INFORMATION BULLETIN #72 
                    INCOME TAX 
                    DECEMBER 2015 
            (Replaces Bulletin #72 dated January 2014) 
                    Effective Date: Jan. 1, 2015 
 
SUBJECT:            S Corporation, Trust, and Partnership Mandate to File a Composite 
                    Return on Behalf of Nonresident Shareholders and Partners 
 
REFERENCES:         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 
allow a publicly traded partnership that is a nonresident partner to be excluded from being part of 
the composite return. Permits an entity that files an extension of time to file as provided in IC 6-
8.1-6-1 also will be permitted the same extension for withholding if the payment or credit to the 
nonresident shareholder only occurs once a year. Provides that publicly traded partnerships are 
not required to file a composite return for the publicly traded partnership’s nonresident partners.  
 
OVERVIEW 
S corporations, trusts, and partnerships are required to file composite adjusted gross income tax 
returns  on  behalf  of  all  nonresident  shareholders,  beneficiaries,  or  partners.  Unless  they  have 
income from other Indiana sources, nonresident shareholders are then relieved of the obligation 
to file an individual adjusted gross income tax return. 
 
NOTE:  Due  to  the  similar  treatment  of  composite  returns  for  corporations,  trusts,  and 
partnerships, whenever this bulletin mentions “S corporation” or “shareholder,” it refers to the S 
corporation, trust, or partnership and the shareholder, beneficiary, or partner, respectively. 
 
COMPOSITE RETURN LIMITATIONS 
The following limitations and conditions apply to those shareholders 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 

Information Bulletin #72 
Page #2 

         limitations  pursuant  to  IRC  Section  469  and  capital  loss  limitations  imposed  on 
         noncorporate taxpayers by IRC Section 1211. 
        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 individual contributions is limited on the composite return to the 
         lower  of  each  shareholder’s  state  tax  liability  or  $100  (no  joint  credit  with  spouse  is 
         permitted). 
        No credit is permitted for taxes paid to other states. 
        Any refund of state or county taxes will be remitted directly to the S corporation. 
 
COMPOSITE FILING PROCEDURES 
The following procedures must be followed by S corporations and partnerships filing composite 
returns: 
          
 (1)      Complete  the  IT-20SCOMP,  IT-41  COMP,  or  IT-65COMP  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. Subject 
          to  the  limitations  above,  separately  compute  the  Indiana  tax  liability  of  each 
          nonresident  shareholder.  Enclose  this  composite  schedule  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). 
 
          NOTE:  For  a  partnership,  composite  income  means  each  nonresident  partner’s 
          distributive share of income from the partnership 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 income. Any limitations imposed on the respective partners 
          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 
          shareholders included in the composite return. Enter this amount on the line for total 
          composite tax. 

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     (3)  Insert  the  total  amount  paid,  with  Form  IT6-WTH  withheld  on  behalf  of  the 
          nonresident  shareholders  included  in  the  composite  return,  on  the  line  for  total 
          composite withholding IT-6WTH payments. 
          
 (4)      Any balance due or overpayment reported as a result is to be remitted by or refunded      
          to the S corporation. 
  
COMPOSITE WITHHOLDING PAYMENTS (FORM IT-6WTH) 
Amounts  withheld  from  nonresident  shareholders  included  in  the  composite  return  should  be 
                                                   th    th
remitted with Form IT-6WTH. Payment is due the 15  day of the 4  month following the close 
of  the  S  corporation’s  tax  period.  Multiple  payments  and  IT6WTH  vouchers  may  be  filed 
throughout  the  tax  year  or  during  the  extension  period.  If  additional  payments  are  necessary, 
please contact the Corporate Tax Section at 317-232-0129 for an additional Form IT-6WTH.   
 
The S corporation filing a composite return for the nonresident shareholders 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. A penalty of $500 is imposed on the S corporation that fails to file a 
composite return for all nonresident shareholders. 
 
The  composite  schedule  shall  be  due  with  the  S  corporation  return.  If  the  IRS  allows  the  S 
corporation 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 
An 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  S  corporation  pays  the 
department  at  least  80%  of  the  withholding  tax  due  for  the  current  year  or  100%  of  the 
                                                      th   th
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. 
 
An 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. 
 
_______________________________ 
Andrew Kossack 
Commissioner