in-20250917-IR-045250457NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 02-20242784 Corporate Income Tax For the Year 2021 HOLDING Multinational Conglomerate was permitted to claim the verified net operating losses (“NOLs”) to reduce its tax. Multinational Conglomerate was responsible for statutory interest and penalties. ISSUES

I. Indiana Corporate Income Tax – Burden of Proof.

Authority: I.R.C. § 63; IC 6-3-1-3.5; IC 6-3-1-11; IC 6-3-2-1; IC 6-3-2-2; IC 6-3-2-2.6; IC 6-8.1-5-1; IC 6-8.1-5-4; Stinson Est. v. United States, 214 F.3d 846 (7th Cir. 2000); Dept. of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579 (Ind. 2014); Express Scripts Inc. v. Indiana Dep’t of State Revenue, 170 N.E.3d 273 (Ind. Tax Ct. 2021); E.I. DuPont De Nemours and Co. v. Indiana Dep’t of State Revenue, 79 N.E.3d 1016 (Ind. Tax Ct. 2017); Wendt LLP v. Indiana Dep’t of State Revenue, 977 N.E.2d 480 (Ind. Tax Ct. 2012); Scopelite v. Indiana Dep’t of Local Gov’t Fin., 939 N.E.2d 1138 (Ind. Tax Ct. 2010); Indiana Dep’t of State Revenue, Sales Tax Division v. RCA Corp., 310 N.E.2d 96 (Ind. Ct. App. 1974); United States v. McFerrin, 570 F.3d 672 (5th Cir. 2009). Taxpayer protested the assessment, claiming that it was entitled to additional NOLs and a refund.

II. Tax Administration – Penalties and Interest.

Authority: IC 6-3-4-4.1; IC 6-8.1-10-1; IC 6-8.1-10-2.1; 45 IAC 15-11-2. Taxpayer requested that the Department waive the penalties and interest. STATEMENT OF FACTS Taxpayer is a multinational conglomerate conducting business in Indiana and outside of Indiana. Together with its subsidiaries, Taxpayer periodically filed Indiana corporate income tax returns and amended its returns on a combined basis. In November 2021, Taxpayer filed a 2020 Indiana corporate income tax return and reported zero ($0) tax due. Taxpayer included a Statement 4, Schedule IT-20NOL – Corporate Income Tax Net Operating Loss Computation, which stated that it carried over and utilized its approximately $39.5 million NOLs from prior years and also carried forward remaining balance of approximately $14 million NOLs to “12/31/2021.” During each quarter of 2021 and the first quarter of 2022, Taxpayer filed no returns and made no estimated payments on or before the statutory due dates. In November 2022, Taxpayer filed the original 2021 Indiana return. After deducting the approximately $14 million NOLs, Taxpayer’s original return stated that it owed an approximately $1.3 million Indiana income tax. Taxpayer made no payment in November 2022. The Indiana Department of Revenue (“Department”) reviewed and determined that Taxpayer had no NOLs, made no payment, and had no tax credit. The Department adjusted Taxpayer’s filing and assessed Taxpayer income tax plus penalties and interest. Taxpayer protested the assessment in late 2023. A hearing was held. This final determination ensues and addresses Taxpayer’s protest for 2021. Supplemental Letter of Findings 02-20241427 separately addresses Taxpayer’s protest for 2020.

