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ODT sending notices related to refundable EPTE tax credit and add-back

Written on Dec 8, 2023

By Greg Saul, Esq., CAE, director of tax policy 

A few members recently contacted OSCPA and said that the Ohio Department of Taxation (ODT) has begun sending notices to taxpayers who are investors in electing pass-through entities (EPTE) – those who filed the IT 4738. 

ODT indicated taxpayers receiving the notice have filed an IT 1040 claiming the refundable EPTE credit, but have not reported a corresponding EPTE add-back required under R.C. 5747.01(A)(36) or the add-back did not equal the amount of the EPTE credit.   

While the EPTE add-back and the credit are both based on the taxpayer’s proportionate share of tax levied and paid by the entity, the add-back requires that the tax be excluded from federal or Ohio adjusted gross income.   

Unfortunately, ODT does not have knowledge of what the EPTE deducted for federal income tax purposes.  Since timing issues may impact when these taxes are deducted at the federal level, taxpayers that have received such a notice from ODT should conclude if the EPTE paid on their behalf was excluded from their federal or Ohio adjusted gross income and, if necessary, respond with a narrative explaining the situation. 

Please be aware that going forward, ODT is making updates to its IT K-1 to include an EPTE add-back schedule to assist investors in proper determination of the EPTE add-back.  A draft version of this form is available here

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