second-tier
pass-through entity owner that does not qualify as a “domestic
second-tier pass-through entity owner”.
The entity is unable to obtain a signed Form PT-AGR
from the owner of the disregarded entity. What does it
have to do?
If the entity is unable to obtain a signed Form PT-AGR, the entity
is required to remit an amount based on the owner’s share of
Montana source income reported on Schedule I, Column D.
If the owner is a foreign C corporation, multiply the foreign C
corporation’s Montana source income by 6.75% to determine the
amount of the remittance.
If the owner is a nonresident individual, nonresident estate,
nonresident trust, or a second-tier pass-through entity, multiply
the owner’s Montana source income by 6.9% to determine the
amount of the remittance.
What happens if the disregarded entity is late in ling
Form DER-1?
The entity is charged a late ling penalty if Form DER-1 is led
after the due date, including the automatic extension, unless the
entity can show reasonable cause for not ling on time. For a
disregarded entity that does not have a tax year, the penalty is
based on the number of owners on December 31 of the preceding
year. This penalty is calculated for up to ve months.
Form DER-1 Instructions
Heading
Name and Address. Enter the entity’s true name (as set forth
in the charter or other legal document creating it) and mailing
address.
FEIN or SSN. Enter the FEIN (Federal Employer Identication
Number) or SSN (Social Security Number) of the disregarded
entity. If the FEIN or SSN is the same as the owner’s FEIN or SSN
reported on Schedule I, mark the box.
Lines 1 through 5 – Complete lines 1 through 5 as they relate to
the disregarded entity and not the owner of the disregarded entity.
Lines 2 and 3 – Complete either line 2 or 3. If the disregarded
entity was incorporated or formed in Montana (a domestic entity),
complete line 2. If the disregarded entity was incorporated or
formed in a jurisdiction other than Montana (a foreign entity)
complete line 3.
Line 4 – Enter the letter and number of the organizational ID
assigned by the Montana Secretary of State.
Line 6 – Disregarded Entity Type. First determine if the
disregarded entity is a single member limited liability company
(mark box 6A) OR another entity type (mark box 6B).
6A. Single Member Limited Liability Company (SMLLC). If
you marked the box indicating the disregarded entity is
an SMLLC, the next step is to mark the appropriate box
corresponding with the type of owner listed. For example,
if the owner of the SMLLC is an S corporation, line 6A
would show one mark in box A and another mark in the S
corporation box.
6B. Entity Type Other than SMLLC. If you marked the box
indicating an entity type other than SMLLC, see the
instructions for “Who is required to le Form DER-1?” to
determine when the Form DER-1 is required to be led.
These particular entity types are not required to le the
form unless certain events occur in order to “trigger” a ling
requirement.
If you marked the box indicating that you are an IRC § 761
partnership or an IRC § 1361(b)(3) qualied subchapter S
subsidiary, enter the date of your federal election.
Line 7 – Total Income Tax Withholding. Enter the total from
Schedule I, column E or F. This is the total amount withheld on
behalf of the nonresident owner, foreign C corporations, and
second-tier pass-through entity owners.
Line 8a – Total Montana Mineral Royalty Tax Withheld. Enter
the total amount of mineral royalty tax the disregarded entity paid
and/or the total amount of Montana mineral royalty tax withheld
on behalf of the disregarded entity by a lower-tier pass-through
entity. These amounts will be reported on federal Forms 1099 and
Montana Schedule K-1. Please attach copies of the Form(s) 1099
and Montana Schedule(s) K-1 you received that report amounts
withheld on your behalf.
Royalty payments made to owners of Montana mineral rights
are subject to withholding if certain thresholds are met. This
withholding is different than the amounts deducted from the
disregarded entity’s royalty payments for production taxes.
Line 8b – Mineral Royalty Tax Withheld Distributed to Owner.
Enter the amount of mineral royalty tax withheld reported on line
8a that is distributed to the owner.
Line 8c – Montana Mineral Royalty Tax Withheld Attributable
to Disregarded Entity. Subtract line 8b from line 8a. This is the
amount of Montana mineral royalty tax withheld that is attributable
to the disregarded entity.
Line 9a – Total Montana Pass-Through Withholding. If the
disregarded entity has an ownership interest in a pass-through
entity that had Montana source income and the pass-through
entity paid Montana income tax on behalf of the disregarded
entity, enter the amount here. This amount is reported to the
disregarded entity on a Montana Schedule K-1. Please attach
copies of the Montana Schedule(s) K-1 you received that report
amounts withheld on your behalf.
Line 9b – Montana Pass-Through Withholding Distributed
to Royalty Owner. Enter the amount of Montana pass-through
withholding reported on line 9a that is distributed to the owner.