I. Indiana Corporate Income Tax – Burden of Proof.

DISCUSSION The issue is whether Taxpayer met its burden of proof demonstrating that the assessment was incorrect and it was entitled to the refund. IC 6-8.1-5-4(a) requires that “[e]very person subject to a listed tax must keep books and records so that the [D]epartment can determine the amount, if any, of the person’s liability for that tax by reviewing those books and records. The records [] include all source documents necessary to determine the tax, including invoices, register tapes, receipts, and canceled checks.” The person also “must allow inspection of the books and records and returns by the [D]epartment or its authorized agents at all reasonable times.” IC 6-8.1-5-4(c). The Department “shall make a proposed assessment of the amount of the unpaid tax on the basis of the best information available to the [D]epartment” if it “reasonably believes that a person has not reported the proper amount of tax due[.]” IC 6-8.1-5-1(b). Notices of proposed assessment issued by the Department are prima facie evidence that the Department’s assessments are correct; the burden of proving the assessment is incorrect rests with the taxpayer. IC 6-8.1-5-1(c). Poorly developed or non-cogent arguments are subject to waiver. Scopelite v. Indiana Dep’t of Local Gov’t Fin., 939 N.E.2d 1138, 1145 (Ind. Tax Ct. 2010); Wendt LLP v. Indiana Dep’t of State Revenue, 977 N.E.2d 480, 486 n.9 (Ind. Tax Ct. 2012). When submitting evidence as part of its protest, the taxpayer needs to specify and explain the portions of the evidence that it believes to be relevant. As the Indiana Tax Court has previously noted (in the context of a summary judgment motion): “the Court will not consider” exhibits “on the off chance that it might find, on its own and undirected, some fact that supports” a claim, and “the Court is not required to search for specific facts on which” a party relies. Express Scripts Inc. v. Indiana Dep’t of State Revenue, 170 N.E.3d 273, 279 (Ind. Tax Ct. 2021). When an agency is charged with enforcing a statute, courts defer to the agency’s reasonable interpretation of that statute “over an equally reasonable interpretation by another party.” Indiana Dep’t of State Rev. v. Caterpillar, Inc., 15 N.E.3d 579, 583 (Ind. 2014). Indiana imposes a tax on the adjusted gross income of every corporation that has adjusted gross income derived from sources within Indiana. IC 6-3-2-1(b); IC 6-3-2-2. To compute the income subject to Indiana corporate income tax, Indiana adopts a multistep process to calculate a corporation’s taxable Indiana adjusted gross income. Caterpillar, Inc., 15 N.E.3d at 581. Indiana generally follows the tax principles established in the federal law. IC 6-3-1-11. In determining the taxpayer’s Indiana adjusted gross income, Indiana first refers to I.R.C. § 63 as the starting point. When used “[i]n the case of corporations,” the term “‘adjusted gross income’ shall mean the same as ‘taxable income’ (as defined in Section 63 of the Internal Revenue Code)” with modifications. IC 6-3-1-3.5(b). The taxpayer is entitled to carry forward the NOLs under IC 6-3-2-2.6. However, “deductions, exemptions, and exclusions are matters of legislative grace.” Stinson Est. v. United States, 214 F.3d 846, 848 (7th Cir. 2000). Such deductions are narrowly construed. See United States v. McFerrin, 570 F.3d 672, 675 (5th Cir. 2009) (citing Stinson Est. v. United States, 214 F.3d 846 (7th Cir. 2000)). Where such a deduction is claimed, “the party claiming the same must show a case, by sufficient evidence, which is clearly within the exact letter of the law.” See Indiana Dep’t of State Revenue, Sales Tax Division v. RCA Corp., 310 N.E.2d 96, 100 (Ind. Ct. App. 1974). Under Caterpillar, such Indiana NOLs must exclude foreign source dividend (“FSD”) deductions. Caterpillar, Inc., 15 N.E.3d at 583–85. When the taxpayer incorrectly includes such FSD deductions to increase or decrease its Indiana NOLs, the Department is authorized to make retroactive adjustments to the taxpayer’s NOLs. See E.I. DuPont De Nemours and Co. v. Indiana Dep’t of State Revenue, 79 N.E.3d 1016 (Ind. Tax Ct. 2017). Here, Taxpayer claimed that it had NOLs from loss years prior to 2001. To support its protest, Taxpayer offered documents including multiple amended returns based on federal Revenue Agent Reports. The Department reviewed the documents submitted and cross-referenced its records dated back to 1988. In April 2025, the Department completed two Schedule IT-20NOLs and a Workpaper. Based on the verified information, the Department determined that Taxpayer had approximately (i) $39.5 million NOLs to be utilized in 2020, (ii) $14.4 million NOLs to be carried forward and utilized in 2021, and (iii) zero ($0) NOLs after December 31, 2021. Taxpayer continued to argue that it was entitled to additional NOLs. Taxpayer also claimed that some of its NOLs do not expire until 2028. But Taxpayer provided no statutory provisions to support such arguments. Further, Taxpayer filed an amended return in December 2024 to request a refund, claiming that it paid $1.3 million in tax. Upon review, Taxpayer is mistaken. First, Taxpayer failed to substantiate that it overpaid tax for 2021. The Department thus is not able to agree that Taxpayer was entitled to a refund. Second, Taxpayer’s documents demonstrated that it filed the returns to claim NOLs of an entity that reported on fiscal year ending June 30 and generated losses prior to August 1997. These NOLs were subject to the 15-year carryforward limitation. Third, Taxpayer’s documents showed that it erred in including FSD deductions to increase its Indiana NOLs. Such FSD deductions must be excluded; they cannot be used to increase or decrease Taxpayer’s Indiana NOLs under Caterpillar. As such, pursuant to E.I. DuPont De Nemours and Co. v. Indiana Dep’t of State Revenue, the Department properly adjusted Taxpayer’s NOLs and the amount of carryover accordingly. See E.I. DuPont De Nemours and Co. v. Indiana Dep’t of State Revenue, 79 N.E.3d 1016 (Ind. Tax Ct. 2017). To conclude, Taxpayer was not entitled to any refund because it failed to demonstrate that it made any payments and overpaid tax for 2021. Taxpayer’s refund based on its amended return is denied. The Department is prepared to agree that Taxpayer was permitted to utilize the verified NOLs to reduce the income subject to Indiana income tax for 2021 based on the Department’s April 2025 Schedule IT-20NOLs and corresponding Workpaper. Taxpayer has no additional NOLs remaining after December 31, 2021. The Department will adjust its records accordingly. FINDING Taxpayer’s protest of Issue I is partially sustained. Taxpayer was allowed to claim the verified NOLs for 2021 based on the Department’s Schedule IT-20NOLs and corresponding Workpaper. Taxpayer’s refund based on its amended return is denied.

