in-20250326-IR-045250126NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE FINAL ORDER DENYING REFUND: 02-20242123 Corporate Income Tax Collection Costs For the Year 2020 HOLDING The Department was unable to agree with Equity Fund that it was entitled to a refund of collection costs incurred by the Department’s collection agency; between the time the Department issued the proposed assessment and the time the collection agency levied its bank account, it was Equity Fund which had the last, best opportunity to resolve the disputed tax assessment. ISSUE

I. Tax Administration – Collection Costs.

Authority: IC 6-8.1-5-1; IC 6-8.1-8-2; IC 6-8.1-8-4; Crown Property Group, LLC v. Indiana Department of State Revenue, 135 N.E.3d 671 (Ind. Tax Ct. 2019). Taxpayer argues that the Department erred in denying it a refund of collection costs. STATEMENT OF FACTS Taxpayer is an Indiana Insurance Trust. Taxpayer routinely files Indiana income tax returns. Taxpayer filed a 2020 C-Corporation Income Tax Return (“IT-20”). The Indiana Department of Revenue (“Department”) reviewed the 2020 return and concluded that Taxpayer made a mistake when it claimed approximately $1,300,000 in Net Operating Losses (“NOLs”). According to Taxpayer, it expected that the prior years’ NOLs would offset any tax liability incurred during 2020. Instead, the Department notified Taxpayer that – based on the NOL disallowance – Taxpayer owed approximately $65,000 in additional tax. The Department issued Taxpayer a “Notice of Proposed Assessment” dated February 18, 2022. The letter stated: . . . . The February 18 notice was accompanied by a line-by-line explanation of adjustments made to Taxpayer’s 2020 return. In a Demand Notice for Payment dated May 2, 2022, the Department indicated that Taxpayer was obliged to respond to the 2020 adjustment and the additional assessment. In a letter dated April 28, 2023, the Department again notified Taxpayer of the discrepancy. The letter explained that it was “required to notify you when changes have been made to your tax return.” The April 28 letter asked Taxpayer to review its original return against the Department’s line-by-line adjustments made to Taxpayer’s return. If Taxpayer disagreed, it was instructed to provide “supporting documentation, such as missed schedules” or file “an amended return.” The April 28 letter specified that if Taxpayer chose to “take no action,” “the [Department] will assume you agree with the change[s].” In the belief that the matter remained unresolved, the Department referred the matter to its third-party collection agent. The collection agent forwarded Taxpayer an “Initial Demand Letter,” followed with six phone call attempts to contact Taxpayer. The collection agent then issued a bank levy – effectively “freezing” Taxpayer’s bank account. In a letter dated February 16, 2023, Taxpayer’s bank notified Taxpayer that it had received a “garnishment order” and it had “frozen” a portion of Taxpayer’s bank account. With the “freeze” remaining on Taxpayer’s bank account, Taxpayer’s bank thereafter withdrew tax and interest from Taxpayer’s account. The bank also withdrew and remitted approximately $12,000 which was designated as a “collection fee.” The bank remitted the tax, interest, and collection fee to the Department’s collection agent. Taxpayer took steps to resolve the matter by filing or refiling the 2019 return in March 2023. According to Taxpayer: Having resolved the 2020 NOL issue, the Department adjusted the 2020 liability and refunded a portion of the amount levied from Taxpayer’s bank account. However, the Department declined to refund the $12,000. Taxpayer disagreed with the Department’s decision denying the collection fee refund. Taxpayer submitted a protest arguing that it was entitled to the refund. An administrative hearing was conducted during which Taxpayer’s representatives explained the basis for the protest. This Final Order Denying Refund results.

