INFORMATION BULLETIN #72 
                                                FEBRUARY 2020 
              (Replaces Bulletin #72 dated December 2015) 
                   Effective Date: Upon Publication 
 
SUBJECT:      S Corporation, Trust, and Partnership Mandate to File a Composite 
              Return on Behalf of Nonresident Shareholders and Partners 
 
REFERENCES:   IC 6-3-3-5; IC 6-3-4-12; IC 6-3-4-13; IC 6-3-4-15  
 
DISCLAIMER: Information bulletins are intended to provide nontechnical assistance to the general public. Every attempt is made 
to provide information that is consistent with the appropriate statutes, rules, and court decisions. Any information that is not 
consistent with the law, regulations, or court decisions is not binding on either the department or the taxpayer. Therefore, the 
information provided herein should serve only as a foundation for further investigation and study of the current law and procedures 
related to the subject matter covered herein. 
 
SUMMARY OF CHANGES 
Apart from nonsubstantive, technical changes, this version of the bulletin has been changed to 
 
clarify that the college credit for contributions is not allowed to offset tax liabilities of shareholders 
and partners, to specify treatment for interest under IRC Section 163, and to clarify disallowance 
for credit carryforwards.  In addition, the bulletin has also been updated to reflect the creation of 
Schedule Composite COR for withholding on nonresident C corporations and to reflect procedures 
applicable to changes enacted by HEA 1316-2018(ss).  Further, the bulletin has been updated to 
clarify rules on composite withholding for local income taxes and the interplay between composite 
returns and return filings by a shareholder or partner.  Finally, the bulletin has been revised to 
provide rules for treatment of corporate partners. 
 
OVERVIEW 
 
NOTE: Due to the similar treatment of composite returns for S corporations, trusts, estates, and 
partnerships, whenever this bulletin mentions “pass through entity” or “owner,” it refers to S 
corporations, trusts and estates, or partnerships and their shareholders, beneficiaries, or partners, 
respectively. 
 
Pass through entities are required to file composite adjusted gross income tax returns on behalf of 
all nonresident owners. Unless they have income from other Indiana sources, nonresident owners 
are then relieved of the obligation to file an individual adjusted gross income tax return. Corporate 
owners and other non-individual owners of a partnership or trust are still required to file returns. 
 

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However, if the nonresident owner files an Indiana return, all Indiana income, losses, and other 
tax attributes must be reported on that return even if a pass through entity files a composite return.  
For example, if an owner has $20,000 of income from a pass through entity and $40,000 from an 
unrelated sole proprietorship, the owner must report all $60,000 of income. Any composite tax 
remitted by the pass through entity is then treated as tax withheld on behalf of that owner. 
 
Further, in the event of loss or credit carryovers, the owner must file a return in order to claim the 
loss or credit and to properly use the credit. 
 
COMPOSITE RETURN LIMITATIONS 
 
The following limitations and conditions apply to those owners included in a composite return.  
       Any short-term capital gain (loss) plus any long-term capital gain (loss) specifically 
        allocated to shareholders shall be allowed subject to any “passive activity” loss limitations 
        pursuant to IRC Section 469 and capital loss limitations imposed on taxpayers by IRC 
        Section 1211. Such limitation shall be determined as if the pass through entity was the sole 
        source of the owner’s Indiana income. 
       Any deduction required for interest disallowed under IRC Section 163(j) shall be permitted.  
        Any addback for the owner shall be determined as if the pass through entity was the sole 
        source of the owner’s Indiana income. 
       No credit carryforwards shall be permitted except to the extent specifically permitted in the 
        instructions for the relevant entity form (i.e., IT-20S, IT-41, or IT-65). For 2019, these 
        credits are the credits reported on Schedule IN-OCC. 
       No deduction shall be permitted for interest paid on investment indebtedness under Section 
        163(d) of the IRC (limitation on investment interest indebtedness). 
       No deduction shall be permitted for net operating losses. 
       No personal exemptions shall be permitted. 
       No deduction shall be allowed for charitable contributions allowed or allowable pursuant 
        to Section 170 of the IRC. 
       Any college credit for contributions is NOT permitted pursuant to IC 6-3-3-5.  
       No credit shall be permitted unless the provisions of the credit specifically allow flow-
        through of the credit to owners. 
       No credit is permitted for taxes paid to other states. 
       Any refund of state or county taxes will be remitted directly to the pass through entity. 
 
