in-20250528-IR-045250247NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 01-20241816 Indiana Individual Income Tax For the Year 2020 HOLDING The Department disagreed with Indiana Individual that the Department made a mistake when it adjusted the Individual’s income tax return by increasing his reported 2020 FAGI. ISSUE

I. Indiana Individual Income Tax – Federal Adjusted Gross Income.

Authority: 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 Dep’t of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463 (Ind. 2012); Lafayette Square Amoco, Inc. v. Indiana Dep’t of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007); 45 IAC 15-5-1; David L. Scott, Wall Street Words, 1997; 401(k) Plans, https://www.irs.gov/retirement-plans/401k-plans. Taxpayer protests the Department’s assessment of 2020 individual income tax believing that the Department made a mistake when it increased his Federal Adjusted Gross Income (“FAGI”). STATEMENT OF FACTS Taxpayer is an Indiana resident who routinely files Indiana income tax returns. Taxpayer submitted his 2020 Indiana return. On that return, Taxpayer reported that he had received approximately $67,000 in FAGI. In a letter dated December 2023, the Indiana Department of Revenue (“Department”) issued Taxpayer a “Notice of Proposed Assessment” explaining that Taxpayer owed approximately $6,700 in additional tax. In a follow-up letter, dated July 24, the Department explained further: In order to correct the purported federal error, Taxpayer was requested to obtain and submit a federal account transcript by August 2024. While Taxpayer had originally reported $67,000 in FAGI, the Department increased that amount to approximately $140,000. Taxpayer disagreed with the assessment of additional Indiana income tax and submitted a protest to that effect. An administrative hearing was conducted by telephone during which Taxpayer explained the basis for the protest.

I. Indiana Individual Income Tax – Federal Adjusted Gross Income.

DISCUSSION The issue is whether Taxpayer has provided information sufficient to establish that the FAGI reported on his original return was correct and the Department’s assessment of additional tax was wrong. The underlying issue stems from the Department’s decision to increase Taxpayers’ federal adjusted gross income. As stated in IC 6-8.1-5-1(c), “The notice of proposed assessment is prima facie evidence that the department's claim for the unpaid tax is valid, including during an action appealed to the tax court under this chapter. The burden of proving that the proposed assessment is wrong rests with the person against whom the proposed assessment is made.” Indiana Dep’t 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). Consequently, a taxpayer is required to provide documentation explaining and supporting his or her challenge that the Department’s position is wrong. In weighing the Department’s original income tax adjustment, the relevant Indiana law, Taxpayer’s 2020 Indiana return, Taxpayer’s federal income tax transcript, and Taxpayer’s arguments, the Department bears in mind that “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.’” Dept. of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579, 583 (Ind. 2014). Thus, interpretations of Indiana tax law contained within this decision, as well as the Department’s decision increasing the amount of FAGI, are entitled to deference. The Department’s adjustment was made in fulfilling the Department’s responsibility set out in IC 6-8.1-5-1(b). That statute defines the Department’s responsibility. “If the [D]epartment reasonably believes that a person has not reported the proper amount of tax due, the [D]epartment shall make a proposed assessment of the amount of the unpaid tax on the basis of the best information available to the [D]epartment.” (Emphasis added). See also 45 IAC 15-5-1. 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). To correctly compute what is considered a resident/taxpayer's Indiana income tax, the Indiana statute refers to the Internal Revenue Code. IC 6-3-1-3.5(a) provides the starting point in determining the taxpayer's taxable income and to calculate what would be his or her Indiana income tax after applying certain additions and subtractions to that starting point. According to the Department’s secondary sources, Taxpayer underreported his FAGI by approximately $73,000. Taxpayer speculates that the $73,000 is not subject to FAGI because, as Taxpayer explains, “I owe these taxes [only] due to taking money out of my 401K.” Taxpayer continues, “The money I took out of my 401K is the only reason my family and I didn’t go homeless and hungry.” A 401K is “retirement plan that permits an employee to set aside a portion of salary in a tax- deferred investment account selected by the employer. Contributions made to the account and income are sheltered from taxes until the funds are withdrawn. David L. Scott, Wall Street Words, 332, 1997. “A 401(K) is a feature of a qualified profit-sharing plan that allows employees to contribute a portion of their wages to individual employees’ accounts.” 401(k) Plans, https://www.irs.gov/retirement-plans/401k-plans. (Last visited November 18, 2024). Taxpayer withdrew approximately $100,000 from his retirement account with that amount then subject to Indiana income tax. Although the Department has no reason to doubt that the $100,000 was used for good and proper reasons and was – as Taxpayer suggests – necessary for his family’s wellbeing during the pandemic. However, wages deposited in a 401K account are subject to tax at the time the money is withdrawn. The withdrawal took place in 2000 and became subject to tax that year. The fact that the money was used for good and proper reasons is not relevant. FINDING Taxpayer’s protest is respectfully denied. March 14, 2025 Replaces Finding Document at: New