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 This document is effective on its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.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.

Husband and Wife were domiciled in Indiana for the tax year 2011. Therefore, Husband and Wife were required to file an Individual Income Tax Return (IT-40 PNR form). Husband and Wife showed reasonable cause to waive negligence penalty, but the interest will not be waived.

I. Indiana Individual Income Tax - Residency - Domicile.

Authority: IC § 6-3-1-3.5; IC § 6-3-1-12; IC § 6-3-1-13; IC § 6-3-2-1; IC § 6-3-2-2; 45 IAC 3.1-1-21; 45 IAC 3.1-1-22; IC § 6-8.1-5-1; Lafayette Square Amoco, Inc. v. Indiana Dep't of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007); Indiana Dep't of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463 (Ind. 2012); Scopelite v. Indiana Dep't of Local Gov't Fin., 939 N.E.2d 1138 (Ind. Tax Ct. 2010); Wendt LLP v. Indiana Dep't of State Revenue, 977 N.E.2d 480 (Ind. Tax Ct. 2012); Croop v. Walton, 157 N.E. 275 (Ind. 1927); State Election Bd. v. Bayh, 521 N.E.2d 1313 (Ind. 1988).

Taxpayers protest the Department's proposed assessment for the 2011 tax year.

II. Tax Administration - Negligence Penalty and Interest.

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

Taxpayers protest the imposition of the negligence penalty and interest.

Taxpayers ("Husband" and "Wife") owned property and lived in Indiana starting in 2002. Taxpayers moved to Florida in 2006. The Indiana Department of Revenue ("Department") determined that Taxpayers were Indiana residents for the tax year 2011 and that Taxpayers failed to file their 2011 Indiana income tax return. The Department therefore, issued a proposed assessment for 2011 income tax, penalty, and interest.

Taxpayers protested the assessment. An administrative phone hearing was held. This Letter of Findings ensues and addresses Taxpayers' protest of the proposed assessment for the tax year 2011. Additional facts will be provided as necessary.

I. Indiana Individual Income Tax - Residency - Domicile.

The Department assessed Taxpayers income tax for the 2011 tax year on the ground that Taxpayers were Indiana residents and that they failed to file their 2011 Indiana income tax return. Taxpayers contend that they were not required to file their 2011 Indiana income tax return because they were not Indiana residents. The issue is whether, for the tax year 2011, Taxpayers were Indiana residents and therefore was subject to Indiana income tax.

As a threshold issue, all tax assessments are prima facie evidence that the Department's claim for the unpaid tax is valid; the taxpayer bears the burden of proving that any assessment is incorrect. IC § 6-8.1-5-1(c); Lafayette Square Amoco, Inc. v. Indiana Dep't of State Revenue, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007); Indiana Dep't of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463, 466 (Ind. 2012). Thus, taxpayers are required to provide documentation explaining and supporting their challenge that the Department's assessment is wrong. Poorly developed and non-cogent arguments are subject to waiver. Scopelite v. Indiana Dep't of Local Gov't Fin., 939 N.E.2d 1138, 1145 (Ind. Tax Ct. 2010); Wendt LLP v. Indiana Dep't of State Revenue, 977 N.E.2d 480, 486 n.9 (Ind. Tax Ct. 2012).

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(a). IC § 6-3-2-2(a) specifically outlines what is income derived from Indiana sources and subject to Indiana income tax. IC § 6-3-1-3.5(a) provides the starting point to determine the taxpayers' taxable income and to calculate what would be their Indiana income tax after applying certain additions and subtractions to that starting point.

For Indiana income tax purposes, resident "includes (a) any individual who was domiciled in this state during the taxable year, or (b) any individual who maintains a permanent place of residence in this state and spends more than one hundred eighty-three (183) days of the taxable year within this state . . . ." IC § 6-3-1-12; see also 45 IAC 3.1-1-21. Nonresident is "any person who is not a resident of Indiana." IC § 6-3-1-13.

Additionally, 45 IAC 3.1-1-22 states:

For guidance in determining a taxpayer's domicile, the Department refers to Croop v. Walton, 157 N.E. 275 (Ind. 1927). In Croop a taxpayer, Mr. Walton, moved from Sturgis, Michigan to Elkhart, Indiana by selling his Michigan residence and purchasing a residence in Indiana, where he and his wife lived for several years for the benefits of his wife's health. Indiana assessed Mr. Walton state income tax on his intangible property. Id. at 276-78. Mr. Walton disagreed, arguing that his intangible property was not subject to Indiana taxes because he was domiciled in Michigan. Id. The court found that Mr. Walton: owned and managed a company and stores in Michigan; maintained his membership with lodges, clubs, and a church; on various occasions exercised his civil and political rights; and that Sturgis was used in his legal documents, including insurance policies, mortgages, leases, contracts, and other instruments. Ruling in favor of Mr. Walton, the court concluded that Mr. Walton did not change his domicile from Michigan to Indiana and his intangible property was not subject to certain Indiana taxes. The court explained, in relevant part, that:

In State Election Bd. v. Bayh, 521 N.E.2d 1313 (Ind. 1988), the Indiana Supreme Court reiterated similar analysis and determined that Mr. Bayh met the residency requirement for the office of Governor because Mr. Bayh's domicile remained in Indiana even though Mr. Bayh moved to different states for various reasons for many years. Specifically, the court illustrated, in relevant part, that:

During the protest process, Taxpayers submitted additional documentation to support the assertion that they were not Indiana residents and did not owe any Indiana income tax for the tax year 2011. The documents included tax documents for 2011 with their Florida address or Florida income, Florida vehicle registration, and Husband's employment contract with his Florida employer.

