NOTICE: IC § 6-8.1-3-3.5 and IC § 4-22-7-7 requires 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 This document is effective on its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.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.

Company was properly denied research tax credits; Company did not provide contemporaneous and sufficient documentation to substantiate the credit.

I. Adjusted Gross Income Tax–Applicable Law; Research Credits.

Authority: IC § 6-3-1-3.5; IC § 6-3-2-1; IC § 6-3.1-4-2; IC § 6-3.1-4-1; IC § 6-3.1-4-4; IC § 6-8.1-5-1; IC § 6-8.1-5-4; Dep't of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579 (Ind. 2014); 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); 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, Sales Tax Division v. RCA Corp., 310 N.E.2d 96 (Ind. Ct. App. 1974); Stinson Estate v. United States, 214 F.3d 846 (7th Cir. 2000); United Stationers, Inc. v. U.S., 163 F.3d 440 (7th Cir. 1998); United States v. McFerrin, 570 F.3d 672 (5th Cir. 2009); Cohan v. Comm'r, 39 F.2d 540 (2d Cir. 1930); Union Carbide Corp. and Subsidiaries v. Comm'r, T.C. Memo 2009-50 (U.S. Tax Ct. 2009); Norwest Corp. & Subsidiaries v. Comm. Of Internal Revenue, 110 T.C. 454, 489 (1998); 45 IAC 3.1-1-66; 45 IAC 3.1-1-2; 45 IAC 3.1-1-7; I.R.C. § 41; I.R.C. § 174; I.R.C. § 1366; Treas. Reg. § 1.41-4; Treas. Reg. § 1.174-2; H.R. Conf. Rep. No. 106-478; TD 8930; Black's Law Dictionary (9th ed. 2009); Comments on Research Credit Regulations, 2001-10 I.R.B. 784; 69 F.R. 22-01; 66 F.R. 66362-01; Audit Technique Guide: Credit for Increasing Research Activities (June 2005).

Taxpayer protests the disallowance of claimed research credits.

II. Tax Administration–Penalty.

Authority: IC § 6-8.1-10-2.1; 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).

Taxpayer protests the imposition of a penalty.

Taxpayer manufactures food products for various customers. Taxpayer has multiple shareholders; Taxpayer elected to file as an S Corporation. The Indiana Department of Revenue ("Department") conducted an income tax audit, reviewing Taxpayer's income tax returns "for the fiscal years ending 9/30/2012, 9/30/2013, 9/30/2014, and 9/302015." The Audit Report states that "for 9/30/12, the statute had expired during the course of the audit." Taxpayer, for the years of the audit, claimed an Indiana research expense credit. As a result of the audit, the Department determined that Taxpayer had failed to establish that it qualified for the research and development tax credit.

Taxpayer protests the Department's disallowance of the Indiana research credit. An administrative hearing was conducted during which Taxpayer's representatives explained the basis for the protest. This Letter of Findings results. Additional facts will be provided as necessary.

I. Adjusted Gross Income Tax–Applicable Law; Research Credits

One of the primary questions is, for the years at issue, whether Indiana's version of the Research Expense Credit imposes the T.D. 8930 "Discovery Test" or the less restrictive T.D. 9104 "Uncertainty Test." Taxpayer takes issue with the both Treasury Decision 8930 and 9104, stating:

Taxpayer further argues that:

The Department maintains the applicable regulations are found in Treasury Decision 8930 (T.D. 8930, 66 F.R. 280-01), 2001 WL 34028585.

Tax assessments are prima facie evidence that the Department's assessment of tax is presumed correct; the taxpayer bears the burden of proving that the 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). When an agency is charged with enforcing a statute, the jurisprudence defers the agency's reasonable interpretation of that statute "over an equally reasonable interpretation by another party." Indiana Dep't of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579, 583 (Ind. 2014).

IC § 6-3.1-4-1 provides that, "'Research expense tax credit' means a credit provided under this chapter against any tax otherwise due and payable under IC 6-3." Similar to deductions, exemptions, and exclusions, tax credits - such as RECs - "are matters of legislative grace." Stinson Estate v. United States, 214 F.3d 846, 848 (7th Cir. 2000). The taxpayer who claims the tax credit is required to retain records necessary to substantiate a claimed credit. Where such a credit is claimed "the party claiming the same must show a case, by sufficient evidence, which is clearly within the exact letter of the law." Indiana Dep't of State Revenue, Sales Tax Division v. RCA Corp., 310 N.E.2d 96, 100-01 (Ind. Ct. App. 1974) (citing Conklin v. Town of Cambridge City, 58 Ind. 130, 133 (1877)); see also United States v. McFerrin, 570 F.3d 672, 675 (5th Cir. 2009) (citing Stinson Estate) ("[t]ax credits are a matter of legislative grace, are only allowed as clearly provided for by statute, and are narrowly construed."); New Colonial Ice Co. v. Helvering, 292 US. 435, 440 (1934) ("Whether and to what extent deductions shall be allowed depends upon legislative grace; and only as there is clear provision therefor[e] can any particular deduction be allowed.")

