in-20251126-IR-045250663NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 02-20251124 Corporate Income Tax For the Tax Year Ending June 30, 2023 HOLDING Corporation established that it did not owe additional Indiana income tax. ISSUE

I. Corporate Income Tax – Modifications.

Authority: I.R.C. § 174; IC 6-3-1-3.5; IC 6-3-2-1; IC 6-3-2-12; IC 6-3-2-29; 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-20 Instruction Booklet (2009); IT-20 Instruction Booklet (2022); IT-20 Instruction Booklet (2024). Taxpayer protests the assessment of additional Indiana income tax based on the Department’s adjustment to its intangible-income modification. STATEMENT OF FACTS Taxpayer is an out-of-state corporation that does business in Indiana. Taxpayer filed an income tax return for the tax year beginning July 1, 2022 and ending June 30, 2023 with the Indiana Department of Revenue (“Department”). On its return, Taxpayer attempted to subtract approximately $10 million attributable to “intangible expenses” as an Indiana-specific adjustment to gross income. The Department denied this adjustment and issued a Notice of Proposed Assessment accordingly. Taxpayer timely protested, and this Letter of Findings results. Additional facts will be provided as necessary. Because Taxpayer waived its right to a hearing, this Letter of Findings relies on documents provided by Taxpayer and the Department’s records.

I. Corporate Income Tax – Modifications.

DISCUSSION Taxpayer argues that its roughly $10 million subtraction was a valid adjustment under IC 6-3-2-29(b). The Department denied this adjustment because Taxpayer used the modification code 115, which can only be an addition, not a subtraction. As a threshold issue, it is 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 Dep’t of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463, 466 (Ind. 2012) and Lafayette Square Amoco, Inc. v. Indiana Dep’t of State Revenue, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007). Consequently, a taxpayer is required to provide documentation explaining and supporting his or her challenge that the Department’s position is wrong. Further, “[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.’” Dep’t 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 derived from sources within Indiana of every corporation[.]” IC 6-3-2-1(b). Indiana calculates a corporation’s gross income by starting with a corporation’s federal adjusted gross income (“FAGI”) and making Indiana-specific adjustments. IC 6-3-1-3.5(b). Among these Indiana-specific adjustments is a requirement that all taxpayers who adjust their FAGIs under I.R.C. § 174(a), which governs research and experimental expenses, must undo those adjustments. IC 6-3-2-29(b). Taxpayer argues that the modification made on Line 7 of its corporate income tax return at issue is valid under IC 6-3-2-29(b). Taxpayer provided its federal Schedule M-3 to demonstrate that it capitalized expenses under I.R.C. § 174 in an amount equal to its claimed Indiana modification. The Department agrees that Taxpayer has shown that it is entitled to make this modification to its Indiana income. However, Taxpayer used the incorrect modification code on its return. Code 115 is only used to add back intangible expenses claimed as deductions on a taxpayer’s federal return. See, e.g., IT-20 Instruction Booklet (2009). Taxpayer attributed its subtraction to “intangible expenses,” which compounded the error. The proper code to use for a general conformity subtraction is Code 147. IT-20 Instruction Booklet (2022). For tax years after 2022, there is a specific subtraction code for Section 174 subtractions: Code 641. IT-20 Instruction Booklet (2024) Taxpayer is reminded to use this code in future tax years. Taxpayer has shown that, under Indiana law, it was required to subtract expenses capitalized under Section 174, and further, that it subtracted the proper amount. The Department will adjust Taxpayer’s return to use the proper adjustment code and will restore its claimed modification to how it was on the return as filed. FINDING Taxpayer’s protest is sustained. August 18, 2025 Replaces Finding Document: New