Information Release

 

This archived Information Release has been superseded by a later release. It is archived here for historical/reference purposes ONLY. For the most current Information Releases, please refer to the main "Information Releases - Current Releases" index.

IT 2008-01 - Announcement of Grace Period for Paying Certain Ohio Income Tax Amounts and Interest Without Penalties - Issued August 12, 2008; Revised November 14, 2008

The purpose of this information release is to announce a grace period for paying certain Ohio income tax amounts and interest without penalties. The revision of November 14, 2008, extends the grace period from December 1, 2008 to January 16, 2009. No other changes have been made to this release.

Inapplicability of the Ohio Resident Credit with Respect to (i) Kentucky Corporation Income Tax Paid for Years 2005 and 2006; (ii) Other States' Income Taxes Imposed at the Pass-Through Entity Level; and (iii) Other States' Non-Income Taxes Imposed at the Pass-Through Entity Level; Grace Period for Paying Certain Ohio Income Taxes.

Information Release IT 2006-02, issued March 2006, explains why Ohio residents are not entitled to claim the Ohio Revised Code section 5747.05(B) resident tax credit for taxable years 2005 and 2006 with respect to the Kentucky corporation income tax imposed on single member limited liability companies (“LLCs”) disregarded for federal income tax purposes, LLCs treated as partnerships for federal income tax purposes, LLCs treated as S corporations for federal income tax purposes, S corporations, limited liability partnerships, and limited partnerships. Although the March 2006 information release only addresses the inapplicability of the Ohio resident credit with respect to Kentucky corporation income tax paid by or for pass-through entities in which Ohio residents had an equity investment, the principles, concepts, and position set forth in that information release also apply in connection with the inapplicability of the Ohio resident credit with respect to every other state’s income tax imposed on pass-through entities in which the Ohio resident had an equity investment.   

This position is also supported in the April 2006 revision of Information Release IT 1994-01, which was revised to account for a change in the law (specifically to Ohio Revised Code section 5747.05(B) referenced above) which no longer permits Ohio resident taxpayers to claim resident credits in connection with other states’ income taxes imposed on pass-through entities in which the Ohio resident had an equity investment for taxable years ending on after June 30, 2005.

After January 16, 2009 the Ohio Department of Taxation (ODT) will issue Ohio income tax bills for tax, interest, failure-to-pay-timely penalty, interest penalty, and, if applicable, late filing penalty to those taxpayers who claimed the resident credit (i) with respect to such Kentucky corporation income tax imposed on any pass-through entity which is described above and in which the taxpayer had an ownership interest and/or (ii) with respect to income tax imposed by other states on any pass-through entity in which the taxpayer had an ownership interest for taxable years ending on or after June 30, 2005 only.  However, the Department will be issuing billing notices and assessments for all years within the statute of limitations with respect to resident credits which Ohio taxpayers have claimed in connection with other states’ non-income taxes (such as the Michigan single business tax) imposed on pass-through entities in which the Ohio resident had an equity investment.

In very few, if any, situations will the tax commissioner waive any portion of the penalties billed after January 16, 2009. Failure to pay timely all correctly-billed tax, interest, and penalties will result in the tax commissioner’s issuing of an assessment for that entire amount. Post-assessment interest will accrue on the amount assessed.

However, the Tax Commissioner has announced that he is waiving all related penalties for those taxpayers who by January 16, 2009 voluntarily pay the Ohio income tax and interest with respect to such resident credits which these taxpayers have erroneously claimed.  Taxpayers who want to take advantage of this opportunity to avoid both the failure-to-pay-timely penalty and the interest penalty with respect to such resident credits erroneously claimed must use this payment form to pay all tax and interest by January 16, 2009. 

Making such payment does not indicate that the taxpayer acquiesces to the tax commissioner’s position regarding the inapplicability of the credit with respect to the pass-through entity level-imposed state income tax.  As such, the taxpayer retains the right to challenge the tax commissioner’s position and can file timely ODT form IT AR to seek a refund of all tax and interest paid. However, taxpayers who pay the tax and interest by March 2, 2009 will avoid all penalties otherwise due on such tax paid.

If you have any questions about this matter, please contact ODT’s Taxpayer Services Division at (800) 304-3211, or e-mail questions to ODT via "Contact Us" on the department’s home page at tax.ohio.gov.