I. Tax Administration – Collection Costs.

DISCUSSION The issue is whether Taxpayer has established that it is not responsible for paying the $12,000 in costs incurred by the Department’s collection agent and that the Department’s decision denying a refund of those costs was wrong. When the Department determined that Taxpayer made a mistake when filing the 2020 IT-20, Indiana law permitted and required the Department to issue assessments based on the “best information available.” IC 6-8.1-5-1(b) provides in relevant part: When the proposed assessment remained unpaid, the Department added a penalty as provided for under IC 6-8.1-8-2(b). In addition, the Department is entitled to employ the services of a collection agency which – in turn – is entitled to impose penalties sufficient to compensate the collection agency for its own efforts. The statutory authority is found at IC 6-8.1-8-4. Taxpayer argues that the 2020 assessment was wrong and that it was only the Department’s own error which led to the collection action taken by the Department’s agent. Taxpayer’s argument is that it did not have prior notice of the 2020 NOL issue because the Department sent all notices to the wrong address. The dispute requires an explanation. As an example, Taxpayer’s address is 123 Main Street, Anywhere, Indiana. Taxpayer explains the notices were sent to Z123 Main Street, Anywhere, Indiana. The correct address contains three numerals (123) while the incorrect address added a single digit to those three numerals (Z123). According to Taxpayer, “The incorrect address contained in the Department's records was due entirely to the Department's clerical error, and was not due to any Taxpayer filing.” Taxpayer is correct. The Department utilized the incorrect (Z123) address from April 6, 2023, until it was corrected (123) on May 8, 2023. However, not all the correspondence related to the 2020 return contained the wrong address. The following were correctly addressed and sent to the correct address. The Indiana Tax Court addressed a collection fee issue in Crown Property Group, LLC v. Indiana Department of State Revenue, 135 N.E.3d 671 (Ind. Tax Ct. 2019). In that decision, the Petitioner argued it was entitled to a refund of collection and bank fees. Id. at 673. It made the argument “because the Department failed to provide [Petitioner] with adequate notice of [a] purported withholding tax liability as required by statute.” Id. at 676. The court agreed, finding that it was not sufficient to simply provide notice to the Petitioner’s prior tax advisor. Id. at 678. Instead, the Department was in possession of the Petitioner’s correct address, and the tax advisor was not authorized to represent Petitioner outside the scope of the withholding tax assessment at issue. Id. 679. As the court held, the “Department simply needed to review its own records.” Id. The court found that the Department failed to “comport[] with basic principles of fairness and justice by providing notice that was reasonably calculated to apprise Crown of the Withholding Notifications or that it provided Crown with an opportunity to present its objections to the Department at a meaningful time.” Id. at 680. As such, the court concluded that Petitioner was entitled to a refund of its filing fee, collection fee, and the bank fee. Id. at 680. Taxpayer offers a secondary argument. Taxpayer argues that the 2020 discrepancy was attributable to the Department’s failure to properly process its prior year, 2019, return. That return contained the NOLs necessary to offset any subsequent tax liability. Taxpayer states that its “records indicate that the 2019 return was timely filed.” Because the Department failed to process the 2019 return, the error dominoed forwarded and was the sole reason the Department issued the erroneous 2020 assessment. Taxpayer concludes that it is entitled to the refund because it “acted in good faith and any failure to comply with tax laws was due to reasonable cause and not willful neglect.” The Department apparently made a mistake by utilizing an incorrect address during the thirty-day period during 2023. However, the Department also considers the various notices the Department or its agent issued during the 364 days between February 2022 and February 2023, all of which were mailed to the correct address. Further, the Department takes note of the phone calls and notices provided to Taxpayer after the date the matter was assigned to its collection agent. The Department does not agree that the Tax Court’s guidance in Crown Property Group, 135 N.E.3d 671 at 679-80 is dispositive of the issue raised by Taxpayer. In that case, the Department failed to comply with “basic principles of fairness and justice . . .” because it failed to provide the petitioner with notice of the outstanding withholding tax liability. That is not the case here. Although the Department utilized an incorrect address in at least one notice mailed to Taxpayer, the record indicates that Taxpayer received multiple notices all of which were sent to Taxpayer at the correct address. The only remaining issue is – as between the state of Indiana and Taxpayer – who should be responsible for paying the collection costs incurred by the Department’s agent. The Department is unable to agree that it is the state of Indiana which should incur these costs or that the $12,000 amount should be refunded to Taxpayer. The Department does not agree that basic principles of fairness and justice call for Hoosier taxpayers of Indiana to pay these costs. As between the three parties involved in this matter – the Department, its collection agent, and Taxpayer – it is Taxpayer who had the last, best opportunity to resolve the issue prior to the day Taxpayer’s bank remitted to the Department the original amount claimed. FINDING Taxpayer’s protest is respectfully denied. January 13, 2025 Replaces Finding Document at: New