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 This document is effective on its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.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

Individual was domiciled in Indiana for the 2011 and 2012. Therefore, Individual was required to file 2011 and 2012 individual Indiana income tax returns. Individual did show reasonable cause to waive negligence penalty, but the interest cannot 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; IC § 6-1.1-12-37; 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).

Taxpayer protests the Department's proposed assessment for the 2011 and 2012 years.

II. Tax Administration - Non-filer Penalty and Interest.

Authority: IC § 6-8.1-10-3; IC § 6-8.1-10-1; 45 IAC 15-11-2.

Taxpayer protests the imposition of the negligence penalty and interest.

Taxpayer is an individual who owned property in Indiana and lived on that property until 2006. In 2006 Taxpayer sold the land to her son, but retained half interest in the property. She then moved to South Dakota. The Indiana Department of Revenue ("Department") determined that Taxpayer was an Indiana resident for the tax years 2011 and 2012 and that Taxpayer failed to file a 2011 and 2012 Indiana income tax return. The Department therefore, issued a proposed assessment for 2011 and 2012 income tax, penalty, and interest.

Taxpayer protested the assessment. An administrative phone hearing was held. This Letter of Findings ensues and addresses Taxpayer's protest of the proposed assessment for the tax years 2011 and 2012. Additional facts will be provided as necessary.

I. Indiana Individual Income Tax - Residency - Domicile.

The Department assessed income tax for the 2011 and 2012 tax years on the grounds that Taxpayer was an Indiana resident and that she failed to file her 2011 and 2012 Indiana income tax returns. Taxpayer contends that she was not required to file 2011 and 2012 Indiana income tax returns because she was not an Indiana resident. The issue is whether, for the tax years 2011 and 2012, Taxpayer was an Indiana resident 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, the taxpayer is 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, Taxpayer provided several documents to show that she was domiciled in South Dakota for the years at issue. The documents include, South Dakota drivers license, South Dakota vehicle registration, Federal income tax returns with the South Dakota address, South Dakota jury duty summons, Social Security documents with her South Dakota address, and change of address forms to have information forwarded to South Dakota, Federal Tax Form1099s with Indiana address, a letter from her financial advisor stating she was a resident of South Dakota, and documents showing her half interest in the Indiana property.

With regards to the Indiana addressed 1099s, Taxpayer explained that in order to keep her current financial advisor she needed to maintain an Indiana address because the advisor was not licensed in South Dakota. As for the half interest in the property, Taxpayer explained that she sold the property to her son, and had to retain an interest in the property until her son could obtain independent financing. Son however, paid the mortgage and property taxes. Once Taxpayer's son obtained the financing; Taxpayer states that the county clerk told Taxpayer that she could not remove her interest without a lawyer. In 2015, Taxpayer was able to remove her interest in the property.

Upon review, the documents provided during the hearing process do not demonstrate that Taxpayer was not domiciled in Indiana. Taxpayer retained her Indiana address for investment purposes and did not remove her interest in the property until the Department assessed income tax. Taxpayer did not show that she intended to abandon her Indiana domicile, especially since Taxpayer moved back to Indiana and lives on the same property she sold to her son.

The Department determined that Taxpayer was domiciled in Indiana in 2011 and 2012 based on Taxpayer's use of the homestead deduction and on the fact that the 1099s had Taxpayer's Indiana address. Taxpayer's documentation does not rebut the Department's determination that she was domiciled in Indiana. When a taxpayer takes the Indiana homestead deduction, she is receiving a deduction on her property taxes, and telling the local government that they are not only living in that residence but that the residence is her principal residence. IC § 6-1.1-12-37(a)(2). Therefore, Taxpayer was simultaneously receiving a property tax deduction in Indiana for a residence that Taxpayer is 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. Taxpayer failed to do so. Therefore, Taxpayer has not met the burden of proving the proposed assessment wrong, as required by IC § 6-8.1-5-1(c).

Taxpayer's protest is respectfully denied.

II. Tax Administration - Non-filer Penalty and Interest.

Taxpayer requested that the Department abate the negligence penalty.

Pursuant to IC § 6-8.1-10-3(a), the Department may assess a penalty if the taxpayer "fails to file a return on or before the due date . . . ."

The Department may waive a 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, Taxpayer demonstrated good past compliance. Furthermore, given the totality of the circumstances, the Department agrees that Taxpayer affirmatively demonstrated that her failure to file and to pay tax for the tax year 2011 and 2012 was due to reasonable cause and not due to negligence. Therefore, the Department will waive the penalty.

Taxpayer asserts that she does 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). Taxpayer's request to abate interest is denied.

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

For the reasons discussed above, Taxpayer's protest of the Department's proposed assessment for the 2011 and 2012 tax years is denied. Taxpayer's protest of the negligence penalty is sustained and interest is denied.