In order to obtain the benefit of the RECs at issue, both Indiana and federal law require that a taxpayer maintain and produce contemporaneous records sufficient to verify those credits. See Treas. Reg. § 1.41-4(d). Moreover, Indiana mandates that every person subject to a listed Indiana tax keep books and records, including all source documents "so that the [D]epartment can determine the amount, if any, of the person's liability for that tax by reviewing those books and records." IC § 6-8.1-5-4(a).

For income tax purposes, Indiana follows the federal tax scheme with certain modifications. IC § 6-3-1-3.5(b). Indiana provides tax credits outlined in IC 6-3.1 which a taxpayer may claim to reduce its taxable income. One of the tax credits is the "Indiana qualified research expense" tax credit under IC § 6-3.1-4-2(a), which states that, "A taxpayer who incurs Indiana qualified research expense in a particular taxable year is entitled to a research expense tax credit for the taxable year." IC § 6-3.1-4-1 defines the credit. In part, this statute - in effect for the taxable years in question - provides:

The issue is which regulations were in effect at the time the Indiana legislature promulgated IC § 6-3.1-4-4: T.D. 8251 (eff. May 16, 1989); T.D. 8930 (eff. Jan. 3, 2001); or T.D. 9104 (eff. Jan. 2, 2004).

Taxpayer challenges the validity of the IC § 6-3.1-4-4 reference to the 2001 federal regulations. This reference to the 2001 I.R.C. and regulations was added by P.L. 192-2002, § 89 in 2002, which was the first time that IC § 6-3.1-4-4 referenced a specific date. The Department has historically applied the 2001 final regulations, published under T.D. 8930 (the "2001 Final Regulations"). The 2001 Final Regulations define qualified research and development under I.R.C. § 41 to include a discovery requirement. However, these regulations were not promulgated until January 3, 2001, not January 1, 2001 (the date referred in the statute), and no portion of the regulation was made retroactive.

T.D. 8930, published in the Federal Register on January 3, 2001, contains final regulations relating to the computation of the research expense tax credit under section 41(c) and the definition of "qualified research" under section 41(d). "These regulations reflect changes to section 41 made by the Tax Reform Act of 1986 (the 1986 Act), the Revenue Reconciliation Act of 1989, the Small Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997, the Tax and Trade Relief Extension Act of 1998 (the 1998 Act) and the Tax Relief Extension Act of 1999 (the 1999 Act)." T.D. 8930, 66 F.R. 280-01. The 2001 Final Regulations set forth the discovery requirement for defining qualified research under I.R.C. § 41(d). Section 1.41-4(a)(3)(i) of the 2001 Final Regulations states:

T.D. 8930, 66 F.R. 280-01 at 290.

T.D. 8930 notes criticism by commentators to the proposed regulations (published in 1998) that this definition imposes a "discovery requirement" that was not mandated by I.R.C. § 41(d); however, the IRS and the Treasury Department elected to retain the Discovery Test because they "continue[d] to believe that section 41 conditions credit eligibility on an attempt to discover information that goes beyond the common knowledge of skilled professionals in the particular field of science or engineering" and that the legislative history of the Tax Reform Act of 1986 (the "1986 Act") supported such a definition. T.D. 8930, 66 F.R. 280-01. T.D. 8930 further explains that the 1986 Act narrowed the definition of the term "qualified research," and cites to legislative history explaining that "Congress was concerned that taxpayers had applied the original definition of qualified research 'too broadly,'" and under the 1986 Act research must be undertaken "to discover information that is technological in nature . . . ." Id. at 282 (quoting H.R. Conf. Rep. No. 99-841, at II 71 n.3 (1986)).

