in-20250430-IR-045250189NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 02-20210046 Corporate Income Tax For the 2019 Tax Year HOLDING Corporation established that it did not owe additional Indiana income tax pending Departmental review of its return. ISSUE

I.     Corporate Income Tax – Deductions.

Authority: I.R.C. § 950; I.R.C. § 951A; I.R.C. § 957; IC 6-3-1-3.5; IC 6-3-2-1; IC 6-3-2-12; 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); Form 1120 ; Income Tax Information Bulletin 116 (July 2018); IT-20 Instruction Booklet. Taxpayer protests the assessment of additional Indiana income tax based on adjustments to gross income. STATEMENT OF FACTS Taxpayer is a corporation that does business in Indiana. Taxpayer filed an income tax return for the 2019 tax year with the Indiana Department of Revenue (“Department”). On its return, Taxpayer attempted to deduct roughly $50 million relating to dividends that it received from its partially owned subsidiaries. Included in this amount was a deduction specifically attributed to global intangible low-tax income (“GILTI”). The Department denied the GILTI deduction and issued a Notice of Proposed Assessment accordingly. Taxpayer timely protested, and the Department held an administrative hearing. This Letter of Findings results. Additional facts will be provided as necessary.

I.    Corporate Income Tax – Deductions.

DISCUSSION Taxpayer argues that, although it originally misallocated its dividend-related deductions, if it had properly accounted for its dividends, it would not owe additional income tax. As a threshold issue, it is 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 Dep’t of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463, 466 (Ind. 2012) and 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. Further, “[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.’” 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 shall be entitled to deference. Indiana imposes a tax on “the adjusted gross income derived from sources within Indiana of every corporation[.]” IC 6-3-2-1(b). Indiana calculates a corporation’s gross income by starting with a corporation’s federal adjusted gross income (“FAGI”) and making Indiana-specific adjustments. IC 6-3-1-3.5(b). Federal law requires a taxpayer who owns a “controlled foreign corporation” (“CFC”) to include that CFC’s GILTI income in its own FAGI. I.R.C. § 951A(a). A CFC is “any foreign corporation if more than 50 percent of [] (1) the total combined voting power of all classes of stock of such corporation entitled to vote, or (2) the total value of the stock of such corporation” is actually or constructively owned by United States shareholders “on any day during the taxable year[.]” I.R.C. § 957(a). GILTI is determined using a multi-step calculation, but it essentially includes income earned by CFCs from intangible property. See I.R.C. § 951A(b)–(d). Federal law allows taxpayers who have added GILTI to their FAGIs to take a deduction equal to 50 percent of the amount added that is attributable to GILTI. I.R.C. § 950(a)(1)(B). However, Indiana requires taxpayers to add this deduction back into gross income for state income tax purposes. IC 6-3-1-3.5(b)(14). Federal law also allows taxpayers to deduct 37.5 percent of any foreign-derived intangible income (“FDII”). I.R.C. § 950(a)(1)(A). Indiana does not require taxpayers to add this deduction back into gross income. Taxpayer erroneously deducted the Section 950(a)(1)(B) amount from its Indiana gross income instead of adding it back. Taxpayer admits this was done in error. However, Taxpayer argues that its GILTI income was properly deductible in another way, such that it would not owe additional tax from its original filing. Indiana allows corporations to deduct any “special deductions” that a corporation may have on its federal Form 1120. IT-20 Instruction Booklet. Additionally, Indiana allows corporations to exclude dividends paid by CFCs from gross income. IC 6-3-2-12(b). A corporation may exclude 50 percent of these dividend amounts if it owns less than 50 percent of the CFC issuing the dividend. IC 6-3-2-12(e). A corporation may exclude 85 percent of these dividend amounts if it owns between 50 and 80 percent of the CFC issuing the dividend. IC 6-3-2-12(d). A corporation may exclude 100 percent of these dividend amounts if it owns at least 80 percent of the CFC issuing the dividend. IC 6-3-2-12(c). Any amounts added to Taxpayer’s FAGI due to GILTI are treated as dividends for purposes of this deduction. Income Tax Information Bulletin 116 (July 2018), 20180829 Ind. Reg. 045180354NRA. On its original return, Taxpayer deducted about $50 million in dividend deductions. Roughly $11 million of this was attributable to dividends received from a 49-percent-owned foreign subsidiary, roughly $22 million was attributable to FDII additions, and roughly $17 million was attributable to GILTI additions. Dividends from partially owned foreign subsidiaries qualify for a “special deduction” on the federal Form 1120 equal to 65 percent of the dividend amount. See Form 1120. The Department therefore agrees that Taxpayer is entitled to an $11 million deduction on its Indiana tax return. Further, the $22 million deduction is a valid federal deduction that Taxpayer is not required to add back for Indiana purposes. However, Indiana does not provide a separate FDII deduction, so the Department agrees that Taxpayer is entitled to this deduction as long as Taxpayer’s FAGI did not already factor in this deduction. Taxpayer has submitted documentation showing that it owns 60 percent of the corporation from which its GILTI was derived. Indiana law thus permits Taxpayer to take a deduction equal to 85 percent of the GILTI as if it were a dividend paid by a CFC. IC 6-3-2-12(d). The Department therefore agrees that Taxpayer is entitled to a deduction for 85 percent of its GILTI, so long as it properly added back the portion of its federal Section 950 deduction attributable to GILTI. Taxpayer has shown that, under Indiana law, it is entitled to claim deductions for these three classes of dividends. The Department will review Taxpayer’s federal income tax return and other documentation to ensure that it has correctly added back its federal GILTI deduction, and that it has not taken an extra FDII deduction. If the Department determines that Taxpayer has complied with both requirements, Taxpayer will be allowed to claim its deductions as detailed in its written protest. To the extent Taxpayer failed to comply with these requirements, its protest is denied. FINDING Taxpayer’s protest is sustained pending the Department’s review of its return. February 25, 2025 Replaces Finding Document at: New