in-20250625-IR-045250293NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 02-20210102 Corporate Income Tax For the 2016 Tax Year HOLDING Corporation successfully established that it did not owe additional Indiana income tax. ISSUE

I. Corporate Income Tax – Subtractions from Gross Income.

Authority: I.R.C. § 78; I.R.C. § 901; I.R.C. § 951; I.R.C. § 957; I.R.C. § 960; IC 6-3-1-3.5; IC 6-3-2-1; 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); Wendt LLP v. Indiana Dep't of State Revenue, 977 N.E.2d 480 (Ind. Tax Ct. 2012); Scopelite v. Indiana Dep't of Local Gov't Fin., 939 N.E.2d 1138 (Ind. Tax Ct. 2010); Lafayette Square Amoco, Inc. v. Indiana Dept. of State Revenue, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007). Taxpayer protests the imposition of tax on income included in its federal adjusted gross income (“FAGI”) under I.R.C. Section 78.

I. Corporate Income Tax – Subtractions from Gross Income.

DISCUSSION Taxpayer argues that it is entitled to subtract from its Indiana gross income any amounts attributable to taxes paid by CFCs. 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 Dep’t of State Revenue, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007). Where a taxpayer is challenging the Department’s final determination, the taxpayer is required to provide documentation explaining and supporting its challenge. 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); Wendt LLP v. Indiana Dep't of State Revenue, 977 N.E.2d 480, 486 n.9 (Ind. Tax Ct. 2012). Additionally, “when [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.’” Indiana Dep’t of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579, 583 (Ind. 2014). Thus, all interpretations of Indiana law contained within this decision are entitled to deference. Indiana imposes a tax on “the adjusted gross income derived from sources within Indiana of every corporation[.]” IC 6-3-2-1(b). Indiana calculates a corporation’s gross income by starting with a corporation’s FAGI and making Indiana-specific adjustments. IC 6-3-1-3.5(b). Federal law requires taxpayers who own shares of “controlled foreign corporation[s]” to include in their FAGI their share of those corporations’ profits. I.R.C. § 951(a)(1). A “controlled foreign corporation” is “any foreign corporation if more than 50 percent of [] (1) the total combined voting power of all classes of stock of such corporation entitled to vote, or (2) the total value of the stock of such corporation” is actually or constructively owned by United States shareholders “on any day during the tax year[.]” I.R.C. § 957(a). Federal law allows corporations to claim a tax credit for taxes paid to a foreign country. I.R.C. § 901. If a corporation was required to include a CFC’s income in their own FAGI, they may also claim a tax credit for their share of the taxes that the CFC paid to a foreign country. I.R.C. § 960(a). However, if a corporation chooses to do this, it must treat as a dividend an amount equal to the share of the CFC’s taxes for which it claimed a credit, which will result in that amount being added to its FAGI. I.R.C. § 78. Indiana law requires corporations who have had to recognize this “Section 78” dividend to subtract that amount from gross income on their Indiana returns. IC 6-3-1-3.5(b)(4). Taxpayer presented documentation showing that the Department assessed tax on an amount attributable to a Section 78 dividend. Specifically, Taxpayer showed that it added an amount to its FAGI on its federal return under Section 78. Indiana requires this amount to be subtracted from gross income as provided by IC 6-3-1-3.5(b)(4). Taxpayer therefore carried its burden to show that it does not owe tax on this amount. FINDING Taxpayer’s protest is sustained.

II. Corporate Income Tax – Exclusions from Gross Income.

DISCUSSION Taxpayer argues that it is entitled to exclude from gross income amounts attributable to dividends received by CFCs. Indiana allows corporations to exclude dividends paid by CFCs from gross income. IC 6-3-2-12(b). A corporation may exclude 50 percent of these dividend amounts if it owns less than 50 percent of the CFC issuing the dividend. IC 6-3-2-12(e). A corporation may exclude 85 percent of these dividend amounts if it owns between 50 and 80 percent of the CFC issuing the dividend. IC 6-3-2-12(d). A corporation may exclude 100 percent of these dividend amounts if it owns at least 80 percent of the CFC issuing the dividend. IC 6-3-2-12(c). Under this section, a corporation may treat as a dividend any amount of income that it was required to include in its FAGI under I.R.C. Section 951. IC 6-3-2-12(a). Taxpayer presented documentation showing that the Department assessed tax on an amount attributable to CFC dividends. Taxpayer has also presented documentation showing that it owns at least 80 percent of all CFCs from which it received dividends. Indiana law therefore permits taxpayer to exclude 100 percent of these amounts from gross income, so Taxpayer has carried its burden to show that it does not owe tax on this amount. FINDING Taxpayer’s protest is sustained. SUMMARY Taxpayer’s protest is sustained on Issue I and sustained on Issue II. April 4, 2025 Replaces Finding Document: New