in-20250917-IR-045250452NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 01-20251386 Individual Income Tax For The Year 2021 HOLDING Married couple provided documentation showing the Department’s assessment was partially incorrect. Department’s assessment for additional income tax related to a social security disability payment was incorrect, but Couple is not entitled to an earned income credit based on their income. ISSUE

I. Individual Income Tax – Imposition.

Authority: 26 U.S.C.A. § 62. IC 6-3-1-3.5; IC 6-3-2-1. IC 6-3-2-2; IC 6-3.1-21; IC 6-8.1-5-1; IC 6-8.1-5-19; IC 6-8.1-10-2.1; 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); Dept. of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579 (Ind. 2014); 45 IAC 15-11-2; Income Tax Information Bulletin 26 (July 2015). Taxpayers protest the assessment of individual income tax. STATEMENT OF FACTS Taxpayers are a married couple and Indiana residents. For tax year 2021, Taxpayers filed an Indiana Full-Year Resident Individual Income Tax Return (“Form IT-40”). After review, the Department of Revenue (“Department”) discovered a discrepancy between the information provided on Taxpayers’ federal and state returns and issued an assessment for additional individual income tax. Taxpayers disagreed and protested the assessment. An administrative hearing was requested, but after further communications Taxpayers waived the hearing. This Letter of Findings results. Additional facts will be provided as necessary.

I. Individual Income Tax – Imposition.

DISCUSSION Taxpayers argue that the Department’s assessment for Indiana individual income tax is incorrect. Taxpayers explained that a third-party tax preparer neglected to include disability benefits Wife received on their original federal and state tax returns. In support of their protest, Taxpayers submitted copies of their original federal and state tax returns and an amended federal return. 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 6-8.1-5-19(c). The burden of proving that the proposed assessment is wrong rests with the person against whom the proposed assessment is made. Id. Consequently, a taxpayer must provide documentation explaining and supporting that the Department’s position is wrong. See 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). 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 a tax “upon the adjusted gross income of every resident person, and on that part of the adjusted gross income (“AGI”) derived from sources within Indiana of every nonresident person.” IC 6-3-2-1. IC 6-3-2-2(a) outlines what is income derived from Indiana sources and subject to Indiana income tax. Social Security benefits come in several forms, including disability benefits. These benefits are not exempt from federal taxation as they are considered part of an individual’s AGI under 26 U.S.C.A. § 62. While subject to federal tax, social security benefits are exempt from state tax in Indiana under IC 6-3-1-3.5. Income Tax Information Bulletin 26 (July 2015), 20150826-IR- 045150278NRA. Pursuant to IC 6-3.1-21-6, Indiana allows for the Earned Income Tax Credit (“EITC”) for Individual Income Tax. IC 6-3.1-21-6 maps out how this credit is administered, relying on Section 32 of the Internal Revenue Code for credit calculation. This tax credit is designed to provide a greater disposable income for taxpayers who fall into a defined income group. An individual taxpayer’s EITC is determined by a number of factors including income level and family status. The money acquired through the EITC is subject to federal income tax but is exempt from state income tax under IC 6-3.1-21. If certain criteria are met, such as a valid federal EITC and qualifying income levels, a taxpayer may also qualify for Indiana’s EITC. Specifics details, including more information on the qualifying criteria and how to calculate the credit, can be found in the IT-40 Instruction Booklet for tax year 2021. After receiving information regarding the federal adjustments, the Department reviewed Taxpayers’ return and issued an assessment. Taxpayers protested and explained the situation. Wife received social security disability benefits in 2021. These benefits were subject to federal income tax and should have been included on Taxpayers’ federal return. Taxpayers’ preparer neglected to include these benefits on their original federal and state income tax returns for the 2021 tax year. Upon learning of the error, Taxpayers submitted an amended federal tax return, which included Wife’s social security disability income. Taxpayers did not amend their original Indiana return. Taxpayers’ oversight in not amending their state tax return resulted in the proposed assessment being protested. While the Department notes that Taxpayers should have filed an amended Indiana tax return, the Department will proceed and make the necessary adjustments only because the information is readily available and verifiable per the documentation provided by Taxpayers. The adjustments will remove the social security disability payment received by Wife from Taxpayers’ taxable income for tax year 2021. The Department notes that Taxpayers claimed an EITC on their original IN return. A review shows that, after the necessary adjustments related to the social security disability payment, Taxpayers are not entitled to an EITC because their properly calculated income now exceeds the maximum income under which this credit may be claimed. Taxpayers have partially met their burden of proof in establishing that the Department’s assessment is incorrect. Taxpayers have demonstrated that the social security disability benefits Wife received are not taxable. Taxpayers have not demonstrated that they are entitled to the EITC. The documents provided establish that Taxpayers’ income exceeds the maximum income threshold for the EITC under IC 6-3.1-21. FINDING Taxpayers are sustained in part and denied in part. July 28, 2025 Replaces Finding Document: New