Congressman wins refund of Ohio tax penalty, pt.2

Congressman wins refund of Ohio tax penalty, pt.2
On Behalf of Mockensturm, Ltd | Jun 06, 2016 |

In our last post, we were discussing whether a taxpayer’s treatment of income from an ESBT was reasonable and if they were entitled to a refund of a penalty imposed by the Ohio Department of Taxation.

The taxpayer had disputed the tax obligation imposed on the almost $14 million of income from the trust for a time, but eventually abandoned his dispute and paid the tax. However, he claimed that his stance was reasonable at the time it was made and that the penalty assessed of $359,822 was “excessive” and should be refunded.

The commissioner refused and the taxpayer sued. The commissioner relied on pronouncements made in the tax year when the tax was due which strongly indicated that Ohio would tax these trusts as income to the grantors. The Board of Tax Appeals upheld the commissioner’s refusal to refund the penalty. The taxpayer then appealed.

The Ohio Supreme Court reversed this ruling, finding the taxpayer’s reliance on earlier statements by the commissioner concerning federal tax law, which the commissioner later reversed, did not make the reliance on the “unreasonable.”

The opinion pointed to statements made by the staff of the Tax Department that prior to the January 2000 information release from the commissioner, income from S-corps had not been taxed to the grantor.

The Court noted that the information release did not have the force of law, that it was 2002 before the IRS issued guidance that indicated income from ESBTs would be taxed to the grantor, and that it was only after the last of three decisions issued by the Ohio Supreme Court that it became settled law in Ohio that the taxpayer clearly owed tax.

This case demonstrates the complexity that occurs when federal tax law, Ohio tax law, informational releases, Treasury regulations and court cases all interact in a moving timeline.

Source:, “U.S. Rep. Jim Renacci wins back almost $360,000 in Ohio Supreme Court tax case,” Sabrina Eaton, June 15, 2016

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