Pass-Through Entities

Voluntary Disclosure of Pass-Through Entity Tax Liabilities

In seeking to increase the level and ease of compliance with Ohio's tax laws, the Ohio Department of Taxation offers a Voluntary Disclosure Program. This program is designed for pass-through entities (S corporations, partnerships or limited liability companies treated as partnerships for federal income tax purposes) that believe they have Ohio income tax liabilities and wish to resolve them. By voluntarily disclosing the liabilities, the pass-through entity can avoid the consequences normally associated with a nexus investigation. Any pass-through entity is eligible for the program if it enters into a pass-through entity tax agreement prior to any contact from the Ohio Department of Taxation.

If you would like to establish an agreement for a pass-through entity, you or your representative should send us a letter explaining in detail the pass-through entity’s activities in Ohio and how long these activities have been performed by the pass-through entity in Ohio. It is not necessary to identify in the letter the pass-through entity and its members/partners/limited partners/shareholders. However, please use an identifier to distinguish different pass-through entities an individual may represent.

Send this letter to the following address:

Ohio Department of Taxation
Employment Tax Division
Voluntary Disclosure Program
4485 Northland Ridge Blvd
Columbus, OH 43229

Upon receipt of this letter, we shall prepare a pass-through entity tax agreement in duplicate. We shall then send to the pass-through entity’s representative both copies of the agreement. Within the time period specified in the agreement, an associate/member/partner of the pass-through entity should sign the agreements and return to the address shown above the signed agreements, the completed pass-through entity returns specified in the agreement, and payment of tax and interest (see an example of our interest computation in "Other Information", below). The division will return a signed copy for the entity’s records.

General Terms of the Pass-Through Entity Tax Voluntary Disclosure Agreement:

  • The pass-through entity must file the pass-through entity returns for the current taxable year plus the three preceding taxable years and pay the tax due plus interest. Please note the FT 1120S is required for 2009 and prior, if it is an S Corp., and the IT 4708 and/or IT 1140 are required for all disclosure years. C corporations that are direct or indirect investors in the pass-through entity cannot participate in filing an IT 4708. The pass-through entity must pay any estimated taxes currently due for the next taxable year. Use the estimated payment coupon IT 1140ES or IT 4708ES.
  • If the department has not previously contacted the pass-through entity, the tax commissioner will be precluded from assessing the pass-through entity or requiring it to file tax returns for taxable years prior to the years covered by the agreement.
  • The Tax Commissioner shall waive all penalties associated with the years covered by the agreement.
  • The Tax Commissioner may audit the income tax returns filed by the pass-through entity for the years covered by the agreement.          

Other Information:

Ohio pass-through entity tax forms and instructions can be searched for on our Web site here.

Interest is computed on the tax due for each period as follows:

# of days

365 or 366

X Interest rate X Tax due = Interest due

Interest rates:

Calendar Year

Interest rate:

2009 5%
2010 4%
2011 4%
2012 Leap Year 3%
2013 3%
2014 3%





Example: Interest on a $500 Ohio tax due for 2010 would be computed as follows (assume tax was due April 15, 2011 and paid on Jan. 31, 2014):

2011

4/15/11

through

12/31/11

=

260/365

x

4% x $500

= $

20.00

2012

1/01/12

through

12/31/12

=

366/366

x

3% x $500

= $

15.00

2013

1/01/13

through

12/31/13

=

365/365

x

3% x $500

= $

15.00

2014 1/01/14 through 1/31/14 = 31/365 x 3% x $500 = $ 1.00







 


 Total interest: ------------------------------------------------------> 
$ 51.00