Information Release

PIT 2001-04 - ESBT Audit Initiative -  July 3, 2002

The Ohio Department of Taxation has initiated an audit program to identify and assess individuals who are not "adding back" to their federal adjusted gross income ("FAGI") their distributive shares of S corporation profit which they receive via a trust qualifying as both an electing small business trust ("ESBT") and a grantor trust. This audit initiative is based upon the Department’s January 19, 2000 information release directing taxpayers to make the add-back to the extent taxpayers did not include such amounts in their FAGI. Effective for post-1999 taxable years, the information release provides detailed authority supporting the required add-back.

Using computer programs and IRS-supplied databases, the Department will identify Ohio taxpayers who have not fully complied with the requirements of that information release. Upon identification of these taxpayers, the Department will issue assessments for tax, interest (8% for 2000, 9% for 2001, and 7% for 2002), interest penalty (Ohio form IT-2210), and failure-to-pay penalty. The Department will also assess statutory fraud penalties on those taxpayers whose income tax returns do not contain a clearly identifiable and prominently displayed notice that the taxpayer was not complying with the requirements of the January 19, 2000 information release.

Because of the severity of these penalties, the Department has agreed that it will not impose the failure-to-pay and statutory fraud penalties on such taxpayers if prior to September 17, 2002 the taxpayers file amended individual income tax returns (Ohio form IT-1040X) complying with the requirements of the January 19, 2000 information release and pay all additional tax, interest, and interest penalty. Taxpayers currently under audit should immediately contact the auditing agent to arrange payment of tax, interest and interest penalty.

Taxpayers and tax practitioners who have any questions regarding this information release can e-mail those questions to the Department.

See the Department’s "home page", select "E-Mail-Us", and then send in your question.