SPECIAL NOTE FOR LOCAL INCOME TAXES 
 
As a general rule, withholding and remittance of local income tax for non-resident owners is not 
required.  However, in the case in which the non-resident owner has a principal place of 
employment or self-employment in an Indiana county on January 1, withholding of local income 
tax is required for the county of principal employment or business.   
 
Thus, for instance, if an individual has their principal place of employment in St. Joseph County 
on January 1, does not change their principal place of business or employment, and owns an 
interest in an S corporation doing business in both St. Joseph County and Elkhart County, the 

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portion of the S corporation’s income from St. Joseph County is subject to local income tax, 
while the portion from Elkhart County is not subject to local income tax. 
 
The requirement for reporting county tax for composite tax purposes shall begin for taxable years 
beginning after December 31, 2019. However, this does not relieve the owner of the requirement 
to report county income tax on the owner’s return if the tax is otherwise required. 
 
If the individual has provided a Form WH-4 to the pass through entity for employee withholding 
tax, the pass through entity shall also use that information to determine the county for 
nonresident withholding. Also, the owner may provide a Form WH-4 to corporation pass through 
entity if the pass through entity does not have a form on file. 
 
If an individual owner is subject to Indiana local income tax, the individual MUST file Form IT-
40PNR. 
 
COMPOSITE FILING PROCEDURES 
 
The following procedures must be followed by S corporations, partnerships, trusts, and estates 
filing composite returns: 
         
 (1)     For withholding on non-corporate entities (individuals, trusts, and other pass-through 
         entities, including S corporations), complete the Schedule Composite and set out the 
         calculation of tax attributable to each nonresident shareholder. Indicate the names of 
         all nonresident shareholders required to be included in the composite return. For 
         nonresident C corporations, use the Schedule Composite COR and include similar 
         information.   
  
         For a corporate entity, the entity should be treated (1) as a C corporation unless the 
         entity responsible for withholding knows that the corporation is an S corporation and 
         (2) for purposes of any  foreign source dividend  deduction, be treated as an S 
         corporation unless the entity responsible for withholding knows that the corporation is 
         a C corporation. Withholding for C corporations is required at the C corporation tax 
         rate (or financial institutions tax if the corporation is subject to that tax) unless the C 
         corporation is not subject to tax (e.g., a charitable organization) AND the income is 
         known to not be unrelated business income for the C corporation.   
          
         A partnership may rely on the good-faith representation of a corporate entity with 
         regard to whether the corporation is a C corporation or an S corporation, and as to 
         whether a non-profit can treat income as unrelated business income. 
  
         Subject to the limitations above, separately compute the Indiana tax liability of each 
         nonresident owner. Enclose these composite schedules with the S Corporation Income 
         Tax Return (Form IT-20S), the Partnership Return (Form IT-65), or the Fiduciary 
         Income Tax Return (Form IT-41). 
 

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          NOTE: For a partnership or S corporation, composite income means each nonresident 
          owner’s distributive share of income, including modifications and deductions, from the 
          partnership or S corporation that is derived from sources within Indiana as determined 
          by the use of the apportionment formula described in IC 6-3-2-2(b) on the partnership’s 
          or S corporation’s income. Any limitations imposed on the respective owners by 
          Section 469 of the Internal Revenue Code (passive activity loss rules) will apply to the 
          composite return. 
   
          A pass through entity is not required to include a publicly traded partnership in the 
          composite return if the publicly traded partnership is qualified under Section 7704(c) 
          of the Internal Revenue Code and has agreed to file an information return listing the 
          name, address, and taxpayer identification number for each unit. 
           
