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
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
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.