Retaining experienced counsel with knowledge of not only proper procedure but how to present a case is critical to prevailing at the Board of Tax Appeals (BTA). Recently, the BTA denied the taxpayer’s claim for a business income deduction in part because supporting evidence was attached to the notice of appeal, not properly presented at a hearing. Thus, the BTA did not consider the evidence attached to the notice of appeal and consequently affirmed the Tax Commissioner’s decision rejecting the taxpayers’ claim of a business income deduction (BID). Ritzler v. McClain, Ohio BTA Case No. 2019-1049 (2020). Had the taxpayers proceeded with a hearing and properly submitted authenticated evidence at the hearing, the outcome may have been different.
The BID is available to those who directly or indirectly own a profit or capital interest in a qualifying pass-through entity. Such taxpayers may deduct the first $250,000 of business income earned from guaranteed payments or compensation, while the remaining business income is taxed at 3%. R.C. 5747.01(A)(28). In Ritzler, the Tax Commissioner initially denied the BID, finding that the taxpayer-husband was not an investor nor a direct or indirect owner of the firm. R.C. 5733.40(H). On appeal, the taxpayers attached evidence that the taxpayer-husband directly owned a minority share of the company and further argued he constructively owned his mother’s shares through federal attribution rules. But because the Board could not consider the evidence of ownership because it was not validated at a hearing, it declined to address if federal attribution rules apply to the BID generally or to R.C. 5733.40(A)(7).
If you have questions on any issues pertaining to Ohio’s business income deduction or any other Ohio tax matters, do not hesitate to contact us.
Attorney Steven A. Dimengo is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at sdimengo@bdblaw.com or 330.258.6460.
Richard B. Fry III is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at rfry@bdblaw.com or 330.258.6423
Nathan M. Fulmer is an associate in Buckingham’s Taxation Practice Group. He represents clients on a broad range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at nfulmer@bdblaw.com or 330.258.6464.
About Buckingham, Doolittle & Burroughs:
Buckingham, Doolittle & Burroughs, LLC is a corporate law firm that counsels middle-market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for more than 100 years, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. For more information, news and updates, visit bdblaw.com.