          Publicly traded partnerships are not required to withhold or file composite returns for 
          their partners. 
             
     (2)  Enter the total tax liability on Form IT-20S, IT-41, or IT-65 of those nonresident 
          owners included in the composite return. Enter this amount on the line for total 
          composite tax. Any nonrefundable credits permitted to be used on the composite return 
          and allowed to be passed through may be used to reduce the reported tax due amount. 
 
     (3)  Insert the total amount paid with Form IT6-WTH on behalf of the nonresident owners 
          included in the composite return, on the line for total composite withholding IT-6WTH 
          payments. Do not include amounts to be paid with the filing of the IT-20S, IT-65, or 
          IT-41 as payment of composite tax due. 
          
 (4)      Any balance due or overpayment reported as a result is to be remitted by or refunded      
          to the pass through entity. 
  
COMPOSITE WITHHOLDING PAYMENTS (FORM IT-6WTH) 
 
Amounts withheld from nonresident owners included in the composite return should be remitted 
                                        th         th
with Form IT-6WTH. Payment is due the 15  day of the 4  month following the close of the pass 
through entity’s tax period. Multiple payments and IT-6-WTH vouchers may be filed throughout 
the tax year or during the extension period. If additional payments are necessary, please remit such 
taxes     through the     department’s  e-services portal, INTIME,         available at 
https://intime.dor.in.gov/eServices/_/. 
 
The pass through entity filing a composite return for the nonresident owners is liable for the tax 
shown on the return and for any additional tax, interest, and penalty as a result of a subsequent 
audit and examination. However, if an owner has a zero or negative income after modifications, 
do NOT include the owner on a composite schedule. A penalty of $500 is imposed on a partnership 
or S corporation that fails to file a composite return for all nonresident shareholders. However, if 
the  composite  return  otherwise  includes  an  owner  with  zero  or  negative  income  after 
modifications, the penalty is subject to waiver if all other nonresident shareholders with positive 
income after modifications are included. However, the pass through entity must demonstrate that 

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they did not list the owner because of the owner’s zero or negative income after adjustments. 
Additionally, the pass through entity must provide the relevant information for such excluded 
owners upon request. A Schedule IN K-1 still must be provided to the owner and to the department 
for all owners even if the owner has a negative income after adjustments. In addition, failure to 
remit the composite tax due with the pass through entity’s return may result in a 20% penalty of 
the tax not remitted by the pass through entity, even if the tax is remitted by the owners. 
 
The composite schedule shall be due with the pass through entity’s return. If the IRS allows the 
pass through entity an extension to file its federal income tax return, the corresponding due dates 
for its Indiana income tax returns are extended automatically for the same period, plus 30 days. 
 
SAFE HARBOR PROVISION 
 
A partnership or S corporation will not be penalized for failure to pay the full amount of tax shown 
on the return or to pay the deficiency of the withholding taxes due if the partnership or S 
corporation pays the department at least 80% of the withholding tax due for the current year or 
                                                                     th               th
100% of the withholding tax due for the preceding year before the 15  day of the 4  month after 
the end of the S corporation’s taxable year. However, if the remaining unpaid tax and interest is 
not remitted by the extended due date for the partnership or S corporation return, late payment 
penalties may be assessed on the unpaid balance. 
 
A partnership or S corporation permitted an extension of time to file its income tax return under 
IC 6-8.1-6-1 will be granted the same extension for withholding if withholding only occurs once 
a year. However, in order to qualify for penalty relief, the partnership or S corporation is required: 
        (1) to meet the safe harbor provision set forth in the paragraph or otherwise pay 90% of 
            the tax reasonably expected to be due by the due date of the pass through entity return 
            prior to any extension; and  
        (2) to remit any unpaid tax and interest by the extended due date. 
             
An extension does not relieve the pass through entity for interest on any unpaid tax or penalty 
except as specifically provided by law.  
 
_______________________________ 
Robert J. Grennes, Jr. 
Commissioner