in-20250430-IR-045250184NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 01-20242083 Individual Income Tax For the 2020 Tax Year HOLDING Married couple successfully established that the Department’s assessment was incorrect and that they should not have to pay collection costs. ISSUE

I. Individual Income Tax – Federal Discrepancy.

Authority: I.R.C. § 62; 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 Dept. of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463 (Ind. 2012); Wendt LLP v. Indiana Dep't of State Revenue, 977 N.E.2d 480 (Ind. Tax Ct. 2012); Scopelite v. Indiana Dep't of Local Gov't Fin., 939 N.E.2d 1138 (Ind. Tax Ct. 2010); Lafayette Square Amoco, Inc. v. Indiana Dept. of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007). Taxpayers protest the Department’s adjustments to their federal adjusted gross income (“FAGI”), which resulted in increased tax owed.

II. Individual Income Tax – Collection Costs.

Authority: IC 6-8.1-5-1; IC 6-8.1-8-4; IC 6-8.1-8-8. Taxpayers protest the imposition of fees related to the Department’s collection action against them. STATEMENT OF FACTS Taxpayers are a married couple who filed a joint income tax return with the Indiana Department of Revenue (“Department”) for the 2020 tax year. The Department subsequently determined that Taxpayers had underreported their FAGI, and it adjusted Taxpayers’ 2020 return accordingly. This resulted in additional tax due, so the Department issued a Notice of Proposed Assessment. When Taxpayers did not respond to the Notice of Proposed Assessment, the Department issued a Demand for Payment and ultimately issued a tax warrant against Taxpayers. The Department hired a collection agent, who levied on Taxpayers’ bank account. Taxpayers timely protested, and this Letter of Findings results. Because Taxpayers waived their right to a hearing, this Letter of Findings relies on the Department’s records and documents provided by Taxpayers.

I. Individual Income Tax – Federal Discrepancy.

DISCUSSION Taxpayers argue that the Department adjusted their FAGI incorrectly, and they do not owe the Department any additional tax. Taxpayers provided a copy of their federal Account Transcript for the 2020 tax year. As a threshold issue, it is the 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) and Lafayette Square Amoco, Inc. v. Indiana Dept. of State Revenue, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007). Where a taxpayer is challenging the Department’s final determination, the taxpayer is required to provide documentation explaining and supporting its challenge. Poorly developed and non-cogent arguments are subject to waiver. Scopelite v. Indiana Dep't of Local Gov't Fin., 939 N.E.2d 1138, 1145 (Ind. Tax Ct. 2010); Wendt LLP v. Indiana Dep't of State Revenue, 977 N.E.2d 480, 486 n.9 (Ind. Tax Ct. 2012). 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. The starting point for determining Indiana income tax is the taxpayer’s federal adjusted gross income as defined in I.R.C. § 62, which taxpayers are directed to enter on their Indiana return before making modifications that are outlined in IC 6-3-1-3.5. Taxpayers reported an FAGI of minus $39,742 on their 2020 Indiana tax return. Their federal Account Transcript shows an FAGI of $39,742. However, the Account Transcript also shows the specific elements of Taxpayers’ FAGI, and when the elements are totaled, they show that Taxpayers had an FAGI of -$33,705. Taxpayers also provided documentation showing that they were allowed to carry forward a net operating loss from 2020 to their 2021 federal return, which could only have happened if Taxpayers had a net negative income in 2020. Taxpayers originally reported a negative FAGI on their Indiana return. Taxpayers have provided documentation that is enough to show that the Department’s adjustments to their FAGI were incorrect. Therefore, the Department will recalculate Taxpayers’ return using the correct FAGI. The Department will then determine how much, if any, Taxpayers owe. FINDING Taxpayers’ protest is sustained to the extent that their Indiana taxes should be calculated starting with an FAGI of -$39,742.

II. Individual Income Tax – Collection Costs.

DISCUSSION Taxpayers argue that the Department should abate the fees charged to them when the Department referred their debt to collections. When the Department adjusts a taxpayer’s return and issues a Notice of Proposed Assessment (“NOPA”), the amount assessed “is considered a tax payment not made by the due date and is subject to IC 6-8.1-10 concerning the imposition of penalties and interest.” IC 6-8.1-5-1(b). When the Department issues a NOPA, a taxpayer has sixty days to respond to the assessment, either by paying the amount assessed or by filing a protest. IC 6-8.1-5-1(d). The Department may demand payment once one of three things happens: the taxpayer does not respond to the NOPA in time, the taxpayer requests a hearing but does not appear at it, or the Department denies the taxpayer’s protest. IC 6-8.1-5-1(j). The Department may hire a collection agent to collect a tax debt, and the Department may collect fees related to the collection as part of the collection. IC 6-8.1-8-4(a). The Department is specifically allowed to “levy upon the property of the taxpayer that is held by a financial institution,” which includes bank accounts. IC 6-8.1-8-8(1). The Department issued a NOPA to Taxpayers on November 27, 2023. Taxpayers responded by sending documentation to the Department on January 3, 2024, which is within the sixty-day window required by law. The Department reviewed Taxpayers’ documentation and determined that it was insufficient to overcome the assessment, but the Department erroneously failed to tell Taxpayers that it had made such a decision. The Department sent a Demand for Payment letter to Taxpayers on February 5, 2024. Taxpayers then contacted the Department again on February 26, 2024, to ask about this letter. At that time, the Department told Taxpayers that they would need to file a protest in order to address the balance. The Department referred the matter to collections on March 14, 2024. After reviewing Taxpayers’ documentation and arguments on this issue, the Department agrees that this matter should not have been referred to collections. Taxpayers are not liable for the costs associated with the collection action. FINDING Taxpayers’ protest is sustained as to this issue. SUMMARY Taxpayers are sustained on Issue I to the extent that the Department will recalculate their 2020 tax return using the correct FAGI. Taxpayers are sustained on Issue II regarding the imposition of collection costs. February 24, 2024 Replaces Finding Document at: New