in-20250528-IR-045250244NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE FINAL ORDER DENYING REFUND: 01-20241707 Individual Income Tax For the 2022 Tax Year HOLDING Individuals failed to establish that they were entitled to a larger refund. ISSUE

I.     Individual Income Tax – Credits.

Authority: I.R.C. § 701; I.R.C. § 1366; IC 6-3-2-1; IC 6-3-1-3.5; IC 6-3-2.1-3; IC 6-3-2.1-5; IC 6-3.1 et seq.; Stinson Estate v. United States, 214 F.3d 846 (7th Cir. 2000); Dep’t of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579 (Ind. 2014); Tell City Boatworks, Inc. v. Indiana Dep’t of State Revenue, 162 N.E.3d 603 (Ind. Tax Ct. 2020). Taxpayers protest the Department’s reduction of their refund. STATEMENT OF FACTS Taxpayers are California residents who own part of an Indiana pass-through entity. Taxpayers filed a 2022 Indiana Part-Year or Full-Year Nonresident Individual Income Tax Return (“IT-40PNR”) with the Indiana Department of Revenue (“Department”) claiming a refund for the 2022 tax year. The Department reviewed the return and issued a reduced refund because the Department could not verify the claimed withholding credit. Taxpayers timely protested, and this Final Order Denying Refund results. Because Taxpayers waived their right to a hearing, this Final Order Denying Refund relies on documents provided by Taxpayers and the Department’s records. Additional facts will be provided as necessary.

I.    Individual Income Tax – Credits.

DISCUSSION Taxpayers argue that the Department incorrectly reduced their tax refund. “[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.’” Indiana Dep’t 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 are entitled to deference. Indiana assesses tax on the “adjusted gross income of every resident person[.]” IC 6-3-2-1(a). Indiana’s definition of adjusted gross income begins with the federal definition and makes state-specific modifications. IC 6-3-1-3.5(b). Once a taxpayer’s adjusted gross income is determined, he or she 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 26 U.S.C. § 1366; 26 U.S.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). On their amended return, Taxpayers claimed $1,990 in withholding credits allocated to them by the pass-through entity. Taxpayers provided their federal and state Schedule K-1s to support their claim. However, the Schedule K-1s submitted by Taxpayers support the Department’s findings. Taxpayers are entitled to only $995 in withholding credits. Taxpayers have failed to demonstrate that they qualify for further withholding credits and are therefore not entitled to a greater refund from the Department. FINDING Taxpayer’s protest is respectfully denied. March 14, 2025 Replaces Finding Document at: New