in-20250917-IR-045250445NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 01-20242058 Individual Indiana Income Tax For The Year 2022 HOLDING Taxpayer met her burden of proof showing the Department’s assessment was incorrect. ISSUE

I. Indiana Individual Income Tax – Burden of Proof.

Authority: IC 6-3-1-3.5; IC 6-3-2-1; 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); About Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship), Internal Revenue Service, https://www.irs.gov/forms-pubs/about-schedule-c-form-1040; Schedule C, Indiana Department of Revenue, https://www.in.gov/dor/resources/fraud-prevention/schedule-c/. Taxpayer protest the assessment of additional individual income tax for tax year 2022. STATEMENT OF FACTS Taxpayer is an Indiana resident. For tax year 2022, 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. Taxpayer disagreed with the assessment and submitted a protest to that effect. Taxpayer waived her right to an administrative hearing. This Letter of Findings is written in reliance on the information provided by the Taxpayer and the Department’s records. Additional facts will be provided as necessary.

I. Indiana Individual Income Tax – Burden of Proof.

DISCUSSION The Department reviewed Taxpayer’s Form IT-40 for tax year 2022 and made adjustments that resulted in a proposed assessment. Taxpayer protested the assessment and provided an explanation and documentation in support of her argument. 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 Dep’t of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463, 466 (Ind. 2012); Lafayette Square Amoco, Inc. v. Indiana Dep’t 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.’” Dep’t of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579, 583 (Ind. 2014). Consequently, a taxpayer is required to provide documentation explaining and supporting his or her challenge that the Department’s position is wrong. Indiana imposes a tax “on the adjusted gross income of every resident person, and on that part of the adjusted gross income derived from sources within Indiana of every nonresident person.” IC 6-3-2-1(a). Indiana statute refers to the Internal Revenue Code to compute what is considered the resident-taxpayer’s Indiana income tax. IC 6-3-1-3.5(a) provides the starting point to determine the taxpayer’s taxable income and calculate what would be his or her Indiana income tax after applying certain additions and subtractions to that starting point, with modifications thereafter. If Schedule C deductions are taken at the federal level, a Taxpayer will usually also take the same deductions at the state level. Schedule C (Form 1040) is used to report income or loss by small businesses and professionals who operate as a sole proprietor. About Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship), Internal Revenue Service, https://www.irs.gov/forms-pubs/about-schedule-c-form-1040, (last visited July 22, 2025). The Department will review a Federal Schedule C for sole proprietorship income and loss. Schedule C, Indiana Department of Revenue, https://www.in.gov/dor/resources/fraud-prevention/schedule-c/, (last visited July 22, 2025). Schedule C is part of Indiana tax returns and businesses must keep records to show all income and expenses reported on Schedule C. Id.  In this instance, during the initial review of Taxpayer’s 2022 Form IT-40, the Department adjusted Taxpayer’s Indiana return to include Schedule C expenses taken at the federal level. However, a closer review of Taxpayer’s return shows that Taxpayer had already added back those expenses to her Form IT-40. Taxpayer did not ask for Schedule C tax deductions at the state level when her return was originally filed. As such, the Department incorrectly assessed Taxpayer additional tax. Taxpayer’s return was correct as filed. Based on the information provided on Taxpayer’s original Form IT-40, Taxpayer calculated that she was entitled to a refund. The Department will review Taxpayer’s account and issue any refund still owed. FINDING Taxpayer’s protest is sustained. July 24, 2025 Replaces Finding Document: New