Since the implementation of the new pass-through entity (PTE) election law several years ago, Maryland CPAs have encountered significant challenges and frustrations with the Comptroller's Office in processing PTE returns and those of the PTE members.

In response to these ongoing issues — and after multiple meetings with MACPA State Tax Committee representatives and several attempts by the state to resolve the processing problems — the Comptroller’s Office has taken significant new steps to address the inefficiencies that have long plagued this process. In a recent webinar, Comptroller Brooke Lierman and her team outlined the new processes designed to reduce delays, minimize unnecessary notices, and ultimately improve the experience for CPAs and their clients.

Understanding the issues: A long road to improvement

The processing of PTE returns has been a persistent challenge for the Comptroller’s Office. The outdated systems (some still reliant on COBOL) and complex manual processes have resulted in long processing times, errors, and a high level of frustration among Maryland’s CPAs. Comptroller Lierman acknowledged these challenges and emphasized the need for modernization.

Introducing the Comptroller’s new PTE processing workflow

The Comptroller’s team has implemented a new, data-driven process designed to streamline the adjudication of PTE credits. This new approach leverages a data warehouse to enhance accuracy and consistency, ensuring that returns are processed more quickly and with fewer errors.

The Five-Bucket Workflow
A key component of the new system is the introduction of a "five-bucket" workflow, which categorizes PTE returns based on their status and the actions needed to process them. This approach helps staff prioritize tasks and ensures that returns are handled more efficiently. Here's a breakdown of the five buckets:

1. Bucket 1: Newly received returns — approved. These are returns that, upon entering the system, meet all criteria for automatic approval. The system verifies that the PTE has filed electronically with the necessary Schedule B, and if everything aligns, the return is quickly processed and approved without requiring further manual intervention.
2. Bucket 2: Newly received returns — parked. Returns are placed in this bucket when there is missing or incomplete information that prevents immediate approval. For example, if the credit claimed on the return exceeds what is found on the electronically filed Schedule B, or if the PTE has filed on paper instead of electronically. These returns are "parked" and held until the necessary information is received, avoiding premature denials.
3. Bucket 3: Newly received returns — denied. This bucket contains returns that are denied either fully or partially due to discrepancies or underfunded credits. The denial could occur if the required payments have not been made or if the documentation does not support the credit claimed. However, the new process aims to minimize such denials by ensuring all possible efforts are made to verify and reconcile the information before reaching this stage.
4. Bucket 4: Reapplying past returns. The Comptroller’s Office is revisiting PTE returns from prior tax years (2021-2023) and reapplying the new process to them. This bucket contains returns that are being re-approved under the updated system. This effort is crucial for correcting previous errors and ensuring that taxpayers receive any credits they were initially denied. The re-approval process is mostly automated, though some cases still require manual review.
5. Bucket 5: Finalizing pending outcomes. The last bucket focuses on completing the final steps for returns that have been processed but are awaiting a final outcome, such as issuing a refund, forwarding a credit, or sending a bill. This bucket addresses one of the most frustrating aspects for CPAs—returns that had been processed but not fully resolved. The new workflow ensures that these pending items are prioritized and completed promptly, preventing a backlog that could impact future tax years.

Recommendations for CPAs

To help navigate these changes and optimize interactions with the Comptroller's Office, CPAs should follow these recommendations:

• Prioritize electronic filing: Whenever possible, ensure that PTE returns and Schedule B are filed electronically. This significantly reduces processing time and improves accuracy within the new system. It is important to note that only e-filed PTE returns with Schedule B included can be processed using the new system. Therefore, paper-filed PTE returns and their members' returns may take longer to be processed.
• Stay updated with communications: Regularly check for updates from the Comptroller's Office and MACPA to stay informed about any new developments or changes in procedures.
• Utilize the dedicated email for PTE issues: For any PTE-related issues, use the dedicated email address — TACORPORATE@Marylandtaxes.gov. If your issue pertains to prior years, it’s advisable to hold off on sending correspondence until the next month, as the Comptroller’s Office expects to have most of these issues resolved by Sept. 30.
• Understand payment procedures: Currently, PTE payments can only be made electronically if you have received a bill from the Comptroller's Office. All other payments must be made by check and mailed in. The Comptroller's Office is updating the wording in their FAQs to clarify this. They are working on making electronic payments available for all PTE-related transactions, with a target of having this ready by the end of the year, though it may not be available until next year.
• Assist with reconciliations: To assist the Comptroller’s Office with reconciliations, it’s recommended that you include an attachment to the Maryland business returns with details such as the check number, date, and amount. This additional documentation can help streamline the reconciliation process and reduce delays.
• Engage with the new workflow: Familiarize yourself with the five-bucket workflow system implemented by the Comptroller’s Office. Understanding how returns are categorized and processed will help in managing client expectations and addressing any issues that arise.
• Provide feedback: Continue to provide feedback to both the Comptroller's Office and the MACPA. This will help in identifying areas that may need further improvement and ensuring that the needs of CPAs and their clients are met effectively.
• Utilize resources: Make use of the resources provided by MACPA and the Comptroller’s Office, including FAQs, webinars, and other training materials to better understand the new processes and systems.

Moving forward: A collaborative effort

The Comptroller’s Office is committed to continuously improving the PTE processing system. They have already begun revisiting and reprocessing returns from previous tax years using the new workflow, with thousands of reapproved credits already issued. While there are still challenges to address, the progress made so far is promising. For more detailed updates and resources, visit Maryland Taxes.

The partnership between the Comptroller’s Office and the MACPA is crucial to the success of these efforts. The Comptroller and her team appreciate the ongoing feedback from MACPA’s community and look forward to continuing this collaboration.