Line 9c – Montana Pass-Through Withholding Attributable
to Disregarded Entity. Subtract line 9b from line 9a. This is the
amount of Montana pass-through withholding that is attributable to
the disregarded entity.
Line 10 – Total Withholding Payments Attributable to
Disregarded Entity. Add lines 8c and 9c.
Line 11 – Subtract line 10 from line 7.
Line 12 – Late Filing Penalty. A late ling penalty is charged if
Form DER-1 is led after the due date, including the automatic
extension. The penalty is $10 multiplied by the number of months
or fractions of a month that the entity does not le the disregarded
entity information return. This penalty is calculated for up to ve
months. For example, if a disregarded entity les the Form DER-1
six months after its due date, the late le penalty would be $50
($10 x 5 months).
Please Note: A late ling penalty is not imposed on an entity that
has ten or fewer owners, each of whom is an individual, an estate
of a deceased individual or a C corporation, and if the owners
have led the required tax returns or other required reports timely
and have paid all taxes when due.
Line 13 – Late Payment Penalty. If the entity hasn’t paid the tax
liability (line 7) by the due date of the return, it will have to pay a
late payment penalty. This penalty is 1.2% per month or fraction
of a month on the tax liability that was not paid by the original due
date. This penalty cannot exceed 12% of the tax liability on line 7.
Line 14 – Interest. Compute interest on any tax liability (line 7)
that has not been paid by the due date of the tax return and enter
the total on this line.
If 100% of the tax liability is not paid by the original due date,
interest is due at a rate of 8% per year, computed daily on the
unpaid balance.
To calculate the interest, multiply line 7 by 0.02192% (0.0002192)
times the number of days after the unextended due date.
Line 15 – Total, Penalties and Interest. Add lines 7 through 10;
enter the result on this line.
Line 16. Add lines 11 and 15.
Line 17 - Amount You Owe. If the amount on line 16 is greater
than zero, enter it on this line. This is the amount due with the
disregarded entity’s return. The disregarded entity can pay the
amount it owes by:
• e-check or credit/debit card – visit revenue.mt.gov for more
information and instructions, or
• money order, personal check or cashier’s check payable to
the MONTANA DEPARTMENT OF REVENUE. Remember
to use a voucher, sign the check and write the disregarded
entity’s taxpayer identication number (either a SSN or FEIN)
and “Tax Year 2016” on the memo line. A payment voucher is
available online at revenue.mt.gov under Forms.
Line 18 - Refund. If the amount on line 16 is less than zero,
enter it on this line as a positive number. This is the amount the
disregarded entity overpaid.
If you would like to use direct deposit, enter the nancial
institution’s routing number (RTN#) and the account number
(ACCT#) in the space provided. The routing number will be
nine digits and the account number can be up to 17 characters,
including numbers and letters. Mark whether the account is a
checking or savings account and if the refund will go to a bank
outside of the United States and its territories (Midway Islands,
Puerto Rico, American Samoa, U.S. Virgin Islands, Federated
States of Micronesia, and Guam). If the nancial institution does
not accept the direct deposit, we will mail you a refund check.
Schedule I Instructions
Include all owners on this form. Except for an IRC § 761
partnership, or when spouses are considered a single taxpayer,
the disregarded entity should have only one owner who owns
100% of the entity.
Column A – Name and Address of Owner. Enter the name and
complete mailing address of each owner.
Column B – Identication Number. If the owner is an individual
or an individual ling federal Schedule C, enter the individual’s
social security number (SSN).
If the owner is any other entity type listed on page 1, line 6A, enter
the federal employer identication number (FEIN).
Column C – Percentage of Ownership. Enter each owner’s
percentage of ownership in the disregarded entity that is used to
calculate the owner’s share of income (loss). Generally, this is
100% unless the disregarded entity is an IRC § 761 partnership.
Column D – Montana Source Income. Enter each owner’s share
of the disregarded entity’s Montana source income (loss).
Column E and Column F. Enter the amount remitted on behalf
of each owner. For a foreign C corporation, the amount remitted
is 6.75% of the Montana source income. For a nonresident
individual, estate, trust or a second-tier pass-through entity,
the amount remitted is 6.9% of the Montana source income.
Transfer the amount of these columns to page 2, line 7, of the
Form DER-1.
Column G – PT-AGR.
If the owner is a nonresident individual, nonresident estate,
nonresident trust or foreign C corporation or a domestic second-
tier pass-through entity, the owner must provide a Form PT-AGR
to the disregarded entity if the disregarded entity does not pay tax
on behalf of the owner for the owner’s share of Montana source
income. If the disregarded entity is ling the agreement to the
department this year, enter “2016.”
