Indiana Efforts to Curtail Identity Theft and Tax Fraud May Require Taxpayer Completion of Quiz
The Indiana Department of Revenue has increased its effort to combat identity theft and the submission of fraudulent individual income tax returns. The DOR analyzes tax returns using a sophisticated set of ID verification and fraud rules to ensure all customers’ IDs and refunds are safe. Taxpayers may receive a letter requiring the completion of an identity confirmation quiz. Those who receive a letter to take the quiz aren’t necessarily suspected of identity theft, but are selected to ensure that their refund is sent to the correct location. Selected taxpayers can confirm their identity faster using a one-time passcode SMS verification and completing the quiz online, or by calling the DOR’s customer service.

Indiana Clarifies Composite Return Filing Requirement for Nonresident Shareholders of S Corporations, Partnerships and Trusts
This week, the Indiana Department of Revenue published a revised informational bulletin regarding requirements for S corporations, trusts and estates, and partnerships to file composite returns for nonresident shareholders, beneficiaries and partners. In addition, “Schedule Composite COR” has been created for withholding on nonresident C Corporations (“Schedule Composite” is still used for nonresident shareholders). Highlights of the informational bulletin include:

• Pass-through entities are required to file composite gross income tax returns on behalf of all nonresident owners unless they have income from other Indiana sources.  (This relieves nonresident owners from their obligation to file an individual nonresident return.  However, corporate owners and non-individual owners of a partnership or trust are still required to file Indiana nonresident returns).
• If a nonresident owner files an Indiana return after a composite return has been filed, all pass-through entity tax attributes are reported on their individual return and composite payments are treated as tax withheld.
• In the event of loss or credit carryovers, the owner must file an individual nonresident return in order to claim the loss or properly use the credit.
• For taxable years beginning January 1, 2020, composite withholding for local income taxes for nonresident owners is required when nonresident owner has a principal place of employment in an Indiana county on January 1 of respective tax year.  (If an individual owner is subject to Indiana local income tax, the individual MUST file Form IT-40PNR).
• Publicly traded partnerships are not required to withhold or file composite returns for partners.
• If owner has a zero or negative income after modifications, the owner is NOT to be included on the composite schedule.
• Penalty of $500 is imposed for failure to file composite return on all nonresident shareholders.  Owners with zero or negative income may be excluded if all others owners with income are included.
• Failure to remit composite tax due with return may result in a 20% penalty of tax not remitted by pass-through entity (even if owners have remitted individual estimated payments to cover Indiana tax liability).
• A safe harbor provision for payment of composite withholding has been provided.

Indiana also noted the following composite return limitations which apply:

• Credit for college contributions cannot offset tax liabilities for shareholders and partners.
• Credit carryforwards are allowed only as specifically permitted in instructions of relevant entity.
• Deductions for net operating losses are not permitted on composite returns.
• Personal exemptions are not permitted.
• Credit for taxes paid to other states is not permitted.
• Refunds of state or county taxes are remitted directly to the pass through entity.
• Deductions for charitable contributions are not allowed.