NOTICE: IC § 6-8.1-3-3.5 and IC § 4-22-7-7 require the publication of this document in the Indiana Register. This document provides the general public with information about the Department's official position concerning a specific set of facts and issues. This document is effective as of its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register. The "Holding" section of this document is provided for the convenience of the reader and is not part of the analysis contained in this Letter of Findings.

The LLC did not affirmatively establish that it did not have to file a composite tax return for the year at issue and is therefore subject to the assessed Adjusted Gross Income tax. Thus the imposition of the $500 penalty was proper.

I. Adjusted Gross Income Tax - Requirement to File Composite Withholding Return.

Authority: IC § 6-3-4-12; IC § 6-3-1-19; 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).

Taxpayer protests that an individual member's return was filed and the individual return reported all allocable income and paid tax due, therefore the Taxpayer should be relieved from the requirement to have filed a composite withholding return and withhold income tax.

II. Tax Administration - Failure to File Composite Return Penalty.

Authority: IC § 6-3-4-12; IC § 6-8.1-10-2.1; 45 IAC 15-11-2.

Taxpayer protests the imposition of $500 penalty for failure to file a composite return.

Taxpayer is a Limited Liability Company ("LLC") that elected to be treated as a partnership. The Indiana Department of Revenue ("Department") audited Taxpayer for adjusted gross income tax for the tax years 2011, 2012, and 2013. The Department determined that Taxpayer failed to file a composite return and remit the withheld income tax for 2011. The Department therefore issued a proposed assessment for the Indiana Adjusted Gross Income Tax which should have been withheld for 2011. In addition, Taxpayer was assessed a $500 penalty for failure to file a return for 2011. Taxpayer protested the results of the audit. An administrative hearing was held, and this Letter of Findings results. Further facts will be supplied as needed.

I. Adjusted Gross Income Tax - Requirement to File Composite Withholding Return.

The Department conducted an income tax audit for 2011, 2012, and 2013. The Department discovered that a partnership tax return was not filed for the tax year 2011. In 2012 and 2013, composite withholding tax returns were filed. Taxpayer failed to file an Indiana composite return and remit the tax due for the non-resident members of the partnership for the years 2011. The Department prepared a composite return for 2011 and determined composite return withholding tax of $7,162.00.

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 department'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, as well as the preceding audit, shall be entitled to deference.

Taxpayer protests the Department's assessment on the Taxpayer's failure to file a composite return, or IT-65, for the tax year 2011. Specifically, Taxpayer states that a member remitted Indiana Adjusted Gross Income Tax on his individual return. Therefore, Taxpayer believes, no further Indiana Adjusted Gross Income Tax is due.

Taxpayer has elected to be treated as a pass-through entity under IC § 6-3-1-19(a), which provides that an LLC is treated as a partnership in Indiana if the LLC is treated as a partnership for Federal income tax purposes.

According to IC § 6-3-4-12-(a):

Next, the Department refers to IC § IC 6-3-4-12(h) which states:

The audit report incorrectly cited to IC § 6-3-4-13 which applies to corporations. Since Taxpayer elected to be treated as a partnership the appropriate statute is IC § 6-3-4-12. Both statutes require a partnership or corporation to file a composite return. IC § 6-3-4-13(j); IC § 6-3-4-12(h).

At the hearing, Taxpayer argued that it was not responsible for the additional tax because one nonresident shareholder filed their own Indiana individual income tax return. To support its protest, Taxpayer submitted a copy of the IT-40PNR individual tax return and a copy of form 1120S for the 2011 tax year. Taxpayer did not reference any statutes or administrative code in its protest or at hearing.

Upon review, however, the Department is not able to agree. Pursuant to IC § 6-3-4-12(h), Taxpayer is required to file Indiana composite tax returns for nonresident partner's adjusted gross income. Taxpayer did not do so. Taxpayer's protest fails because IC § 6-3-4-12 does not alleviate the partnership from its withholding tax obligation when tax was paid by a member. The Department properly assessed composite return withholding tax. Taxpayer did not provide sufficient evidence to meet its burden of proof to prove the proposed assessments wrong under IC § 6-8.1-5-1(c).

Taxpayer's protest is denied.

II. Tax Administration– Failure to File Composite Return Penalty.

Taxpayer claims that it timely filed an individual return for the year in question, reporting the allocable income and paying individual income tax due. Taxpayer disagrees that composite withholding tax is due on this income in addition to individual tax already paid. Taxpayer also argues that it did not know of the requirement to file a composite return.

The Department assessed a $500 penalty for not filing a return. Taxpayer claims that an individual member timely filed an individual return for the year in question, reporting the allocable income and paying individual income tax due on this income in addition to individual tax already paid. Taxpayer also argues that it did not know of the requirement to file a composite return.

Pursuant to IC § 6-3-4-12(i), if a partnership "does not include all nonresident partners in the composite return, the partnership is subject to the penalty imposed under IC 6-8.1-10-2.1(j)."

IC § 6-8.1-10-2.1 further provides in relevant part:

Accordingly, a $500 penalty is assessed each time there is a failure to file a composite return. A person wishing to avoid the penalty must make an affirmative showing of all facts alleged as a reasonable cause for the actions in questions IC § 6-8.1-10-2.1(e). In this instance, Taxpayer did not file a composite return as required by IC § 6-3-4-12(h) and made no affirmative showing of reasonable cause. Taxpayer is presumed to know the law. 45 IAC 15-11-2. The imposition of the $500 non-filing penalty provided by IC § 6-8.1-10-2.1(j) was therefore correct.

Taxpayer's protest is denied.

For the reasons discussed above, Taxpayer's protest is denied with regard to the imposition of Adjusted Gross Income Tax assessed in Issue I. In addition Taxpayer's protest is denied with regards to failure to file a composite return as stated in Issue II.