in-20260930-IR-045260330NRA: LETTER OF FINDINGS: 18-20251610

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 18-20251610 Financial Institutions Tax For The Years 2019, 2020, and 2021 HOLDING Financial Institution established that the Department's adjustments were incorrect and that penalties imposed should be waived. ISSUE

II. Tax Administration – Penalty.

Authority: IC 6-5.5-7-1; IC 6-8.1-10-2.1; 45 IAC 15-11-2. Taxpayer protests the assessment of penalties. STATEMENT OF FACTS Taxpayer is a group of financial institutions consisting of a parent company ("Parent") and its subsidiaries. Some of the subsidiaries conduct business in Indiana, so Taxpayer regularly files a combined Financial Institutions Tax Return ("Form FIT-20"), which includes both Parent and the subsidiaries. The Indiana Department of Revenue ("Department") conducted an audit of Taxpayer related to tax years 2019, 2020, and 2021. As a result, the Indiana Department of Revenue ("Department") made several adjustments to Taxpayer's Form FIT-20. Taxpayer protested the following: (1) adjustments to tax year 2020 related to Taxpayer's Indiana apportionment percentage; (2) the assessment of underpayment penalties; (3) changes to a 2018 carryforward amount directly related to the audit adjustments; and (4) denial of a withholding credit related to several partnership interests. An administrative hearing was held, and Taxpayer stated that the fourth issue was resolved while the protest was pending. Further, while the protest was under review, the Department confirmed the 2018 carryforward amount and restored the carryforward to Taxpayer's account. The remaining two issues will be addressed in this Letter of Findings.  Additional facts will be provided as necessary.

I. Financial Institutions Tax – Apportionment.

DISCUSSION For tax years 2019, 2020, and 2021, Taxpayer filed a combined Form FIT-20. During the audit, the Department determined that Taxpayer failed to report all gross proceeds from the sale of tangible property in the numerator for Indiana apportionment calculations for tax year 2020. The Department also determined that Taxpayer incorrectly reported sales of tangible personal property as intangible property sales for tax year 2020 as reported on federal Form 8949 and Form 4797. As a result, the Department increased the numerator and denominator in the apportionment percentage for tax year 2020, resulting in a tax liability for that tax year. Taxpayer protested and explained that for tax year 2020, sales of assets were reported on Form 8949 and Form 4797. All sales reported on Form 8949 were from intangible assets (i.e., sales of partnership interests) while Form 4797 contained information related to sales of fixed assets (tangible personal property) and intangible property. Taxpayer provided additional documentation to support its argument that the Department's adjustments were incorrect. 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, including taxpayer's penalty assessment, is therefore presumed valid. A taxpayer must provide documentation explaining and supporting 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). IC 6-5.5-1-18 defines "unitary business" as "business activities or operations that are of mutual benefit, dependent upon, or contributory to one another, individually or as a group, in transacting the business of a financial institution." The term applies to a single legal entity as well as multiple entities provided that each member conducts the business of a financial institution under IC 6-5.5-1-17(d)(2). Id. A "unitary group" includes entities engaged in unitary business transactions in Indiana; entities that do not transact business in Indiana are not part of the unitary group. Id. Annual returns are required for adjusted gross income or apportioned income or adjusted gross income or apportioned income subject to a loss for the tax year. IC 6-5.6-6-1. Members of a unitary group are required to file one return that covers all members of the unitary group. Id. When a combined return is filed for unitary group, the group's apportioned income for the taxable year consists of the following: IC 6-5.5-2-4. Receipts from the sale of an asset, tangible or intangible, must be apportioned in the same manner as income is apportioned. IC 6-5.5-4-9. Form 8949 and Form 4797 are federal forms used to report the sale and/or exchange of property to the IRS, which in turn, can affect the amounts reported on a taxpayer's Form FIT-20. During the audit review, the Department determined that for tax year 2020 Taxpayer did not report all gross proceeds from the sale of tangible personal property in the numerator of the Indiana apportionment schedule. The Department also determined that Taxpayer incorrectly reported sales of tangible personal property assets as intangible property assets sales on the same apportionment schedule. As a result, the Department removed the sales from the denominator. The adjustments created a tax liability related to tax year 2020. Taxpayer explained in the administrative hearing that all sales reported on Form 8949 were the result of sales of intangible personal property. In support, Taxpayer provided additional documentation confirming the reported sales were sales of intangible personal property. Taxpayer also detailed that Form 4797 reported information related to sales of both intangible and tangible personal property, and the Department incorrectly adjusted figures related to the intangible personal property sales. A review of Taxpayer's Form 4797 shows that Taxpayer is correct. Taxpayer's Form 8949 and Form 4797 reported information related to the sale of intangible personal property and adjustments to these sales should not have been changed to sales of tangible personal property. As such, the Department's related adjustments to Taxpayer's apportionment percentage numerator and denominator were also incorrect. The Department will review Taxpayer's Form FIT-20 and update Taxpayer's account accordingly. FINDING Taxpayer's protest is sustained.

II. Tax Administration – Penalty.

DISCUSSION The Department assessed penalties as a direct result of adjustments discussed in Issue I as well as an underpayment penalty related to the underpayment of estimated tax. Taxpayer protested the imposition of both penalties. Taxpayer explained that for tax year 2021, Taxpayer purchased another large financial institution. Implementation of the new institution with Taxpayer caused financial data to change frequently. As a result, Taxpayer remitted payments based on the best information available at the time the payment was due. As mentioned above, it is the Taxpayer's responsibility to establish that the existing tax assessment is incorrect. IC 6-5.5-7-1 allows the Department to impose a penalty on a taxpayer who fails to make payments pursuant to IC 6-5.5-6 et seq. IC 6-8.1-10-2.1(a)(3) requires the Department to impose a negligence penalty if a taxpayer incurs a tax deficiency after an examination by the Department. The penalty is ten percent of the amount of the deficiency as determined by the Department. IC 6-8.1-10-2.1(b)(4). However, if a taxpayer can show that failure to pay the deficiency determined by the Department was due to reasonable cause and not due to willful neglect, the penalty can be waived by the Department. IC 6-8.1-10-2.1(d). Reasonable cause is defined by 45 IAC 15-11-2(b): A portion of the penalties imposed on Taxpayer were the direct result of actions by the Department. During the protest process, Taxpayer established that it submitted payments based on the best information available to it at the time the estimated payments were remitted in light of Taxpayer's purchase of a new financial institution and subsequent integration of that entity into Taxpayer's system. Thus, Taxpayer's actions do not constitute negligence under 45 IAC 15-11-2(b). The Department will waive the penalties imposed for tax years 2019, 2020, and 2021, as allowed under IC 6-8.1-10-2.1(d). FINDING Taxpayer's protest is sustained. CONCLUSION Taxpayer's protest related to Issue I is sustained. The Department will update Taxpayer's account to reflect the sales of intangible personal property as reported on Form FIT-20, Form 8949, and Form 4797. Taxpayer's protest related to Issue II is sustained. The penalties imposed for tax years 2019, 2020, and 2021 will be waived as they were not the result of any negligent action by Taxpayer. July 21, 2026 Replaces Finding Document: New