in-20250827-IR-045250397NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 01-20242820 Individual Income Tax For The Year 2023 HOLDING Married couple did not meet the burden showing the Department’s assessment of additional income tax was incorrect. ISSUE

I. Individual Income Tax – Assessment.    

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); IT-40 Full Year Resident Individual Income Tax Booklet (2023); Illinois Department of Revenue, https://tax.illinois.gov/; Indiana Department of Revenue, https://www.in.gov/dor/tax-forms/individual/individual-prior-year/. Taxpayers protest the assessment of additional individual income tax. STATEMENT OF FACTS Taxpayers are a married couple that live in Indiana and file their individual income tax return as married filing jointly. For tax year 2023, Taxpayers filed their federal tax return and an Indiana Full-Year Resident Individual Income Tax Return (“Form IT-40”). The Indiana Department of Revenue (“Department”) reviewed Taxpayers’ return and determined that Taxpayers had miscalculated their Schedule 5 Credits. The Department reduced Taxpayers’ credits, which resulted in the Department issuing a Notice of Proposed assessment for additional income tax. Taxpayers protested the assessment and requested resolution without a hearing. The Department contacted Taxpayers and clarified some of the information provided with the protest. This Letter of Findings results and is based on the information provided by Taxpayers and a review of Department records. Additional facts will be provided as necessary.

I. Individual Income Tax – Assessment.

DISCUSSION The Department determined that Taxpayers had miscalculated their Schedule 5 Credits and assessed additional income tax, penalty, and interest. In support of the protest, Taxpayers provided a copy of their 2023 federal return, Indiana Form IT-40, and W-2s. 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, including taxpayer’s penalty assessment, is therefore 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 a tax “upon 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). IC 6-3-2-2(a) outlines what is income derived from Indiana sources and subject to Indiana income tax. There is a presumption that a taxpayer files his/her federal income tax return as required by the Internal Revenue Code. Thus, to effectively compute what is considered a taxpayer’s Indiana income tax, Indiana law refers to the Internal Revenue Code. IC 6-3-1-3.5 provides a starting point in determining a taxpayer’s taxable income and calculating what would be his/her Indiana income tax after applying certain additions and subtractions, with any necessary modifications following. These Indiana modifications are outlined in IC 6-3-1-3.5(a). Per the IT-40 Full Year Resident Individual Income Tax Booklet (2023), Schedule 5 is used by a taxpayer to report any tax withheld on his/her behalf. This includes Indiana state and local taxes withheld by an employer, generally reported on a taxpayer’s W-2 for the relevant tax year. Id. It could also include withholding reported on other forms such as a W-2G, 1099, Form IN-MSIDA or Schedule IN K-1. Id. A taxpayer is directed to include withholding statements with his/her return, regardless of what form is used to indicate withholding. If taxpayers are married filing jointly, then both spouses’ withholding forms should be included with the return. Id. The Indiana IT-40 Instruction Booklet also provides guidance to taxpayers related to Offset Credits that are reported on Schedule 6. Offset Credits are credits that cannot be refunded but may be used to reduce a taxpayer’s state and/or county tax liability. Id. Schedule 6 is used to calculate “Credit for Taxes Paid in Other States.” Schedule 6 can also be used to calculate credit for Local Taxes Paid Outside of Indiana, Community Revitalization Enhancement District Credit, and College Credit. Related to this protest, as with Schedule 5, the only issue relevant to Schedule 6 calculations are relevant credit for taxes Taxpayers paid in other states. A review of the Department’s records shows that tax year 2023 was the first year Taxpayers filed jointly as a married couple. Taxpayers filed their Indiana Form IT-40, which included a Schedule 5 credit calculation related to Indiana withholding taxes for state and county tax. Taxpayers calculated approximately a $5,300 credit for their withholding taxes. Included as part of the return were five W-2s – one for Wife and four for Husband. Taxpayers live in Indiana, and Wife works solely in Indiana. Wife’s corresponding W-2 indicates Indiana state and local withholding taxes were withheld by her employer. Husband’s W-2s are more complicated. Husband worked for four different employers during tax year 2023. Three of the employers are based in Illinois while the fourth in based in Indiana. Two of the W-2s for the Illinois based employers show Husband’s wages were “split” with half of his income allocated to Illinois and the other half allocated to Indiana. The W-2s for these two employers indicate each employer collected only Illinois state income tax on half of Husband’s wages along with Indiana local income tax on half of his wages. These two employers did not collect any Illinois local withholding tax or Indiana state income withholding tax on Husband’s behalf. This is confirmed by reviewing the relevant W-2s line items. Local taxes are denoted by the amount found in Box 19. Both W-2s show local income tax was withheld on Husband’s behalf and is indicated by the corresponding county code in Box 20.  Husband’s other two W-2s (one for an Illinois based company and the other for an Indiana based company) show Illinois state income tax withholding only. Neither Indiana state income tax nor Indiana local income tax was withheld on Husband’s wages. As a result, Husband’s income was not being taxed in Indiana. In sum, Wife’s income is subject to Indiana income tax and Indiana local income tax while Husband’s income is subject to Illinois income tax and Indiana local income tax. Credit for any taxes paid to states other than Indiana (i.e., Illinois taxes related to Husband’s earnings) should be claimed on Indiana’s Form IT-40 by including Schedule 6 with the return. Taxpayers did not complete Schedule 6 with their 2023 Indiana return. To correct the errors, Taxpayer should file properly file an Illinois return and amend their Indiana return to reconcile the inconstancies. The Department will review Taxpayer’s amended return and determine what assessment may be owed. Taxpayers’ protest is denied. FINDING Taxpayers’ protest is denied. June 9, 2025 Replaces Finding Document: New