in-20250528-IR-045250271NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 18-20221185 Financial Institution Tax For the Year 2014 HOLDING Taxpayer established the Department’s disallowance of a net operating loss deduction was incorrect. ISSUE

I. Financial Institution Tax – Net Operating Loss Calculations.

Authority: IC 6-5.5-1-17; IC 6-5.5-2-1; 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); Lafayette Square Amoco, Inc. v. Indiana Dept. of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007); I.R.C. § 860E. Taxpayer protests the disallowance of a net operating loss deduction. STATEMENT OF FACTS Taxpayer is an Indiana financial institution. In tax year 2014, Taxpayer timely filed its income tax return. On the return Taxpayer utilized its net operating loss (“NOL”) accrued in prior tax years and calculated a refund for tax year 2014. Taxpayer was later subject to two federal audits. The first was finalized in 2018, and the second audit was finalized in 2020. The Indiana Department of Revenue (“Department”) also audited Taxpayer in 2020, and the Department’s audit resulted in Taxpayer filing an amended return. Taxpayer’s amended return still claimed a refund due to the utilization of the NOL. The Department disallowed Taxpayer’s NOL and issued an assessment. Taxpayer protested the assessment and requested resolution with a hearing. A hearing was held, and this Letter of Findings results. Additional facts will be provided as necessary.

I. Financial Institution Tax – Net Operating Loss Calculation.

DISCUSSION The Department disallowed Taxpayer’s NOL carryforward and claimed refund and issued Taxpayer an assessment. Taxpayer protested the assessment. The NOL was originally not allowed due to issues with related entities; however, the Department later determined the underlying issue was due to excess inclusion income under I.R.C. 860E. 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 Dept. of State Revenue, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007). An assessment is 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). Taxpayer qualifies as a financial institution under IC 6-5.5-1-17. Indiana imposes a financial institution tax pursuant to IC 6-5.5-2-1(a), as follows: I.R.C. § 860E states: Taxpayer had excess inclusion income from REMIC, therefore under I.R.C. § 860E, Taxpayer’s excess inclusion income becomes the floor for its federal taxable income. For example, if a taxpayer has $40,000 of income and $100,000 of excess inclusion income, the taxpayer would report $100,000 of income and have the difference of $60,000 in NOLs to carry forward. In this protest, Taxpayer’s excess inclusion income was reported as its federal taxable income, and therefore, Taxpayer has NOLs that can be carried forward for tax year 2014. After reviewing the documentation, Taxpayer has met its burden of proof. Taxpayer utilized its NOL carryforward of federal taxable income minus the excess income exclusion as stated in I.R.C. § 860E and thus had a sufficient Indiana taxable income to fully utilize its NOL in the 2014 tax year. Taxpayer’s protest is sustained. FINDING Taxpayer’s protest is sustained. March 21, 2025 Replaces Finding Document: New