in-20260729-IR-045260223NRA: LETTER OF FINDINGS: 01-20241964

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 01-20241964 Individual Income Tax For the Year 2022 HOLDING Married couple failed to show the Department’s assessment of additional income tax was incorrect. ISSUE

I. Individual Income Tax – Assessment.

Authority: I.R.C. § 61; 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); Express Scripts Inc. v. Indiana Dept. of State Revenue, 170 N.E.3d 273 (Ind. Tax Ct. 2021); Lafayette Square Amoco, Inc. v. Indiana Dept. of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007); Treas. Reg. § 1.162-17(a); Internal Revenue Service, Publication 535: Business Expenses (2022). Taxpayers protest the assessment of additional income tax. STATEMENT OF FACTS Taxpayers are a married couple and Indiana residents. For tax year 2022, they filed an Indiana Full-Year Resident Individual Income Tax Return (“Form IT-40”). After review, the Indiana Department of Revenue (“Department”) adjusted Taxpayers’ return and issued a Notice of Proposed Assessment for additional income tax. Taxpayers 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 – Assessment.

DISCUSSION Taxpayers filed Form IT-40. After review, the Department adjusted the adjusted gross income on Taxpayers’ tax return, disallowing the Schedule C income and expenses. The adjustment resulted in an assessment for additional Indiana income tax. Taxpayers protested the assessment, explained that they had business income and expenses, and 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). (The Department notes that this statute was amended effective 7/1/22 to move this language from IC 6-3-2-1(a) to IC 6-3-2-1(b). The statute is materially the same, and the changes do not affect the outcome of this protest.) 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. For both federal and Indiana income tax purposes, profits attributable to a taxpayer’s trade or business reported on Schedule C are income subject to income tax pursuant to I.R.C. § 61. To properly claim a business expense deduction on Schedule C, a taxpayer is required to provide verifiable supporting documentation to demonstrate: (1) the activities of the taxpayer constitute a trade or business; (2) the expense to be deducted are paid or incurred during the taxable year in carrying on the trade or business; and (3) the expense itself is an ordinary and necessary expense in the context of the taxpayer’s trade or business. Treas. Reg. § 1.162-17(a); Internal Revenue Service, Publication 535: Business Expenses (2022), available at https://www.irs.gov/pub/irs-prior/p535--2022.pdf (last visited May 8, 2026). When submitting evidence as part of a protest, the taxpayer needs to specify and explain the portions of the evidence the taxpayer believes to be relevant. As the Indiana Tax Court has previously noted (in the context of a summary judgment motion): “the Court will not consider” exhibits “on the off chance that it might find, on its own and undirected, some fact that supports” a claim, and “the Court is not required to search for specific facts on which” a party relies. Express Scripts Inc. v. Indiana Dept. of State Revenue, 170 N.E.3d 273, 279 (Ind. Tax Ct. 2021). Here, Taxpayers filed Form IT-40. Documentation provided in the course of the protest process showed that Husband had a business for which Taxpayers claimed income, car and truck expenses, travel expenses, and advertising expenses. Before issuing the assessment, the Department requested documentation to support the claims of such income and expenses. In response, Taxpayers provided bank statements but failed to mark the bank statements to specify the income and expenses. During the protest process, the Department requested multiple times that Taxpayers provide details related to income and expenses reported on their bank statements; however, Taxpayers failed to do so. Thus, Taxpayers failed to specify and explain the portions of the supporting documentation that they believed to be relevant as required under Express Scripts Inc. v. Indiana Dept. of State Revenue, 170 N.E.3d 273, 279 (Ind. Tax Ct. 2021). In this way, Taxpayers failed to provide documentation proving that the Department’s proposed assessment was wrong under IC 6-8.1-5-1(c). Taxpayers’ protest is denied. FINDING Taxpayers’ protest is denied. May 8, 2026 Replaces Finding Document: New