Maryland PTES -  Payment processing delays &  Erroneous Notices

Comptroller of Maryland Issues Letter Acknowledging Delays Processing PTE Payments and the Issuance of Erroneous Notices.

On September 19^th, the Maryland Comptroller (MC) published a conciliatory letter to the state’s Tax Professionals community, addressing the difficulties the state has faced processing refundable tax credits from pass-through entities (PTE). The letter was signed by Robert Sheerer, the Director of the Revenue Administration Division, and Andrew Schaufele, the Chief Deputy Comptroller. It is a welcome acknowledgement of the challenges faced by both tax professionals and business owners, who have tried to file Maryland personal income tax returns, unsuccessfully claiming credits for PTE tax payments that were made.

Over the last couple of years numerous notices have been issued by the MC to business owners who were attempting to claim credits for PTE payments made by their flow through entities. The tax payments were received by the state, but in many cases, credits for the payments were not passed through correctly to the partners/members who relied on those payments to cover their own individual Maryland income tax liabilities. Thus came the notices.

To address these issues, the MC is taking the following actions to correct this situation:

1. A new team of revenue agents has been trained and will focus solely on PTE returns.
2. MC will temporarily stop sending Income Tax Assessment Notices for “underpayment” to taxpayers who have claimed these credits. Notices will, however, still be generated to inform taxpayers when there are credit discrepancies.
3. MC is asking both taxpayers, and their advisors to closely follow the steps outlined below when submitting tax returns and payments:

1. File the personal income tax return electronically;
2. File the PTE tax return electronically;
3. Pay all estimated payments electronically, both PTE and individual;
4. Double-check that PTE payments that will be claimed by individuals match what the PTE has disclosed;
5. When preparing a PTE return, have the PTE confirm that they have made the payments they are reporting;
6. Ensure that the PTE credit amount claimed on the individual return is also added back as an addition to income on the individual return;
7. If using tax preparation software that provides the option to create an electronic version of the Schedule K-1 from the PTE, use that function and attach the electronic K-1 to the return;
8. Only submit the K-1 as a PDF attachment if the option for an electronic version of the Schedule K-1 is not available.

The state has confirmed that they are currently upgrading their tax processing system, but that project is two years from completion. In the meantime, the measures outlined herein should help to alleviate the current processing backlogs and notice errors.

Contact the tax professionals at Saggar and Rosenberg for more insights.