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IRC Section 469 and capital loss limitations imposed on non-

Filing Procedure IT-20COMP

corporate taxpayers by IRC Section 1211; (b) No deduction is

Composite Return

permitted for interest paid on investment indebtedness under

IRC Section 163(d) (limitation on interest investment

A S corporation may file a composite adjusted gross

indebtedness); (c) No deduction is permitted for carryover of

income tax return on behalf of qualifying non-Indiana resident

net operating losses or capital losses; (d) No personal

individual shareholders. Nonresident shareholders properly

exemption is permitted; (e) No deduction is allowed for

electing to participate in the composite return will be relieved

charitable contributions allowed or allowable pursuant to IRC

of the obligation to file an Indiana individual adjusted gross

Section 170; (f) No credit is permitted for taxes paid to other

income tax return.

states; (g) No credit carryovers are permitted; and (h) All other

The composite return, Schedule IT-20COMP, shall be filed

credits which flow through to shareholders on a pro rata basis

with and have the same due date as the S corporation return.

are limited to the shareholder’s state income tax liability. See

If the Internal Revenue Service allows the S corporation an

list of Pass-through Tax Credits on pages 19 to 21.

extension to file its income tax return, the due date for its

The S corporation filing a composite return is liable not

Indiana return is automatically extended for the same period,

only for the tax shown on the return but also for any additional

plus thirty (30) days.

tax, interest, and penalty as a result of a subsequent audit or

Composite income means each nonresident shareholder’s

examination. Any refund of state or county tax as a result of

distributive share of income derived from sources within Indiana

filing a composite return shall be remitted directly to the S

as determined by the use of the apportionment formula

corporation.

described in IC 6-3-2-2(b) plus Indiana modifications.

The S corporation should send a copy of general Indiana

Composite filing does not negate the S corporation’s

filing requirements to each nonresident shareholder. The S

requirement to file on a monthly, quarterly or annual basis

corporation must determine shareholders electing to be

Form WH-1 (Employer's Withholding Tax Return), used for

included in the composite return and shareholders not electing

submitting withholding tax payments for all nonresident

to be included. See Income Tax Information Bulletin #72 for

shareholders along with any withholding for employees.

more information.

However, withholding is not required on residents of reverse

credit states (Arizona, California, Oregon, District of Columbia)

Instructions for Completing Composite Return

except when a California resident is included on the Indiana

composite return.

PART I - The S corporation must disclose the name and

The amount of tax withheld on shareholders is shown as

complete address of its nonresident shareholders who are

a credit on Form WH-18, (Indiana Miscellaneous Withholding

excluded from this composite return. These shareholders are

Tax Statement for Nonresident). Copy A of Form WH-18 must

required to file separate Indiana income tax returns.

be filed with the Department of Revenue together with Form

WH-3, Annual Withholding Reconciliation, on or before the

PART II - Indicate the name of each shareholder electing to

last day of February.

be a member included in this composite return. Subject to

the limitations and conditions specified in the filing

Filing Requirements for Composite Return

requirements, separately compute the state tax liabilities and

credits on the composite return attributable to each

The shareholder electing to be included in the composite

shareholder.

return authorizes the S corporation to file on his or her behalf.

This election, once made, is irrevocable for that tax year.

Column E. If a nonresident individual is engaged in principal

However, any shareholder within the following categories

work activity in an adopting county on January 1, the county

must, in all cases, be excluded from the composite return: (a)

tax should be calculated. Multiply column C by the applicable

Any partnership or fiduciary; (b) Any shareholder who received

nonresident county tax rate. Use Departmental Notice #1 to

a distribution(s) during the year in excess of his or her

determine if a composite member is subject to a county tax

distributive share of net income from the S corporation; (c)

and call the Department to verify the county’s tax rate.

Any shareholder who sold any portion of his or her interest in

the corporation during the year; (d) Any shareholder receiving

Column G. The amount of pro rata pass-through credit available

income during the year from an Indiana source other than the

to each composite member is limited to the respective amount

corporation; and (e) Any shareholder who for a portion of the

of tax calculated in column D.

year was a resident of Indiana.

Insert only the total state and county liabilities and pass-

The following limitations and conditions will apply to each

through credits of those nonresident shareholders included in

shareholder included as a member in the composite return:

the composite return to the appropriate lines on Form IT-20S.

(a) Any short term capital gain (loss) plus any long term capital

Note: A federal Schedule K-1 for each shareholder is not

gain (loss) specifically allocated for a shareholder is allowed,

required to be attached but must be made available for

subject to any “passive activity” loss limitations pursuant to

inspection upon request by the Department.

If you have any questions you may call the Corporate Income Tax Section: (317) 615-2662.

Form It-20s - S Corporation Income Tax Booklet - Indiana Department Of Revenue - 2005 Page 11

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