II. Tax Administration – Penalties and Interest.

DISCUSSION Taxpayer was assessed underpayment penalty, late penalty, and statutory interest because it did not make any estimated payments in 2021 or in the first quarter of 2022. Taxpayer also did not make any payment when it filed the original return for 2021 in November 2022. Taxpayer asked that the Department waive the interest and both penalties to be abated. As mentioned above, under IC 6-8.1-5-1(c) notices of proposed assessment issued by the Department are prima facie evidence that the Department’s assessments are correct; the burden of proving the assessment is incorrect rests with Taxpayer. IC 6-3-4-4.1, in relevant part, states: A person is also subject to a ten percent penalty if the person “fails to pay the full amount of tax shown on the person’s return on or before the due date for the return or payment.” IC 6-8.1-10-2.1(a)(2) and (b). IC 6-8.1-10-2.1(d) states that “[i]f a person subject to the penalty imposed under this section can show that the failure to . . . pay the full amount of tax shown on the person’s return, . . . or pay the deficiency determined by the department was due to reasonable cause and not due to willful neglect, the department shall waive the penalty.” 45 IAC 15-11-2(b) further explains: The Department shall abate the penalty when a taxpayer “affirmatively establishes that the failure to . . . pay the full amount of tax due . . . or pay a deficiency was due to reasonable cause and not due to negligence.” 45 IAC 15-11-2(c); see also IC 6-8.1-10-2.1(d). Finally, in order to establish reasonable cause, the taxpayer is required to demonstrate that it “exercised ordinary business care and prudence in carrying out or failing to carry out a duty giving rise to the penalty imposed . . . . ” 45 IAC 15-11-2(c). The Department is mindful that “[r]easonable cause is a fact sensitive question and thus will be dealt with according to the particular facts and circumstances of each case.” Id. In determining whether the taxpayer has reasonable cause, the Department is required to consider the following factors: Taxpayer, in this instance, claimed that both penalties should be abated and stated, in part: Upon review, however, the Department is not able to agree. In this case, Taxpayer demonstrated that it is a sophisticated multinational conglomerate. A careful review of both Taxpayer and the Department’s records showed that Taxpayer reported Indiana income on a combined basis using an apportionment method. Taxpayer here has been tracking and claiming those NOLs to reduce its Indiana income each year since 2009. Leading up to its protest, Taxpayer was well aware of the remaining balance of its NOLs each year when filing its 2020 return in November 2021. Specifically, Taxpayer’s 2020 return, Statement 4, speaks for itself. Based on its own records, Taxpayer self-reported that its “Remaining Balance [of approximately $14 million] NOLs was “[t]otal carry forward to 12/31/2021.” Taxpayer’s own original return reported an approximately $1.3 million tax due. Yet, Taxpayer made no payment in November 2022 and also made no payment when it received the proposed assessment in April 2023. Given the totality of the circumstances, in the absence of other supporting documentation, the Department is not able to abate both penalties. However, as mentioned, the amount of penalties may be adjusted after the Department applied the verified NOLs. IC 6-8.1-10-1(a) states, “[i]f a person fails to file a return for any of the listed taxes, fails to pay the full amount of tax shown on the person’s return by the due date for the return or the payment, or incurs a deficiency upon a determination by the department, the person is subject to interest on the nonpayment.” Statutory interest is mandatory when Taxpayer failed to pay the full amount of tax owed before due. IC 6-8.1-10-1(a). The Department is not permitted to waive interest unless one of three very specific circumstances are met, as provided by IC 6-8.1-10-1(e). None of those three circumstances apply here. FINDING Taxpayer’s protest of Issue II is denied. Both penalties and interest, however, may be adjusted to reflect the revised assessment of tax due. SUMMARY Taxpayer’s protest of Issue I is partially sustained. Taxpayer’s refund is denied. Taxpayer was allowed to utilize the verified approximately $14.4 million NOLs for 2021 according to the Department’s Schedule IT-20NOLs and corresponding Workpaper. Taxpayer had zero ($0) NOLs after December 31, 2021. Taxpayer’s protest of Issue II is also denied. However, as mentioned, the amount of penalties and interest may be adjusted to reflect the revised assessment of tax due under Issue I. July 14, 2025 Replaces Finding Document: New