Taxpayers also provided a letter sent from the Department dated July 8, 2014 stating that, "Your recent explanation and/or payment, with respect to the specific liability number referenced above, is satisfactory." At the bottom of the letter the disclaimer states that "This statement does not include any taxpayer's unfiled returns with the Department or any audits being conducted by the Department of Revenue." Taxpayers received a new proposed assessment dated October 10, 2014 regarding the same issue. This letter stated that Taxpayers were domiciled in Indiana for 2011. While the Department incorrectly cancelled the first liability, the disclaimer regarding non-filers applies to Taxpayers in this case. Therefore, the July 8 letter stating satisfaction of liability is not determinative of the issues in this case.

Upon review, the documents provided during the hearing process do not demonstrate that Taxpayers were not domiciled in Indiana. First, Taxpayers had been longtime Indiana residents who maintained a primary residence in Indiana. The publicly available information shows that, for the tax year 2011, Taxpayers still maintained a residence in Indiana and still claimed the homestead deduction on the residence. The publicly available information noted that Taxpayer had not removed the homestead deduction on the residence. Taxpayers' documentation failed to establish that they abandoned their domicile in Indiana and never intended to return to Indiana.

The Department determined that Taxpayer was domiciled in Indiana in 2011 based on Taxpayer's use of the homestead deduction. Taxpayer's documentation does not rebut the burden that they were not domiciled in Indiana. When a taxpayer takes the Indiana homestead deduction, they are receiving a deduction on their property taxes, and telling the local government that they are not only living in that residence but that the residence is their principal residence. IC § 6-1.1-12-37(a)(2). When a taxpayer leaves Indiana to move to a state that has no state income tax without removing the Indiana homestead deduction on its Indiana residence, this fact calls into question whether Taxpayer is truly abandoning their Indiana residence. Furthermore, Taxpayers are simultaneously receiving a property tax deduction in Indiana for a residence that Taxpayers are implicitly characterizing as their principal residence; while at the same time avoiding Indiana state income tax by claiming not to be domiciled in Indiana.

In short, any individual who was domiciled in this state during the taxable year is a resident. IC § 6-3-1-12(a). "A change of domicile requires an actual moving with intent to go to a given place and remain there. It must be an intention coupled with acts evidencing that intention to make the new domicile a home in fact. . . . [T]here must be the intention to abandon the old domicile; the intention to acquire a new one; and residence in the new place in order to accomplish a change of domicile." Bayh, 521 N.E.2d at 1317-18. Taxpayers failed to do so. Therefore, Taxpayers have not met the burden of proving the proposed assessment wrong, as required by IC § 6-8.1-5-1(c).

Taxpayers' protest is respectfully denied.

II. Tax Administration - Negligence Penalty and Interest.

Taxpayers requested that the Department abate the negligence penalty.

Pursuant to IC § 6-8.1-10-2.1(a), the Department may assess a negligence penalty if the taxpayer:

The Department may waive a negligence penalty when "the taxpayer affirmatively establishes that the failure . . . was due to reasonable cause and not due to negligence." 45 IAC 15-11-2(c). The taxpayer "must demonstrate that it exercised ordinary business care and prudence in carrying out or failing to carry out a duty giving rise to the penalty imposed under this section." Id. The Department is mindful that "[r]easonable cause is a fact sensitive question and thus will be dealt with according to the particular facts and circumstances of each case."

In this instance, Taxpayers have demonstrated good past compliance. Furthermore, given the totality of the circumstances, the Department does agree that Taxpayers affirmatively demonstrated that their failure to file and to pay tax for the tax year 2011 was due to reasonable cause and not due to negligence. Therefore, the Department will waive the penalty.

Taxpayers assert that they do not owe interest. Indiana imposes interest on overdue tax pursuant to IC § 6-8.1-10-1(a), which states:

In the case of the interest assessed, the Department has no discretion to abate or adjust the amount of interest owed. IC § 6-8.1-10-1(e). Taxpayers' request to abate interest is denied.

Taxpayers' protest of the negligence penalty is sustained and interest is denied.

For the reasons discussed above, Taxpayers' protest of the Department's proposed assessment for the 2011 tax year is denied. Taxpayers' protest of the negligence penalty is sustained and interest is denied.