in-20250430-IR-045250186NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE MEMORANDUM OF DECISION: 01-20242358 Income Tax For the 2023 Tax Year HOLDING Individuals established that they were entitled to claim an exemption for minor child dependents. ISSUE

I. Income Tax – Exemption.

Authority: I.R.C. § 151; I.R.C. § 152; IC 6-3-2-1; IC 6-3-1-3.5; Dept. of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579 (Ind. 2014); Indianapolis Fruit Co. v. Department of State Revenue, 691 N.E.2d 1379 (Ind. Tax Ct. 1998); Sony Music Entertainment, Inc. v. State Bd. of Tax Comm'rs, 681 N.E.2d 800 (Ind. Tax Ct.1997); IRS Publication 501 (2023). Taxpayers protest the denial of refund based on the Department’s reversal of a claimed exemption. STATEMENT OF FACTS Taxpayers are Indiana residents who regularly file Indiana income tax returns. They timely filed their 2023 tax return with the Indiana Department of Revenue (“Department”). In this return, they claimed as dependents two children for whom they were legal guardians. The Department disallowed this claim because another taxpayer had already claimed these children as dependents. The Department accordingly decreased Taxpayer’s exemption allowance. Taxpayers timely protested this denial. Because Taxpayers waived their right to a hearing, this Memorandum of Decision relies on documents provided by Taxpayers and the Department’s own records. Additional facts will be provided as necessary.

I.    Income Tax – Exemption.

DISCUSSION Taxpayers argue that they are entitled to claim as dependents the two children over whom they are legal guardians. When a taxpayer claims an exemption, they bear the burden to prove that they are entitled to it. Indianapolis Fruit Co. v. Department of State Revenue, 691 N.E.2d 1379, 1383 (Ind. Tax Ct. 1998). Exemptions are strictly construed against the taxpayer. See Sony Music Entertainment, Inc. v. State Bd. of Tax Comm'rs, 681 N.E.2d 800, 801 (Ind. Tax Ct.1997). Additionally, “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.’” 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 imposes a tax on “the adjusted gross income of every resident person[.]” IC 6-3-2-1. When calculating their adjusted gross income, a taxpayer may reduce their taxable income by $1,000 for each “dependent” they have. IC 6-3-1-3.5(a)(4)(A); I.R.C. § 151(c). There are five requirements for a child to qualify as a taxpayer’s dependent: (1) the child must be the taxpayer’s lineal descendant (i.e., child, grandchild, great-grandchild, etc.); (2) the child must have lived with the taxpayer for over half the tax year; (3) the child must be under age 19 (or under age 24 if a student) and younger than the taxpayer; (4) the child cannot have provided more than half of their own support during the tax year; and (5) the child cannot have filed a joint return for the tax year. I.R.C. § 152(c); IRS Publication 501 (2023). A child may also be claimed as a dependent if they are an “eligible foster child” of the taxpayer. I.R.C. § 152(f)(1)(A)(ii). A child is an eligible foster child when they have been “placed with the taxpayer by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction.” I.R.C. § 152(f)(1)(C). No child may be claimed as a dependent by multiple taxpayers. IRS Publication 501. If two or more taxpayers qualify to claim the same child as a dependent, a taxpayer who is the child’s parent will be allowed to claim the child over a taxpayer who is not. I.R.C. § 152(c)(4)(A). If neither taxpayer is the child’s parent, the taxpayer with the highest adjusted gross income will be allowed to claim the child. I.R.C. § 152(c)(4)(A)(ii). Taxpayers provided a copy of a court order showing that they became legal guardians over the children at issue in 2022. Taxpayers have therefore shown that the children are “eligible foster children” under federal law, and Taxpayers may therefore claim them as dependents. If another party has attempted to claim the children, it has done so in error. FINDING Taxpayers’ protest is sustained. February 27, 2025 Replaces Finding Document at: New