in-20260729-IR-045260225NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 01-20242533 Individual Income Tax For the Year 2023 HOLDING Individual successfully established that the Department's assessment of additional income tax was incorrect. ISSUE

I. Individual Income Tax - Earned Income Determination.

Authority: IC 6-3-1-3.5; IC 6-3-2-1; IC 6-3.1-21-6; 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); IRS Publication 596, Earned Income Credit (EIC) (2023); IT-40 Schedule IN-EIC (2023). Taxpayer protests the assessment of additional income tax. STATEMENT OF FACTS Taxpayer is an Indiana resident. For tax year 2023, she filed an Indiana Full-Year Resident Individual Income Tax Return (“Form IT-40”). After review, the Indiana Department of Revenue (“Department”) adjusted Taxpayer's return and issued a Notice of Proposed Assessment for additional income tax. Taxpayer protested the assessment, and an administrative hearing was held. This Letter of Findings results. Additional facts will be provided as necessary.

I. Individual Income Tax - Earned Income Determination.

DISCUSSION Taxpayer filed an IT-40 and reported her income for 2023. Taxpayer's return included Indiana's Earned Income Credit schedule (“IT-40 Schedule IN-EIC”). The Department adjusted Taxpayer's tax return and disallowed the earned income credit (“EIC”) in full. The adjustment resulted in an assessment for additional Indiana income tax. Taxpayer protested the assessment and explained that she was entitled to the EIC because she had earned income from self-employment. Taxpayer also provided additional information in support. As a threshold issue, it is the taxpayer's responsibility to establish that the existing tax assessment is incorrect. As stated in IC 6-8.1-5-1(c), “The notice of proposed assessment is prima facie evidence that the [D]epartment's claim for the unpaid tax is valid. The burden of proving that the proposed assessment is wrong rests with the person against whom the proposed assessment is made.” 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). 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.'” Dept. 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 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(b). For Indiana income tax purposes, the presumption is that taxpayers properly and correctly file their federal income tax returns as required pursuant to the Internal Revenue Code. Thus, to efficiently and effectively compute what is considered the taxpayer's Indiana income tax, the Indiana statute refers to the Internal Revenue Code. IC 6-3-1-3.5(a) provides the starting point in determining the taxpayer's taxable income and calculating what would be his/her Indiana income tax after applying any particular additions and subtractions. The statute provides in part that Indiana adjusted gross income starts with “'adjusted gross income' (as defined in Section 62 of the Internal Revenue Code) . . . ” Id. A tax credit is an amount a taxpayer claims on his or her tax return to reduce the amount of income tax owed. An EIC is a tax credit for certain taxpayers who work and have earned income under $63,398. IRS Publication 596, Earned Income Credit (EIC) (2023), https://www.irs.gov/pub/irs-prior/p596--2023.pdf (last visited February 3, 2026). Earned income includes but is not limited to wages, salaries, tips, other taxable employee pay, net earnings from self-employment, and gross income received as a statutory employee. Id., page 4. Generally, a taxpayer who is eligible for a federal EIC is eligible for an Indiana EIC equal to ten percent of the amount of the federal EIC. IC 6-3.1-21-6. IT-40 Schedule IN-EIC for tax year 2023 provides that a taxpayer claiming the EIC credit must enter the amount of EIC from his or her federal income tax return and multiply the federal EIC by 10 percent to determine the Indiana EIC. Here, Taxpayer filed an IT-40 with Schedule IN-EIC. Documentation provided in the course of the protest process confirmed that Taxpayer had earned income from a business. Taxpayer claimed federal EIC of $4,000. All amounts are approximated. Following the IN-EIC instructions, Taxpayer multiplied the $4,000 EIC from her federal income tax return by 10 percent to determine the Indiana EIC of $400 and reported this amount on her return. After review, the Department adjusted Taxpayer's Schedule IN-EIC and disallowed Taxpayer's reported EIC. A review of the Department's records shows the Department requested information related to Taxpayer's Schedule C in the form of receipts, invoices, etc. because this information was related to the EIC adjustment. During the protest review, Taxpayer provided the Department with the requested Schedule C documentation. Based on the adjustments made by the Department and the documentation provided, Taxpayer has met the burden imposed under IC 6-8.1-5-1(c) of proving the proposed assessment wrong. Taxpayer's protest is sustained. FINDING Taxpayer's protest is sustained. May 29, 2026 Replaces Finding Document: New