Ohio Board of Tax Appeals denies Taxpayers Business Income Deduction due to Improperly Introduced Evidence

Buckingham, Doolittle & Burroughs, LLC

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).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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