in-20250827-IR-045250424NRA: INDIANA DEPARTMENT OF STATE REVENUE

INDIANA DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 75-20242060 Fiduciary Tax For the 2022 Tax Year HOLDING Nonresident Trust was able to establish that the Department should review its passthrough credits. ISSUE

I. Fiduciary Tax – Credits.

Authority: I.R.C. § 62; I.R.C. § 701; I.R.C. § 1366; IC 6-3-1-3.5; IC 6-3-1-14; IC 6-3-2-1; IC 6-3-2.1-3; IC 6-3-2.1-5; IC 6-3.1 et seq.; IC 6-8.1-5-1; Stinson Estate v. United States, 214 F.3d 846 (7th Cir. 2000); 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); Tell City Boatworks, Inc. v. Indiana Dep’t of State Revenue, 162 N.E.3d 603 (Ind. Tax Ct. 2020); Lafayette Square Amoco, Inc. v. Indiana Dept. of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007). Taxpayer protests the Department’s assessment of fiduciary tax based on a denial of withholding credits from two passthrough entities. STATEMENT OF FACTS Taxpayer is a trust established under the laws of another state. Taxpayer’s fiduciary timely filed a Fiduciary Income Tax Return (“IT-41”) on its behalf with the Indiana Department of Revenue (“Department”) for the 2022 tax year. Taxpayer’s only income from within Indiana was passed through to it from two nonresident partnerships. Those partnerships withheld taxes and remitted them to the Department, and Taxpayer requested a refund based on the withholding. The Department denied the refund on the grounds that it could not verify the withholding amounts, and it issued Taxpayer an assessment for additional income tax. Taxpayer timely protested, and the Department held an administrative hearing. This Letter of Findings results. Additional facts will be provided as necessary.

I. Fiduciary Tax – Credits.

DISCUSSION Taxpayer argues that it is entitled to claim a credit for taxes withheld on its behalf by two partnerships that it owns. The Department based its assessment on lack of supporting documentation to establish the claimed withholding amounts. 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) and Lafayette Square Amoco, Inc. v. Indiana Dep’t of State Revenue, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007). Consequently, a taxpayer is required to provide documentation explaining and supporting his or her challenge that the Department’s position is wrong. Further, “[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). Thus, all interpretations of Indiana tax law contained within this decision shall be entitled to deference. 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. Indiana includes trusts in the definition of “person” for purposes of the state income tax. IC 6-3-1-14. The starting point for determining Indiana income tax is the taxpayer’s federal adjusted gross income as defined in I.R.C. § 62, which taxpayers are directed to enter on their Indiana return before making modifications that are outlined in IC 6-3-1-3.5. Once a taxpayer’s adjusted gross income is determined, it may claim tax credits to reduce its taxable income. See IC 6-3.1 et seq. Like deductions, exemptions, and exclusions, tax credits are matters of legislative grace. Stinson Estate v. United States, 214 F.3d 846, 848 (7th Cir. 2000). Tax credits are narrowly construed, and the burden rests with the taxpayer to demonstrate that it qualifies for any claimed credits. Id.; Tell City Boatworks, Inc. v. Indiana Dep’t of State Revenue, 162 N.E.3d 603, 626 (Ind. Tax Ct. 2020). Pass-through entities normally do not pay tax, instead passing their profit or loss on to their owners. See I.R.C. § 1366; I.R.C. § 701. However, pass-through entities may elect to pay tax directly instead. IC 6-3-2.1-3(b). When an entity elects to pay tax, its owners still must report their shares of the entity’s income on their income tax returns, but they may claim a refundable credit for their share of the tax that the entity paid. Id.; IC 6-3-2.1-5(b). Taxpayer represented to the Department that one of the entities from which Taxpayer anticipated pass-through credits inadvertently elected to pay tax itself, and the Department accordingly issued a refund to it. Taxpayer represented that the entity had amended its 2022 Indiana partnership tax return in order to repay the refund and rectify the pass-through withholding. If the other entity has indeed repaid its refund, then Taxpayer will receive credit in the amount of such verified withholdings. The Department will review Taxpayer’s pass-through withholding to determine whether the assessment should be reduced and whether any refund should be issued. FINDING Taxpayer’s protest is sustained to the extent described above. June 6, 2025 Replaces Finding Document: New