in-20250430-IR-045250175NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 01-20241175 Individual Income Tax For The Year 2022 HOLDING Individual failed to show the Department’s assessment was incorrect. ISSUE

I. Individual Income Tax – Assessment.

Authority: IC 6-3-1-3.5; IC 6-3-2-1; IC 6-3-2-2; IC 6-3-2-2.5; IC 6-3-2-2.6; 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); Lafayette Square Amoco, Inc. v. Indiana Dept. of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007); IT-40PNR Part Year and Full Year Nonresident Individual Income Tax Booklet (2022). Taxpayer protests the assessment of additional individual income tax. STATEMENT OF FACTS Taxpayer was an Indiana resident for several years, including a portion of tax year 2022.  While in Indiana, Taxpayer operated a business from mid-2020 through August 2022.  In October 2022, Taxpayer’s employment required her to relocate to Texas, where she has remained since that time.  As a result of the move, Taxpayer filed Form IT-40PNR because she was a part year resident of Indiana for tax year 2022.  Taxpayer claimed a net operating loss (“NOL”) of approximately $18,000 on her return. The Indiana Department of Revenue (“Department”) reviewed Taxpayer’s return.  In February 2023, the Department requested additional information regarding the NOL claimed on the return.  Taxpayer contacted the Department and explained that she was unable to provide additional information related to the NOL and opined that she felt she was still entitled to a refund for tax year 2022.  In August 2023, the Department issued a Notice of Proposed Assessment for additional individual income tax.  Taxpayer protested the assessment and requested resolution with a hearing.  The Department discussed the protest with Taxpayer on two occasions, and Taxpayer provided additional documentation and explanation.  This Letter of Findings results.  Additional facts will be provided as necessary.

I. Individual Income Tax – Assessment.

DISCUSSION The Department determined that Taxpayer owed additional individual income tax related to tax year 2022.  Taxpayer disagreed with the assessment and initiated a protest.  In support, Taxpayer provided documentation related to her federal and Indiana tax returns along with an explanation of related events and her business. 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); Lafayette Square Amoco, Inc. v. Indiana Dept. of State Revenue, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007).  An assessment, including taxpayer’s penalty assessment, is therefore presumed valid.  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 “upon 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(a).  IC 6-3-2-2(a) outlines what is income derived from Indiana sources and subject to Indiana income tax.  There is a presumption that a taxpayer files his/her federal income tax return as required by the Internal Revenue Code.  Thus, to effectively compute what is considered a taxpayer’s Indiana income tax, Indiana law refers to the Internal Revenue Code.  IC 6-3-1-3.5 provides a starting point in determining a taxpayer’s taxable income and calculating what would be his/her Indiana income tax after applying certain additions and subtractions, with any necessary modifications following.  Modifications are outlined in IC 6-3-1-3.5(a). IC 6-3-2-2.5 and IC 6-3-2-2.6 allow residents, corporations, and nonresidents a net operating loss deduction from Indiana adjusted gross income when certain criteria are met.  Generally, an Indiana net operating loss equals a taxpayer’s federal net operating loss for the taxable year, as calculated under Section 172 of the Internal Revenue Code, adjusted for any modifications or deductions allowed under statute.  IC 6-3-2-2.5.  A taxpayer may take a deduction for the Indiana portion of a federal NOL as reported on federal Form 1040.  IT-40PNR Part Year and Full Year Nonresident Individual Income Tax Booklet (2022).  A taxpayer should also complete Schedule IT-40NOL to determine the correct amount of NOL available for the tax year.  Id. When Taxpayer filed her Indiana Form IT-40PNR for tax year 2022, she calculated a NOL and claimed the amount as deduction.  She did not complete a Schedule IT-40NOL.  When the Department reviewed the return, it requested additional documentation related to the NOL, specifically, how Taxpayer arrived at the NOL amount since her prior year’s tax return did not show any NOL to carry forward. During the protest review process, Taxpayer stated that she used a tax software program to complete both her federal and state returns.  She believes that based on the information inputted into the tax software, the software somehow calculated a NOL on her Indiana return.  She recognizes that neither did she accrue a NOL in tax year 2021 (which would have been available to carry forward to tax year 2022) nor did she generate a NOL during tax year 2022.  Taxpayer agrees that deducting the NOL amount on her return was an error. Additionally, the Department notes that several adjustments were made to Taxpayer’s return during review.  One of the adjustments involved removing business losses detailed on Taxpayer’s Schedule C.  After review, Taxpayer’s Schedule C was correct as originally filed. In summary, Taxpayer’s protest is denied.  Taxpayer agrees that the NOL was an incorrect deduction.  The Department will review Taxpayer’s return and correct the NOL deduction and Taxpayer’s Schedule C.  After this review, the Department will be able to determine what amount, if any, Taxpayer still owes for the assessment or whether Taxpayer is due a refund for tax year 2022. FINDING Taxpayer’s protest is denied. February 3, 2025 Replaces Finding Document at: New