in-20260930-IR-045260325NRA: LETTER OF FINDINGS: 01-20251545

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 01-20251545 Individual Income Tax For the Year 2021 HOLDING Individual established the Department's assessment was incorrect when it disallowed Individual's Earned Income Credits ("EIC"). ISSUE

I. Individual Income Tax – Earned Income Credit.

Authority: I.R.C. § 62; IC 6-3-1-3.5; IC 6-3-2-1; IC 6-3-2-2; IC 6-3.1-21-6; 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); IT-40 Tax Booklet (2021). Taxpayer protested the Department's assessment of additional income tax. STATEMENT OF FACTS Taxpayer is an Indiana resident. In 2021, Taxpayer filed a federal income tax return and an Indiana individual income tax return. After reviewing Taxpayer's Indiana return, the Indiana Department of Revenue ("Department") determined that Taxpayer was claiming income and EIC that was not supported by accompanying documentation. The Department requested a copy of Taxpayer's federal return and supporting documentation for the EIC, which Taxpayer then supplied. The Department adjusted his return to reflect his federally reported adjusted gross income, but simultaneously disallowed Taxpayer's EIC, resulting in a Notice of Proposed Assessment being issued to Taxpayer for Indiana income taxes. Taxpayer protested this assessment and waived his right to an administrative hearing. This Letter of Findings results. Additional facts will be provided as necessary.

I. Individual Income Tax – Earned Income Credit.

DISCUSSION The Department determined that Taxpayer owed additional Indiana income tax after reviewing information related to his 2021 Indiana income tax return. Taxpayer disagreed and protested the assessment. In support of his protest, Taxpayer provided a copy of his "Form 1040 U.S. Individual Income Tax Return" ("Form 1040"), and his "Form IT-40 Indiana Full-Year Resident Individual Income Tax Return" ("Form IT-40") for the 2021 tax year. 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 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. Consequently, a taxpayer must provide documentation explaining and supporting that the Department's position is wrong. See 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). 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). Indiana imposes a tax "upon the adjusted gross income of every resident person." IC 6-3-2-1(a). IC 6-3-2-2(a) outlines what qualifies as income derived from Indiana sources and subject to Indiana income tax. The starting point for determining Indiana income tax is the taxpayer's FAGI as defined in I.R.C. § 62, which taxpayers are directed to enter on their Indiana return before making modifications that are outlined in IC 6-3-1-3.5. Pursuant to IC 6-3.1-21-6, Indiana allows for the Earned Income Credit ("EIC") for individual income tax. This statute maps out how this credit is administered, relying on Section 32 of the Internal Revenue Code for credit calculation. Id. An individual taxpayer's EIC is determined by a number of factors including income level and family status. The money acquired through the EIC is subject to federal income tax but is exempt from state income tax under IC 6-3.1-21-6. If certain criteria are met, such as a valid federal EIC and qualifying income levels, a taxpayer may also qualify for Indiana's EIC. Specifics details, including more information on the qualifying criteria and how to calculate the credit, can be found in the IT-40 Instruction Booklet for tax year 2021. After reviewing the documentation provided by Taxpayer, the Department adjusted its records to reflect income as originally reported by Taxpayer and supported by his federal return information. However, when the Department adjusted Taxpayer's return to allow Taxpayer's income, its system continued to disallow Taxpayer's EIC, causing the adjustment to result in the assessment of additional income tax in the amount of $322. Upon further review of Taxpayer's documentation and the Department's records, this continued disallowance of Taxpayer's EIC was in error. Taxpayer had an EIC available to him of $326, which afforded him a refundable credit of $4. Therefore, Taxpayer's protest is sustained as Taxpayer has met his burden under IC 6-8.1-5-1(c) establishing the Department's assessment of additional income tax was incorrect. Taxpayer's information and claim for credits are accurate as originally filed on his Form IT-40 for the 2021 tax year. FINDING Taxpayer's protest is sustained. July 1, 2026 Replaces Finding Document: New