in-20250625-IR-045250294NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS 02-20241593 Income Tax For Tax Years 2020, 2021, and 2022 HOLDING Out-of-State Partnership and Partner met their burden of proof, demonstrating that (i) the proposed assessments were incorrect and (ii) penalties and fees should be abated. ISSUE

I. Income Tax – Burden of Proof.

Authority: IC 6-3-2-1; IC 6-3-4-12; IC 6-8.1-5-1; IC 6-8.1-10-1; IC 6-8.1-10-2.1; Dep’t 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). Taxpayers protested the assessments, claiming that the proposed assessments were incorrect. STATEMENT OF FACTS Taxpayers are two (2) affiliate companies of a conglomerate. One is an out-of-state partnership (“Partnership”) and the other is an out-of-state corporate partner of that partnership (“Partner”). Each year, in addition to withholding and remitting tax, Partnership files an Indiana partnership return and a Schedule Composite-COR to report income received and distributed to Partner. Partner, in turn, files its income tax return to report the pass-through income subject to Indiana income tax and corresponding tax credits. The Indiana Department of Revenue (“Department”) processed Taxpayers’ 2020, 2021, and 2022 tax filings and applied payments. The Department determined that for those years, Partnership underpaid and Partner did not have sufficient credits to reduce income tax of the pass-through income. The Department issued multiple notices to Taxpayers. But several were returned to the Department by the United States Postal Service. Those liabilities advanced to a collection stage. Taxpayers protested the assessments and fees. Taxpayers provided documents and proof of their payments to support their protest. A hearing was held and this final determination ensues.

I. Income Tax – Burden of Proof.

DISCUSSION Taxpayers claimed that they did not owe any taxes because they properly filed the tax returns, remitted payments, and had sufficient credits to reduce tax due accordingly. Thus, the issue is whether Taxpayers’ documents demonstrated that the assessments were wrong. As a threshold issue, 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). “[E]ach assessment and 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 explaining and supporting its challenge that the Department’s assessment is wrong. “[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). 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 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(a). A partnership, which conducts business in Indiana and has nonresident partners, is required to file a composite tax return and withhold tax on distributions made to its nonresident partners pursuant to IC 6-3-4-12. If the partnership fails to “include all nonresident partners in the composite return,” pursuant to IC 6-3-4-12(j), the partnership is subject to a penalty under IC 6-8.1-10-2.1. Separately, a nonresident partner, which receives distributions from the partnership, is required to file its return and report the pass-through income attributable to Indiana. The partner is required to provide the Schedule IN K-1 to substantiate its tax credit; otherwise, such credit cannot be allowed to reduce the partner’s income tax. As a result, the partner is liable for the deficiency. Throughout the protest process, Taxpayers stated that their payments and the pass-through credits were not properly recognized and allowed. Taxpayers offered documents, including proof of their payments and Schedule IN K-1s for those years, to support their protest. In addition, Taxpayers requested that penalties and fees be abated due to reasonable cause. Upon review, based on Taxpayers’ supporting documents and the totality of circumstances, the Department is prepared to agree that Taxpayers met their burden of proof demonstrating that (i) the assessments were incorrect, (ii) they acted reasonably and in good faith to comply with the applicable tax law, and (iii) penalties and fees should be abated due to reasonable cause. The Department, however, has no authority to waive interest imposed under IC 6-8.1-10-1. FINDING Taxpayers’ protest is sustained. April 28, 2025 Replaces Finding Document: New