in-20250827-IR-045250390NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE SUPPLEMENTAL LETTER OF FINDINGS: 01-20241074 Indiana Individual Income Tax For The Years 2019, 2020, and 2021 HOLDING Business Owners failed to provide sufficient documentation showing the Department’s assessments were incorrect. ISSUE

I. Indiana Individual Income Tax – Documentation.

Authority: 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); 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); Indiana Dept. of State Revenue v. Kimball Int'l Inc., 520 N.E.2d 1110 (Ind. Ct. App. 1988). Taxpayers argue that the Department’s assessment of additional individual income tax was wrong. STATEMENT OF FACTS Taxpayers are Indiana residents and the sole shareholders of an Indiana S Corporation. The Indiana Department of Revenue (“Department”) audited the S Corporation.  Changes made at the S Corporation level flowed through to Taxpayers as shareholders.  As a result, the Department issued Notices of Proposed Assessment for additional individual income related to tax years 2019, 2020, and 2021.  Taxpayers protested the assessments. After an administrative hearing, the Department issued Letter of Findings 01-20241074, 20241204 Ind. Reg. 045240446NRA, denying Taxpayers’ protest. Taxpayers then requested a rehearing, which the Department granted. An administrative hearing was held where Taxpayers’ and their representatives explained the basis for the rehearing request. This Supplemental Letter of Findings results. Additional facts will be provided as necessary.

I.      Indiana Individual Income Tax – Documentation.

DISCUSSION The Department conducted an audit of the S Corporation in which Taxpayers are shareholders.  During the S Corporation audit, the Department determined that deductions related to “ordinary and necessary” business expenses could not be deducted as business expenses. The disallowance of these deductions increased the S Corporation’s income, which in turn flowed through to Taxpayers as the shareholders and increased their income, which resulted in assessments for additional individual income tax. Taxpayers disagreed with the assessments and protested. The Department reviewed the information provided by Taxpayers during the protest and determined that Taxpayers failed to provide sufficient documentation to change the assessments and issued a Letter of Findings denying the protest. The facts and details of that Letter of Findings are hereby incorporated into this Supplemental Letter of Findings. Taxpayers requested a rehearing. An administrative rehearing was held at which Taxpayers and their representatives explained the issues. Taxpayers also provided additional documentation for review. 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 DOR’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). Pursuant to Indiana statute, taxpayers are responsible for collecting and maintaining documentation. “Every person subject to a listed tax must keep books and records so that the department can determine the amount, if any, of the person's liability for tax by reviewing those books and records.” IC 6-8.1-5-4(a). In addition, IC 6-8.1-5-4(c) provides that, “A person must allow inspection of the books and records and returns by the department or its authorized agents at all reasonable times.” During the protest review, Taxpayer provided hundreds of pages of credit card statements; however, the statements do not detail the payment of sales tax at the S Corporation level. As a result of the sales tax and income tax audits of the S Corporation, adjustments to the income and taxes at the S Corporation level flowed through to Taxpayers as shareholders. Taxpayers provided additional documentation during the rehearing process. Again, the documentation provided fails to show specific details needed for the Department to change the assessments. Further, the Department was clear during the rehearing review regarding the types of documentation needed. Despite Taxpayer’s insistence that “totes of receipts” existed that would show the Department’s assessments were wrong, Taxpayer did not provide the necessary documentation. “Tax exemptions are strictly construed in favor of taxation and against the exemption.” Indiana Dept. of State Revenue v. Kimball Int'l Inc., 520 N.E.2d 1110 (Ind. Ct. App. 1988).  Taxpayer has not met the burden under IC 6-8.1-5-1(c) of showing the Department’s assessment was wrong. FINDING Taxpayer’s protest is denied. June 25, 2025 Replaces Finding Document: New