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Indiana Department of Revenue

2005 IT-20S - Indiana S Corporation Income Tax Booklet

References to the Internal Revenue Code

Who Must File and When

Public Law (PL) 246-2005, SECTION 70 updates

Any S Corporation doing business in Indiana and deriving

references to the Internal Revenue Code in certain Indiana

gross income from sources within Indiana must file an annual

tax statutes. For tax year 2005, any reference to the Internal

return, Form IT-20S, and information return IN K-1 with the

Revenue Code and subsequent regulations means the Internal

Department disclosing each shareholder’s share of distributed

Revenue Code of 1986, as amended and in effect on January

and undistributed income. These forms are due on or before

1, 2005.

the fifteenth (15) day of the fourth (4) month following

There are two exceptions in the update. IRC Section 179

the close of the S Corporation’s tax year. Attach the first

four pages of the U.S. Income Tax Return for an S Corporation,

expensing is capped at $25,000 and the deduction allowed

for domestic production activities under IRC Section 199 is

Form 1120S. Federal Schedules K-1 should not be attached

not included for Indiana adjusted gross income. All other federal

but must be made available for inspection upon request by

the Department.

statute changes as a result of passage of The American Jobs

Creation Act of 2004 and Working Families Tax Relief Act of

The following activities occurring in Indiana constitute doing

2004, except as noted below, are recognized for taxable years

business or deriving income from Indiana sources:

beginning on or after January 1, 2005. Citations affected: IC

Maintenance of an office, warehouse, construction

6-3-1-3.5, 6-3-1-11, 6-3-1-33 (HEA 1001-2005 SECTIONS 69,

site or other place of business;

70, 71, 248).

2. Maintenance of an inventory of merchandise or

material for sale, distribution or manufacture, or

Modifications for Adjusted Gross Income

consigned goods;

•

Special (Bonus) Depreciation Allowance - Add or

3. The sale or distribution of merchandise to customers

subtract the amount attributable to bonus depreciation in

directly from company-owned or operated vehicles

excess of any regular depreciation that would be allowed

when the title of merchandise is transferred from the

had not an election under IRC Section 168(k) been made

seller or distributor to the customer at the time of sale

as applied to property in the year that it was placed into

or distribution;

service. Taxpayers that own property for which additional

4. The rendering of a service to customers in Indiana;

first-year special depreciation for qualified property,

5. The ownership, rental, or operation of a business or

including fifty (50) percent bonus depreciation, was allowed

property (real or personal) in Indiana;

in the current taxable year or in an earlier taxable year,

6. Acceptance of orders in Indiana with no right of approval

must add or subtract an amount necessary to make their

or rejection in another state;

adjusted gross income equal to the amount computed

7. Interstate transportation; or

without applying any bonus depreciation. The subsequent

8. Maintenance of a public utility.

depreciation allowance is to be calculated on the state’s

stepped up basis until the property is disposed.

S Corporation Defined

Corporations that are permitted to and do file in accordance

Commissioner’s Directive #19 explains this initial

required modification which was formerly adopted by the

with Section 1361(a)(1) of the Internal Revenue Code (IRC) are

Indiana General Assembly in 2003. See line 2(b) on Form

exempt from the Indiana adjusted gross income tax for any

IT-20S.

tax period for which the election is in effect except on passive

income and built-in gains. NOTE: S elections cannot be made

•

Excess First-Year Capital Investment (IRC Section

retroactively. Qualifications under Indiana law for filing 2005 S

179) Deduction - Add back or subtract your share of the

corporation returns are essentially the same as in the Internal

IRC Section 179 deduction claimed for federal tax

Revenue Code, in effect as of January 1, 2005. However, the

purposes that exceeds the amount that is allowed for

corporation must file an Indiana IT-20S return and meet

state purposes. Indiana adopted the former expensing

withholding requirements for nonresident shareholders under

limit provided by The Jobs Creation and Workers

Indiana Code 6-3-4-13.

Assistance Act of 2002 and has since specified an

To the extent a qualified S corporation is exempt for federal

expensing cap of $25,000.

purposes, the adjusted gross income tax may not be assessed.

This modification effects the basis of the property if a

Effective for tax years beginning after December 31, 1994, a S

higher Section 179 limit is applied. The increase to

Corporation failing to withhold, instead of losing its tax

$100,000 deduction and a beginning $400,000 phase-out

exemption, will be subject to the penalty provided by IC 6-8.1-

limitation allowed by 2003 federal legislation is not allowed

10-2.1[h]. This penalty is twenty (20) percent of the amount of

for purposes of calculating Indiana adjusted gross income.

tax required to be withheld and paid under IC 6-3-4-13 in

The depreciation allowances in the year of purchase and

addition to a penalty of $10 for each failure to timely file an

in later years must be adjusted to reflect the additional

information return, Schedule IN K-1.

first–year depreciation deduction, including the special

Corporations filing for the first time must attach a copy of

depreciation allowance for fifty (50) percent bonus

the approval letter from the Internal Revenue Service granting

the S election.

Form It-20s - S Corporation Income Tax Booklet - Indiana Department Of Revenue - 2005 Page 2

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