in-20260826-IR-045260287NRA: FINAL ORDER DENYING REFUND: 01-20251106

DEPARTMENT OF STATE REVENUE FINAL ORDER DENYING REFUND: 01-20251106 Individual Income Tax For the Year 2023 HOLDING Married couple failed to establish the Department’s denial of their income tax refund was incorrect. ISSUE

I. Individual Income Tax – Refund Denial.

Authority: I.R.C. § 61; IC 6-3-1-3.5; IC 6-3-2-1; IC 6-8.1-5-1; Dept. of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579 (Ind. 2014); Express Scripts Inc. v. Indiana Dept. of State Revenue, 170 N.E.3d 273 (Ind. Tax Ct. 2021); Treas. Reg. § 1.162-17; Internal Revenue Service, Publication 535: Business Expenses (2022). Taxpayers protest the denial of their individual income tax refund. STATEMENT OF FACTS Taxpayers are a married couple and Indiana residents. For tax year 2023, they filed an Indiana Full-Year Resident Individual Income Tax Return (“Form IT-40”). After review, the Indiana Department of Revenue (“Department”) adjusted Taxpayers’ return and increased their Indiana adjusted gross income (“AGI”). The Department’s adjustment reduced Taxpayers’ anticipated refund. Taxpayers protested and requested a resolution without hearing. During the protest review, the Department discussed the matter with Taxpayers. This Memorandum of Decision results. Additional facts will be provided as necessary.

I. Individual Income Tax – Refund Denial.

DISCUSSION Taxpayers are residents of Indiana. After review, the Department adjusted Taxpayers’ return and disallowed Schedule C income and expenses. The Department’s adjustment reduced Taxpayers’ anticipated refund claim. Taxpayers protested and requested a resolution without a hearing. During the protest review, the Department discussed the matter with Taxpayers. This Memorandum of Decision results. Additional facts will be provided as necessary. “[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 shall be entitled to deference. Indiana imposes a tax “on the adjusted gross income of every resident person, and on that part of the adjusted gross income derived from sources within Indiana of every nonresident person.” IC 6-3-2-1(b). For Indiana income tax purposes, the presumption is that taxpayers properly and correctly file their federal income tax returns as required pursuant to the Internal Revenue Code. Thus, to efficiently and effectively compute what is considered the taxpayer's Indiana income tax, the Indiana statute refers to the Internal Revenue Code. IC 6-3-1-3.5(a) provides the starting point in determining the taxpayer’s taxable income and calculating what would be his/her Indiana income tax after applying any particular additions and subtractions. The statute provides in part that Indiana adjusted gross income starts with “‘adjusted gross income’ (as defined in Section 62 of the Internal Revenue Code) . . . ” Id. For both federal and Indiana income tax purposes, profits attributable to a taxpayer’s trade or business reported on Schedule C are income subject to income tax pursuant to I.R.C. § 61. To properly claim a business expense deduction on Schedule C, a taxpayer is required to provide verifiable supporting documentation to demonstrate: (1) the activities of the taxpayer constitute a trade or business; (2) the expense to be deducted are paid or incurred during the taxable year in carrying on the trade or business; and (3) the expense itself is an ordinary and necessary expense in the context of the taxpayer’s trade or business. Treas. Reg. § 1.162-17(a); See also 2023 Instructions for Schedule C; available at https://www.irs.gov/pub/irs-prior/i1040sc--2023.pdf (last visited June 6, 2026). When submitting documentation as part of a protest, the taxpayer needs to specify and explain the portions of the evidence the taxpayer believes to be relevant. As the Indiana Tax Court has previously noted (in the context of a summary judgment motion): “the Court will not consider” exhibits “on the off chance that it might find, on its own and undirected, some fact that supports” a claim, and “the Court is not required to search for specific facts on which” a party relies. Express Scripts Inc. v. Indiana Dept. of State Revenue, 170 N.E.3d 273, 279 (Ind. Tax Ct. 2021). The Department follows this guidance in its hearing process. Taxpayers filed Form IT-40. Documentation provided in the course of the protest process showed that both Husband and Wife each had a business for which Taxpayers claimed income. Husband ran a mowing business, and Wife ran a daycare business within their home. After review, the Department requested documentation to support the claims of the income and expenses of both businesses. In response, Taxpayers provided daycare payment rosters, bank statements, and receipts. However, Taxpayers failed to explain which documentation related to their businesses’ income and expenses. Because TPs did not provide information correlating the documentation provided to their business’ income and expenses, the Department is unable to make further adjustments to the current assessments. The Department notes that Taxpayers included all their utility costs and mortgage expenses as business expenses for the daycare. Per IRS Publication 587, a taxpayer may deduct a prorated portion of utilities such as electricity, water, and gas based on the percentage of the home used for the business. IRS Publication 587, https://www.irs.gov/pub/irs-pdf/p587.pdf. A taxpayer may also deduct a prorated portion of the mortgage expenses as a business expense if the home is used for specific businesses, such as a daycare. IRS Publication 587, page 2. Taxpayers failed to provide documentation proving that the Department’s refund reduction was wrong under IC 6-8.1-5-1(c). FINDING Taxpayers’ protest is denied. June 24, 2026 Replaces Finding Document: New