in-20260826-IR-045260286NRA: LETTER OF FINDINGS: 01-20242652

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 01-20242652 Individual Indiana Income Tax For The Year 2020, 2021, 2022 HOLDING Married couple failed to show the Department’s assessment of additional income tax was incorrect. ISSUE

I. Individual Income Tax – Assessment.

Authority: IC 6-3-1-3.5; IC 6-3-2-1; IC 6-3-4-15.7; IC 6-8.1-5-1; 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); Lafayette Square Amoco, Inc. v. Indiana Dept. of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007); Clifford R. Eibeck v. Indiana Dept of State Revenue, 799 N.E.2d 1212, (Ind. Tax Ct. 2003). Taxpayers protested the assessment of additional individual income tax for tax years 2021 and 2022. STATEMENT OF FACTS Taxpayers are a married couple and Indiana residents who have not filed Indiana individual income tax returns since 2020. The Department audited Taxpayers for tax years 2020, 2021, and 2022. Taxpayers protested and requested a final determination with a hearing. Although Taxpayers missed their administrative hearing, a Hearing Officer was able to discuss their case and the documents needed to be reviewed with Taxpayers. Taxpayers submitted some, but not all requested, documentation. This Letter of Findings results. Additional facts will be provided as necessary.

I. Individual Income Tax – Assessment.

DISCUSSION The Department audited Taxpayers for tax years 2020, 2021, and 2022. After the 2020 audit, the Department discovered Taxpayers underreported individual income and did not file returns for tax years 2021 and 2022. As a result of the audit, a Notice of Proposed Assessment was issued, assessing additional individual income tax. Taxpayers protested the assessments, stating they had documentation to support their claim that the assessments resulting from the audits were too high. Furthermore, Taxpayers claimed their income was reduced in 2020 due to the COVID-19 pandemic. Taxpayers stated they were required to withdraw funds from their retirement accounts and take cash advances off their credit card to keep their business running. Taxpayers provided documentation and explanations through a telephone call with a Hearing Officer to support their position. As a threshold issue, it is the taxpayer’s responsibility to establish that the existing tax assessment is incorrect. A proposed assessment is prima facie evidence that the Department’s claim for the unpaid tax is valid. IC 6-8.1-5-1(c). The burden of proving that the proposed assessment is wrong rests with the person against whom the proposed assessment is made. Id.; See, e.g., 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). An assessment is presumed valid. A taxpayer must provide documentation explaining and supporting their argument that the Department’s position is wrong. Additionally, “[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). Consequently, a taxpayer is required to provide documentation explaining and supporting his or her challenge that the Department’s position is wrong. 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). Indiana statute refers to the Internal Revenue Code to compute what is considered the resident-taxpayer’s Indiana income tax. IC 6-3-1-3.5(b) provides the starting point to determine the taxpayer’s taxable income and calculate what would be his or her Indiana income tax after applying certain additions and subtractions to that starting point, with modifications thereafter. Distributions from retirement and pension accounts count as income and are subject to income tax. Clifford R. Eibeck v. Indiana Dept of State Revenue, 799 N.E.2d 1212, 1214 (Ind. Tax Ct. 2003). See also § IC 6-3-4-15.7. In this case, Taxpayers underreported their individual income in 2020 and did not file tax returns after 2020. As stated in the audit, IC 6-8.1-5-4 states, “[E]very 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 that tax by reviewing those books and records. The records referred to in this subsection include all source documents necessary to determine the tax, including invoices, register tapes, receipts, and canceled checks.” Taxpayers did not provide hardly any information related to their income taxes on the state or federal level for years 2021 and 2022. Therefore, an adjustment was made pursuant to IC 6-8.1-5-1 (b) which states: "If the department reasonably believes that a person has not reported the proper amount of tax due, the department shall make a proposed assessment of the amount of the unpaid tax on the basis of the best information available to the Department." The audit of Taxpayers’ businesses resulted in additional adjusted gross income that passed through to the individual shareholders following 45 IAC 3.1-1-66 and 45 IAC 3.1-1-67. Due to the flow through provision, this resulted in an additional tax liability for the shareholders. IC 6-3-1-3.5(a) defines Indiana adjusted gross income for individuals as adjusted gross income (as defined by Section 62 of the Internal Revenue Code) with adjustments for allowable modifications. Due to the audit, assessments were issued to Taxpayers. Since no tax returns had been filed after 2020, the Department had to use the best information available to estimate the tax returns for 2021 and 2022. Taxpayers subsequently protested the assessments, explaining, “The years audited were during the Covid-19 Pandemic, and . . . the proposed amount of income is incorrect. During this time, we did not take any monies or income, resulting in supplementing our income and our business income with our life savings. The audit is incorrect, and we need to get it corrected as soon as possible.” To support their protest, Taxpayers only provided retirement account withdrawal documents for tax years 2021 and 2022. Overall, Taxpayers did not provide sufficient documentation to change the assessment amount. Retirement distributions are taxable per IC 6-3-4-15.7 and as discussed in the Indiana Department of Revenue Information Bulletin #13, found at https://www.in.gov/dor/files/reference/ib13.pdf (last visited June 4, 2026). Therefore, Taxpayers did not meet their burden under IC 6-8.1-5-1(c) to prove the assessment was wrong. FINDING Taxpayers’ protest is denied. June 24, 2026 Replaces Finding Document: New