Update from Bob Grennes, Commissioner Indiana Department of Revenue
“Preparing our organization and systems to effectively implement SEA 2’s PTET provisions is a top priority throughout the department. DOR’s very best team members, from departments across the agency, are working tirelessly to take all required actions as soon as humanly possible. The high-quality information already developed and published, and internal systems and operations implementation progress already completed, represent the great work our team is doing on this complex issue.
We will continue to enhance all associated instructions, forms, guidance, and FAQs, as determined necessary. Our vendor certification team will also continue to do everything they can to facilitate timely implementation with impacted software vendors, though ultimately their decision whether to participate or not is out of our control.
We truly appreciate the positive collaboration and teamwork with our INCPAS and tax practitioner partners. We also appreciate everyone’s patience, as we tackle this very complex implementation, in the middle of the individual tax season and in concert with everything else being skillfully handled by our team.”
DOR PTET Update on Software Vendors
Our goal is to share accurate and reliable information, and because of our inability to systematically confirm vendor acceptance of Code 15 we will not be able to provide a list of vendors to you (or on our website). We recommend that your members direct questions and concerns to their software provider to receive the most reliable information about their vendor’s configuration. If a vendor chooses not to support Code 15 this year, customers do have the option to file via paper.
DOR PTET Electronic Signatures
A digital signature will be acceptable in the same manner as other forms.
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Key concerns among members planning to implement SB2 remain, “how are we going to do this?!” Specifically, how: (1) is the Department of Revenue going to have the ability to implement a retroactive piece of legislation, mid-season, and (2) are software vendors going to be responsive? In its current form (2/9/2023), the Department of Revenue has a plan, which, of course, may change as bill amendments are offered. The Department remains dedicated and optimistic they will be prepared to begin accepting filings with the PTET election beginning April 1.
So, what’s the plan? Today, DOR plans to utilize the 2022 version of the Schedule Composite for both forms IT-65 and IT-20S. Electing entities will be instructed to include Indiana resident partners or shareholders on the composite schedule by utilizing exception code 15. The election itself would be made via a hardcopy form and then be mailed directly to the Department. Electing entities will be encouraged to also attach a copy of the election form with their IT-65 or IT-20S, but it will not be required (if software is unable to accommodate an attachment). INCPAS member groups working on SB2 are working to help identify challenges in using exception code 15 in an attempt to preemptively troubleshoot issues.
Additionally, the Department will prescribe procedures from conveyance of the credit by non-electing entities, which will include IT-41 filers in addition to IT-20S and IT-65 filers. For this method of implementation to work, It is imperative that software vendors allow for the inclusion of Indiana residents on the composite schedule for 2022; however, this was already a requirement. As recently as this week, DOR has sent a message to software vendors making them aware of the requirement and SB2. Below is what was sent:
"Software vendors should take note that the 2022 version of the Schedule Composite for both forms IT-65 and IT-20S and the corresponding instructions include the ability to include a resident partner or shareholder in the composite schedule using exception code 15. The use of this code would normally be relatively rare. It is expected that the Indiana General Assembly will enact a new pass-through entity tax in the next few weeks. It is also expected that it will be effective retroactively to January 1, 2022. If this comes to fruition, the PTET will be effectuated for 2022 via the composite schedule by instructing electing pass-through entities to include their Indiana resident partners or shareholders on the composite schedule by utilizing exception code 15. The current version of the PTET legislation would allow pass through entities to make the PTET election for 2022 starting April 1, 2023. The election will be made via a hardcopy form that will be mailed directly to the Department. The electing entities will also be encouraged to attach a copy of the election form with their IT-65 or IT-20S, but it will not be required if the software is unable to accommodate such an attachment. The Department also will prescribe procedures from conveyance of the credit by non-electing entities, which will include IT-41 filers in addition to IT-20S and IT-65 filers. It is imperative that your software allow for the inclusion of Indiana residents on the composite schedule for 2022, which was already a requirement. The Department will provide more detailed filing instructions when SB 2 is passed. Here is a link to the most recent version of the bill: https://beta.iga.in.gov/legislative/2023/bills/senate/2/details."
The Department will continue monitoring the content and progress of SB2 very closely, and communicate changes as they occur. Members of DOR Policy, Project Management, IT, and Business Operations Resources teams are also working diligently to develop internal processes, systems updates, instructions, internal and external guidance, etc. As always, we will share information, instructions, procedures, etc. with you as they are finalized. Practitioners have asked, if we’re using this methodology – in the interest of getting returns out the door, might it be possible to force in-state residents that receive a K-1, onto the composite schedule, and then make a payment on their behalf as well as all out-of-state owners? The department cautions against this approach as current drafts of SB2 don’t
allow for the election until April 1. It is important to remember that the situation remains very fluid and you must make decisions on how to manage and advise your clients based on the information at hand while being flexible to adjust as needed.
2023 Filings & Forms
Filing instructions and methodology are expected to change for 2023. Updated forms will be included in their software updates.
Note: DOR has confirmed electronic/digital signatures WILL be accepted.
As always, we will continue working with DOR and share information with you as it is finalized. Please share your questions and concerns in the members-only
Open Forum community.
Noncode Provision
In addition to questions regarding the preparedness of DOR and software vendors, we’ve received questions regarding relief for “late payment of tax” for the 2022 tax year. For those looking for clarity on this issue, we refer you to the noncode provision found on page 61 of the bill, lines 28-42. This provision, you will notice, is also where DOR laid necessary groundwork for 2022 implementation.
SECTION 21. [EFFECTIVE JANUARY 1, 2022
14 (RETROACTIVE)] (a) This SECTION applies to the election and
15 imposition of the passthrough entity tax pursuant to IC 6-3-2.1, as
16 added by this act, for tax years ending before January 1, 2023.
17 (b) For the applicable period, the tax shall be paid and filed in
18 conjunction with and consistent with the filing of a composite tax
19 return pursuant to IC 6-3-4-12 or IC 6-3-4-13.
20 (c)Notwithstanding any other provision, no estimated payments
21 shall be due for the applicable period other than any such payment
22 that is currently required for purposes of withholding tax pursuant
23 to IC 6-3-4-12 or IC 6-3-4-13.
24 (d) All provisions of IC 6-3-2.1, as added by this act, shall apply
25 to the applicable period unless any such provision is inconsistent
26 with the provisions and procedures applicable to the filing of
27 composite returns pursuant to IC 6-3-4-12 or IC 6-3-4-13.
28 (e) A pass through entity that elects to pay the tax imposed by
29 IC 6-3-2.1, as added by this act, for the applicable period will not
30 be subject to an underpayment penalty pursuant to
31 IC 6-8.1-10-2.1(a)(2) for failure to pay any tax due pursuant to
32 IC 6-3-2.1, as added by this act, for any such tax not remitted as of
33 the due date of the return, including extensions. This provision
34 does not waive any interest due on such amounts pursuant to
35 IC 6-8.1-10-1.
36 (f) Notwithstanding any provision to the contrary in
37 IC 6-8.1-10-1 or IC 6-8.1-10-2.1, if the tax under IC 6-3-2.1, as
38 added by this act, is due before August 31, 2024, interest and
39 penalty for late payment of the tax shall be waived for the period
40 from the due date to August 30, 2024.Interest and penalty shall be
41 due on any amounts unpaid after August 30, 2024, in the manner
42 otherwise provided by law.
Note: The Indiana Department of Revenue’s role in this process is working with internal departments and external vendors to implement what is enacted. Their team's current working plan is based upon the amended bill (2/1/23). If amendments are made, plans for implementation may change. Either way, the Department is working to implement the final version of SB2 upon passage.