The Pennsylvania Department of Revenue has announced that it will soon begin identifying pass-through business entities that have under-reported income, failed to file PA-20S/PA-65 Information Returns, and failed to maintain accurate lists of owner information for tax years beginning on or after January 1, 2014.

Through Act 52 of 2013, the Pennsylvania General Assembly gave the Department the muscle in the following three new enforcement provisions related to pass-through business entities, and the Department fully intends to start flexing it:

• The Department may now assess partnerships and PA S corporations at the entity level for understating income by more than $1 million. Excluding publicly traded partnerships, this provision applies to partnerships with eleven or more partners; partnerships with at least one partner that is a corporation, limited liability company, partnership, S corporation, or trust; PA S corporations with eleven or more shareholders; and any partnership or PA S corporation that elects to be subject to the provision.
• Please note that appeals involving a deficiency assessed against a partnership may only be pursued by the partnership, and a reassessment of tax liability will be binding on the partners. Likewise, appeals involving the deficiency assessed against a PA S corporation may be filed only by the PA S corporation, and a reassessment of tax liability will bind the shareholders.
• A $250 failure-to-file penalty applies when a partnership, S-corporation, or limited liability company classified as a partnership or S corporation for federal tax purposes does not file a PA-20S/PA-65 Information Return. The $250 penalty also applies to any trust or estate that fails to file a PA-41 Fiduciary Income Tax Return and provide RK-1s and NRK-1s to all beneficiaries. Additionally, the penalty applies for each missing PA Schedule RK-1 or NRK-1.
• Every estate, trust, Pennsylvania S corporation, or partnership (other than a publicly traded partnership) that fails to maintain an accurate list at the end of the entity’s taxable year, including the name, current address, and tax identification number of all existing partners, members, beneficiaries, or shareholders and all of the partners, members, beneficiaries, or shareholders who were admitted or who withdrew during the taxable year, including the date of withdrawal and admittance, will subject the general partner, tax matters partner, corporate officer, and/or trustee of the partnership, S corporation, trust, or estate to responsible party assessments holding them individually liable for the tax, penalty, and interest owed by the entity.