in-20250528-IR-045250242NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 01-20241422 Indiana Individual Income Tax  For The Tax Year 2022 HOLDING By providing information supporting his argument, Individual met his burden of establishing that the Department was obligated to review the adjustments it made to Individual’s Indiana individual income return and to correct those adjustments based on the documents accompanying Individual’s protest. ISSUE

I. Indiana Individual Income Tax – Department’s Adjustments to Taxpayer’s Return.

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); I.R.C. § 1366; 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); IRS Employee Retention Credit, https://www.irs.gov/coronavirus/employee-retention-credit; Federal Legislation; Indiana Tax Treatment of Federal Provisions, https://www.in.gov/dor/resources/tax-library/2020-and-2021-federal-legislation. Taxpayer protests the Department’s multiple adjustments to Taxpayer’s 2022 Indiana income tax return. STATEMENT OF FACTS Taxpayer is an Indiana resident who routinely files Indiana income tax returns on behalf of him and his spouse. Taxpayer filed a 2022 IT-40 (Indiana Full-Year Resident”) return. The Indiana Department of Revenue (“Department”) reviewed the 2022 return and adjusted it to reflect what the Department determined were necessary corrections. Both corrections resulted in an increase in Taxpayer’s taxable Indiana income. Taxpayer originally reported approximately $42,000 in available deductions. The Department adjusted the schedule 2 amount to approximately $15,000. On schedule 5, Taxpayer originally reported approximately $19,000 in “Indiana state tax withheld.” The Department adjusted that amount to approximately $18,000. The changes resulted in an increase in Indiana tax liability from approximately $18,000 to approximately $19,000. The Department mailed a letter on November 6, 2023 informing Taxpayer: On the last page of the November 2023 letter, the Department provided a line-by-line explanation of the dollar adjustments. The letter also explained the reasons for the changes as follow: Taxpayer disagreed with the Department’s adjustments and submitted a protest to that effect. In his protest, Taxpayer requested a review of the Department’s decisions and submitted documents intended to support the request. Specifically, Taxpayer challenged the Department’s adjustments to “Indiana Deductions” and “Total Refundable Credits Minus Estimated Payments.” This Letter of Findings results from a review of the original return, the Department’s adjustments, and the documents accompanying the protest letter. Taxpayer did not request an administrative hearing instead asking for a “Final determination without a hearing.”

I. Indiana Individual Income Tax – Department’s Adjustments.

DISCUSSION Taxpayer challenges the Department’s adjustment to the amount of Indiana income tax withheld from Taxpayer’s real estate business. In support of his argument, Taxpayer provided a Schedule IN K-1 “Shareholder’s/Partner’s Share of Indiana Adjusted Gross Income, Deductions, Modifications, and Credits.” The real estate business’s K-1 indicates that the business withheld $582 in “IN State Tax” on Taxpayer’s behalf. The second challenge related to the Indiana modification for the ERC (Employee Retention Credit). According to Taxpayer, the approximately $27,000 modification was his “share of ERC credit which was income on [his] federal return but not income on state return” because “no ERC credit for state.” In support of his explanation, Taxpayer provided a copy of the September 1, 2021, to August 31, 2022, K-1 issued by his frozen food business. The issue is whether Taxpayer has met his burden of establishing that the Department’s assessment of additional Indiana tax was wrong and that the 2022 return should be adjusted to reflect the information contained within Taxpayer’s supplemental documentation. The Department points out that it is Taxpayer’s responsibility to establish that the income tax assessment is wrong. 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. 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 considering Taxpayer’s 2022 Indiana return, the Department’s adjustments to that return, Taxpayer’s arguments, and the relevant law, 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 are entitled to deference. IC 6-8.1-5-1(b) requires of the Department as follows: 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 6-3-1-3.5(a) provides the starting point in determining the taxpayer’s taxable income and calculating what would be their Indiana income tax after applying any particular additions and subtractions. The statute provides in small part that Indiana adjusted gross income starts with “‘adjusted gross income’ (as defined in Section 62 of the Internal Revenue Code) . . .” On the first issue, the Department agrees that – based on the real estate business’s K-1 – the Department’s record should be adjusted to reflect the $582 withheld on Taxpayer’s behalf by his real estate business. The second issue relates to the ERC. The ERC “is a refundable credit for certain eligible businesses and tax-exempt organizations that had employees and were affected during the COVID-19 pandemic . . . . The ERC is not available to individuals.” IRS Employee Retention Credit, https://www.irs.gov/coronavirus/employee-retention-credit (Last visited August 21, 2024). Indiana’s treatment of this federal level credit is explained as follows. Based on the information provided, the Department is prepared to agree that Taxpayer is entitled to the benefit of the flow-through Employee Retention Credits attributable to the frozen food company and as reflected in the K-1 issued by that business. Although the circumstances are unusual, these expenses are permitted as Taxpayer’s 2022 deduction solely because the S corporation incurred the federally-disallowed wage expenses in calendar year 2021 but reported the expenses during the fiscal year that ended in 2022. The S corporation’s fiscal year resulted in Taxpayer’s required reporting of the deduction during Taxpayer’s 2022 taxable year. See I.R.C. § 1366(a)(1). To the extent specified in this Letter of Findings and based on the documentation submitted by Taxpayer, Taxpayer’s protest is sustained. FINDING Taxpayer’s protest is sustained. March 14, 2025 Replaces Finding Document at: New