Indiana small businesses that file as pass-through entities must include all nonresident partners, shareholders, or beneficiaries in their composite returns, even if the corporation, partnership, estate, or trust is reporting a loss. Businesses who fail to do so will automatically be assessed a $500 penalty per pass-through entity.

NFIB encourages small business owners to consult with their CPA to ensure this report was filed properly – some tax preparation software programs failed to catch the new requirement.

Software Filing Challenges:

• Some tax preparation software (e.g., ProSeries, Tax Slayer, and Tax Act) does not include nonresident partners who have net losses on the composite return by default. This has led to many penalties.
• Indiana DOR instructions for IT-65 and Schedule Composite were updated recently (2024/2025) to clarify that all nonresident partners, even those with losses, must be listed.
• This mismatch has adversely affected small businesses using such software since they are at risk of incurring the $500 penalty.

The Indiana Department of Revenue shared tips on how to avoid this penalty:

• Make sure the number of nonresidents reported in the header of the return is the same as the total number of nonresident entity owners listed on Schedule Composite, Schedule PTET, and/or Schedule Composite-COR.
• The Schedule Composite, Schedule Composite-COR and/or Schedule PTET must be included with the return and completely filled out with the individuals SSN and/or corporate entity’s FEIN.
• The appropriate schedule(s) are required whether the corporation/partnership/estate/trust has income or a loss.