in-20260930-IR-045260334NRA: LETTER OF FINDINGS: 01-20242374

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 01-20242374 Individual Income Tax For The Year 2023 HOLDING Individual established the Department's assessment was incorrect. ISSUE

I. Individual Income Tax - Imposition.

Authority: IC 6-3-1-3.5; IC 6-3-2-1; IC 6-3-2-2; 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); Rhoade v. Indiana Dept. of State Revenue, 774 N.E.2d 1044 (Ind. Tax Ct. 2002); 45 IAC 15-5-1; Income Tax Information Bulletin 6 (March 2023); IT-40 Full Year Resident Individual Income Tax Booklet (2023). Taxpayer protests the assessment of additional Indiana individual income tax. STATEMENT OF FACTS Taxpayer is an Indiana resident. For tax year 2023, Taxpayer filed her Indiana Full-Year Resident Individual Income Tax Return ("Form IT-40"). After review, the Indiana Department of Revenue ("Department") issued a Notice of Proposed Assessment for additional income tax. Taxpayer protested the Assessment and requested resolution with a hearing. The Department contacted Taxpayer and discussed the matter. This Letter of Findings is based on the information provided by Taxpayer and a review of the Department's records. Additional facts will be provided as necessary.

I. Individual Income Tax - Imposition.

DISCUSSION Taxpayer filed her Form IT-40 for the 2023 tax year claiming several deductions and exemptions related to income she had which was related to her late husband's military service, including the active military service and military retirement income deductions. Taxpayer also claimed a property tax deduction and related exemption. Following a review, the Department issued an assessment for additional income tax for 2023. Taxpayer provided documentation in support of the deductions she claimed. The Department adjusted Taxpayer's account but still lacked information related to Taxpayer's wages and military income deductions. Taxpayer protested. In support of her protest, Taxpayer provided copies of her Form 1099-R, Form IT-40, Schedule 2 Deductions, and Schedule 3 Exemptions. 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 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). Indiana imposes an adjusted gross income tax on all residents. IC 6-3-2-1(a). A taxpayer's Indiana income is determined by starting with the federal adjusted gross income and making certain adjustments. IC 6-3-1-3.5(a). IC 6-3-2-2(a) specifically outlines what is income derived from Indiana sources and subject to Indiana income tax. IC 6-8.1-5-1(b), mandates that "[i]f 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." (Emphasis added.) See also 45 IAC 15-5-1. The active military service deduction can only be claimed by a taxpayer who is an active member of the military. An individual or a surviving spouse is allowed a military service deduction of $5,000 for service in an active or reserve component of the armed forces of the United States. IC 6-3-2-4(a)(1). Further, an individual or a surviving spouse is allowed an adjusted gross income tax deduction related to retirement or survivor's benefits. IC 6-3-2-4(a)(2). For taxable years after 2022 the deduction is equal to the entire amount of military retirement income. Income Tax Information Bulletin 6 (March 2023) 20230426-IR-045230146NRA. IT-40 Full Year Resident Individual Income Tax Booklet further provides, "[t]he income on line 1 of Form IT-40 may include military retirement income and/ or survivor's benefits." The Booklet also instructs that any taxpayer claiming this deduction must enclose his/her military retirement income statement(s) with his/her tax return. This deduction cannot be claimed for an active military income, rather it can be claimed only for military retirement income and survivor's benefits. Taxpayer filed Form IT-40 for tax year 2023. The Department requested additional information in support of the deductions claimed by Taxpayer. Taxpayer provided some of the information and documents requested. The Department updated Taxpayer's property tax deduction on Schedule 2 but was unable to adjust military income deductions due to lack of documentation. The Department also updated Taxpayer's Schedule 3 exemptions. Taxpayer later submitted her Form 1099-R related to military income deductions. The Department was unable to update Taxpayer's account further because Taxpayer's return claimed both active and retired military income deductions. The Department's adjustment to disallow both deductions caused an increase in Taxpayer's income, which resulted in an assessment for individual income tax. Taxpayer protested the assessment. The final issue with Taxpayer's return is linked to the military retirement income deductions detailed on Schedule 2. Taxpayer claimed a $5,000 deduction for active military service along with a military retirement income deduction based on her husband's service with the U.S. Coast Guard. Taxpayer established that her husband retired from the military and has since passed away. Based on IC 6-3-2-4 and Income Tax Information Bulletin 6, Taxpayer is only allowed to claim the military retirement income deduction. In the course of the protest process, Taxpayer provided sufficient documentation to establish that the Department's initial adjustment was unnecessary. A review of the new documentation establishes that Taxpayer does not owe any additional Indiana income tax for 2023, as provided under IC 6-3-2-1(a). Taxpayer has met the burden imposed under IC 6-8.1-5-1(c) of showing the Department's assessment was incorrect. FINDING Taxpayer's protest is sustained. July 9, 2026 Replaces Finding Document: New