in-20250528-IR-045250243NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 01-20241573 Individual Income Tax For The Year 2022 HOLDING Individual failed to establish that the assessment for additional Indiana income tax was incorrect because he failed to substantiate his claimed deductions. ISSUE

I. Individual Income Tax – Burden of Proof.  

Authority: IC 6-3-1-3.5; IC 6-3-2-1; IC 6-3-2-2;  IC 6-8.1-5-1; IC 6-8.1-5-4; 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); Express Scripts Inc. v. Indiana Dept. of State Revenue, 170 N.E.3d 273 (Ind. Tax Court 2021); Lafayette Square Amoco, Inc. v. Indiana Dept. of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007). Taxpayer protests the assessment of additional Indiana income tax for 2022. STATEMENT OF FACTS Taxpayer is an Illinois resident who conducted business in Indiana during the 2022 tax year. As a result of his Indiana business dealings, Taxpayer filed an Indiana Part-Year or Full-Year Nonresident Individual Income Tax Return (“IT-40”) which reported a loss related to his Indiana business. The return sought a refund based on expenses related to vehicle depreciation. Upon reviewing Taxpayer’s 2022 IT-40PNR, the Indiana Department of Revenue (“Department”) determined that Taxpayer owed additional Indiana income tax and issued an assessment for the unpaid tax, penalty, and interest. Taxpayer disagreed with the assessment and submitted a protest to that effect. Taxpayer waived his right to a hearing. This Letter of Findings results and is written in reliance on information provided by Taxpayer and the Department’s records.  Additional facts will be provided as necessary.

I.    Individual Income Tax – Burden of Proof.

DISCUSSION Upon receiving Taxpayer’s 2022 IT-40 PNR, the Department sent a letter to Taxpayer on March 30, 2023, indicating that the return was in review and Taxpayer needed to provide supporting documentation including “[c]opies of documentation supporting your three largest business income [sources]” and “[c]opies of documentation supporting your three largest business expense categories….” When Taxpayer failed to provide sufficient supporting documentation, the Department issued an assessment for additional tax due. Taxpayer protested the assessment arguing that the Schedule C credits for business loss he claimed on his IT-40PNR had been disallowed in error. In support of his protest, Taxpayer provided a copy of his 2022 U.S. Individual Income Tax Return, including all schedules, a purchase agreement for a vehicle, and an invoice for services. As a threshold issue, it is a 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). 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). 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(b). IC 6-3-2-2(a) specifically outlines what is income derived from Indiana sources and subject to Indiana income tax.  For Indiana income tax purposes, the presumption is that a taxpayer files his or her federal income tax returns as required pursuant to the Internal Revenue Code.  Thus, to efficiently and effectively compute what is considered a taxpayers’ Indiana income tax, the Indiana statute refers to the Internal Revenue Code.  IC 6-3-1-3.5(a) provides the starting point to determine a taxpayer’s taxable income and to calculate what would be their Indiana income tax after applying certain additions and subtractions to that starting point. IC 6-8.1-5-4(a) requires that “[e]very person subject to a listed tax must keep books and records so that the [D]epartment can determine the amount, if any, of the person's liability for that tax by reviewing those books and records. The records [] include all source documents necessary to determine the tax, including invoices, register tapes, receipts, and canceled checks.” The person also “must allow inspection of the books and records and returns by the [D]epartment or its authorized agents at all reasonable times.” A taxpayer, when submitting evidence as part of a protest, needs to specify and explain the portions of the evidence that he or she believes to be relevant. As the Indiana Tax Court has previously noted (in the context of a summary judgment motion): “the Court will not consider” exhibits “on the off chance that it might find, on its own and undirected, some fact that supports” a claim, and “[t]he Court is not required to search for specific facts on which” a party relies. Express Scripts Inc. v. Indiana Dept. of State Revenue, 170 N.E.3d 273, 279 (Ind. Tax Court 2021). When the person subject to the listed tax fails to keep books and records, under IC 6-8.1-5-1(b), the Department “shall make a proposed assessment of the amount of the unpaid tax on the basis of the best information available to the [D]epartment” if the Department “reasonably believes that a person has not reported the proper amount of tax due.” The Department sent Taxpayer a written request for additional information and documentation related to his claimed business income and losses. In response, Taxpayer provided the Department with a vehicle purchase agreement and a singular invoice for work done in Illinois. It is unclear based on the information provided by Taxpayer what Taxpayer’s business is and how the documents are related to his Indiana business income or losses for the 2022 tax year. As in Express Scripts, the Department is not required to search for facts within these documents that support Taxpayer’s claim. Without additional information, the Department’s adjustment and resulting assessment for additional Indiana income tax due was correct. FINDING Taxpayer’s protest is denied. March 4, 2025 Replaces Finding Document at: New