in-20260826-IR-045260288NRA: LETTER OF FINDINGS: 01-20251243

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 01-20251243 Indiana Individual Income Tax For the Tax Years 2021 and 2022 HOLDING Business Owner failed to provide sufficient documentation showing the Department's assessments were incorrect. ISSUE

I. Individual Income Tax - Pass-Through Income.

Authority: IC 6-8.1-5-1; IC 6-8.1-5-4; Dept. of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579 (Ind. 2014); Indiana Dept. of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463 (Ind. 2012); Indiana Dept. of State Revenue v. Kimball Int'l Inc., 520 N.E.2d 1110 (Ind. Ct. App. 1988); Lafayette Square Amoco, Inc. v. Indiana Dept. of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007). Taxpayer protests the proposed assessment of additional individual income tax. STATEMENT OF FACTS Taxpayer is an Indiana resident and the sole shareholder of an Indiana S Corporation. The corporation (“Business”) operates a restaurant in Indiana. Upon review of the Business' 2021 and 2022 returns, the Indiana Department of Revenue (“Department”) assessed additional sales tax and food and beverage tax related to underreported sales. Income tax adjustments made at the S Corporation level flowed through to Taxpayer as shareholder. As a result, the Department issued Notices of Proposed Assessment for additional individual income tax related to tax years 2021 and 2022. Taxpayer protested the assessments. After an administrative hearing, the Department issued Letter of Findings 04-20251232 and 10-20251234, denying Taxpayer's protests related to the sales and food and beverage assessments. This Letter of Findings results related to the individual income tax. Additional facts will be provided as necessary.

I. Individual Income Tax - Pass-Through Income.

DISCUSSION The Department conducted an audit of Business in which Taxpayer is the sole shareholder. During Business' audit, the Department determined Business underreported sales tax and food and beverage tax. The adjustments to Business' return flowed through to Taxpayer as the shareholder and increased his individual income. The adjustments resulted in an assessment for additional individual income tax. Taxpayer disagreed with the assessments and protested. The Department determined that Business failed to provide sufficient documentation to change the assessments and issued a Letter of Findings denying the sales tax and food and beverage tax protests. The facts and details of that Letter of Findings are hereby incorporated into this Letter of Findings regarding the individual income tax protest. Taxpayer requested a hearing. An administrative hearing was held at which Taxpayer's representative explained the issues regarding the sales and food and beverage tax and how those issues flowed through to Taxpayer's individual return. Taxpayer also provided additional documentation throughout the protest period for review. As a threshold issue, it is the taxpayer's responsibility to establish that the existing tax assessment is incorrect. As stated in IC 6-8.1-5-1(c), “The notice of proposed assessment is prima facie evidence that the department's claim for the unpaid tax is valid. The burden of proving that the proposed assessment is wrong rests with the person against whom the proposed assessment is made.” Indiana Dept. of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463, 466 (Ind. 2012); Lafayette Square Amoco, Inc. v. Indiana Dept. of State Revenue, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007). Consequently, a taxpayer is required to provide documentation explaining and supporting his or her challenge that the Department's position is wrong. Further, “[W]hen [courts] examine a statute that an agency is 'charged with enforcing . . . [courts] defer to the agency's reasonable interpretation of [the] statute even over an equally reasonable interpretation by another party.'” Dept. of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579, 583 (Ind. 2014). Thus, all interpretations of Indiana tax law contained within this decision, as well as the preceding audit, shall be entitled to deference. Pursuant to Indiana statute, taxpayers are responsible for collecting and maintaining documentation. “Every person subject to a listed tax must keep books and records so that the department can determine the amount, if any, of the person's liability for tax by reviewing those books and records.” IC 6-8.1-5-4(a). In addition, IC 6-8.1-5-4(c) provides that, “A person must allow inspection of the books and records and returns by the department or its authorized agents at all reasonable times.” During the protest review, Taxpayer provided various documents related to the sales tax and food and beverage tax protest, such as Excel reports showing expenses, lunch and dinner sales, and marketplace facilitator sales. However, these documents failed to resolve the discrepancies related to underreported sales found at the business level. Because underreported sales at the Business level and the assessments for additional sales tax and food and beverage tax remained, issues still exist related to Taxpayer's individual income tax, namely an increase in income due to the underreported sales. Thus, Taxpayer is unable to meet the burden under IC 6-8.1-5-1(c) proving the Department's assessment was wrong. Taxpayer's protest is denied. FINDING Taxpayer's protest is denied. June 5, 2026 Replaces Finding Document: New