in-20250827-IR-045250396NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 01-20242781 Individual Income Tax For the Year 2023 HOLDING Indiana Resident failed to demonstrate that he was entitled to a refund and the assessment was incorrect. ISSUE

I. Individual Income Tax – Burden of Proof.

Authority: IC 6-3-1-3.5; IC 6-3-2-1; IC 6-8.1-5-1; IC 6-8.1-5-4; Dept. of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579 (Ind. 2014); Miller Brewing Co. v. Indiana Dep’t of State Revenue, 903 N.E.2d 64 (Ind. 2009); 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); Stinson Est. v. United States, 214 F.3d 846 (7th Cir. 2000); United States v. McFerrin, 570 F.3d 672 (5th Cir. 2009); IT-40 Full-Year Resident Individual Income Tax Booklet (2023). Taxpayer protested the proposed assessment of individual income tax for 2023. STATEMENT OF FACTS Taxpayer is an Indiana resident who filed an Indiana income tax return (“IT-40”) for 2023 to request a refund. The Indiana Department of Revenue (“Department”) reviewed and adjusted that filing. The Department’s adjustments resulted in a refund denial and an assessment. Taxpayer protested. An administrative hearing was held. This final determination ensues.  DISCUSSION The Department reviewed Taxpayer’s filing and assessed additional income tax, penalty, and interest. Taxpayer, to the contrary, argued that “[t]he return we submitted had a negative number on this line due to our business losing [approximately $47,000] for the 2023 year.” The issue thus is whether Taxpayer demonstrated that the assessment was incorrect. IC 6-8.1-5-4(a) requires that a taxpayer must keep books and records so that the Department can determine the amount, if any, of the taxpayer’s liability by reviewing the books and records. If the Department “reasonably believes that a person has not reported the proper amount of tax due,” 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” pursuant to IC 6-8.1-5-1(b). All tax assessments are prima facie evidence that the Department’s claim for the unpaid tax is valid; the taxpayer bears the burden of proving that any assessment is incorrect. IC 6-8.1-5-1(c). Importantly, “each tax year stands alone.” Miller Brewing Co. v. Indiana Dep’t of State Revenue, 903 N.E.2d 64, 69 (Ind. 2009). The taxpayer is required to provide documentation to explain and support his or her challenge. When an agency is charged with enforcing a statute, jurisprudence defers to the agency’s reasonable interpretation of that statute “over an equally reasonable interpretation by another party.” Indiana Dep’t of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579, 583 (Ind. 2014). Poorly developed and 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). Indiana imposes an adjusted gross income tax on all residents. IC 6-3-2-1. An Indiana resident taxpayer’s income is determined by starting with the federal adjusted gross income and making certain adjustments. IC 6-3-1-3.5(a). Indiana statute refers to the Internal Revenue Code to compute what is considered the taxpayer’s Indiana income tax. Such “adjusted gross income” shall “[a]dd an amount equal to any deduction allowed under Section 172 of the Internal Revenue Code (concerning net operating losses).” IC 6-3-1-3.5(a)(16). IT-40 Full-Year Resident Individual Income Tax Booklet (2023) (“IT-40 Booklet”) further explained, in relevant part, the following: The taxpayer may be able to deduct certain losses. 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). Throughout the protest process, Taxpayer in this case argued that he was entitled to deduct the $47,000 loss because his business had losses during 2023. Taxpayer offered Schedule 1 to his 2023 federal return, Form 1040, to support his protest. But Taxpayer declined to provide any statutory reference to support his claim or verifiable source documents to substantiate the losses. Upon review, Taxpayer was mistaken. As mentioned, an Indiana resident taxpayer’s income is determined by starting with the federal adjusted gross income and making certain adjustments. In this case, Taxpayer was required to add back the loss on line 8 of his federal Schedule 1 (as a positive number) pursuant to IC 6-3-1-3.5(a)(16). See also IT-40 Booklet. Taxpayer thus was required to add back the approximately $47,000 (as positive number) to compute his Indiana income subject to Indiana income tax. Also, as mentioned, Taxpayer may be able to deduct certain losses. But Taxpayer was required to document and substantiate his claim. Taxpayer failed to do so. The Department thus is not able to agree that Taxpayer was entitled a refund. To conclude, to compute his Indiana adjusted gross income, Taxpayer was required to add back the approximately $47,000 loss. In the absence of other verifiable supporting documents, the Department is not able to agree that Taxpayer met his burden of proof demonstrating that the assessment was incorrect pursuant to IC 6-8.1-5-1. FINDING Taxpayer’s protest is denied. June 27, 2025 Replaces Finding Document: New