T.D. 8930 additionally notes that the discovery requirement is consistent with the legislative intent of the 1999 Act. The legislative history of the 1999 Act states "[e]mploying existing technologies in a particular field or relying on existing principles of engineering or science is qualified research, if such activities are otherwise undertaken for purposes of discovering information and satisfy the other requirements under section 41." Id. at 283 (quoting H.R. Conf. Rep. No. 106-478, at 332) (emphasis in original). T.D. 8930 states:

T.D. 8930 also refers to case law applying the Discovery Test subsequent to the 1986 Act and prior to promulgation of the 1998 Proposed Regulations and the 2001 Final Regulations. In United Stationers, Inc. v. U.S., 163 F.3d 440 (7th Cir. 1998), the Seventh Circuit relied upon the plain language of § 41(d)(1)(B)(i) and the legislative history of the 1986 Act in determining that the taxpayer had not engaged in "qualified research" because it did not develop research programs for the purpose of discovering information. The Court stated, "Congress clearly intended . . . that qualifying research pass a high threshold of innovation and be of broad effect." Id. at 444; see also Norwest Corp. & Subsidiaries v. Comm. Of Internal Revenue, 110 T.C. 454, 489 (1998) (relying upon "ordinary meaning of the language used in the statute . . . as well as the legislative history surrounding the promulgation of the TRA 1986[.]").

Thus, T.D. 8930 clearly reflects the fact that the Treasury Department and the IRS considered the criticisms of the Discovery Test, yet chose to retain the requirement "[i]n light of the case law and the legislative history[.]" T.D. 8930. The 2001 Final Regulations did not spontaneously implement the Discovery Test, but instead rely upon legislative, statutory, and case law guidance evidencing that Congress intended to implement such a test with the enactment of the 1986 Act, and reiterated this position in the Tax Relief Extension Act of 1999 (the "1999 Act"). Because the interpretation of the 1986 Act and the 1999 Act by the IRS and courts, the "Discovery Test" was meant to be applied based on the statutory interpretation alone. Thus, Indiana's adoption of the "Discovery Test" is consistent with IRS and the Seventh Circuit interpretation of I.R.C. §41.

In response to taxpayer concerns regarding T.D. 8930, on March 5, 2001, the Treasury Department and the IRS published Notice 2001-19 announcing that the Treasury Department and the IRS would review T.D. 8930 and reconsider comments previously submitted in connection with the finalization of T.D. 8930. Comments on Research Credit Regulations, 2001-10 I.R.B. 784, 2001 WL 84197. Notice 2001-19 also provided that, upon completion of the review, the Treasury Department and the IRS would announce changes in the regulations in the form of proposed regulations. These proposed regulations were published in the Federal Register on December 26, 2001 (the "2001 Proposed Federal Regulations"). 66 F.R. 66362-01. The resulting 2001 Proposed Federal Regulations departed from the "Discovery Test" and instead implemented the "Uncertainty Test":

F.R. 66362-01 at 66363-64.

The final regulations, which replaced the "Discovery Test" with the current "Uncertainty Test" for defining qualified research under § 41(d), were promulgated on January 2, 2004 (the "2004 Final Regulations"). 69 F.R. 22-01, 2004 WL 18938.

The Indiana Legislature would presumably have been aware that the IRS and the Treasury Department were reviewing the 2001 Final Regulations shortly after their promulgation, by means of Notice 2001-19 published on March 5, 2001, and that there were concerns about the application of the Discovery Test. However, the Indiana Legislature, in 2002, after the 2001 Proposed Regulations eliminating the "Discovery Test" had already been published in December 2001, selected a date prior to these revised regulations. Had the Indiana Legislature intended to adopt the "Uncertainty Test" over the "Discovery Test" in the 2003 Indiana Statute, it could have either referred to a date after the promulgation of the 2001 Proposed Regulations, waited until after the final regulations were promulgated in 2004, or not referenced any date at all. The application of the discovery requirement was a reasonable interpretation of I.R.C. § 41(d) from the date the 1986 Act was enacted until the promulgation of the 2004 Final Regulations. Thus, for the years at issue the audit was correct in relying on the "Discovery Test" in determining whether Taxpayer's activities qualified for the research and expense credits. Taxpayer's argument that T.D. 8251 is applicable to the tax years at issue is misplaced. It is the Department's established position that T.D. 8930 applies to the Indiana REC prior to January 1, 2016. See Letter of Findings 01-20160696; 01-20160697; 01-20160698; 01-20160700; 01-20160701; 01-20160702; 01-20160703 (June 27, 2017), 20170830 Ind. Reg. 045170363NRA; Letter of Findings 01-20150385 (December 6, 2016); 20170222 Ind. 045170090NRA; Letter of Findings 02-20130676 (January 16, 2015), 20150325-IR-045150065NRA.

Thus, the Department finds that Taxpayer's protest with respect to the interpretation of IC § 6-3.1-4-4 is denied. This Letter of Findings now turns to the issue of documentation.

Indiana imposes an adjusted gross income tax on all residents. IC § 6-3-2-1. A taxpayer's Indiana income is determined by starting with its federal income and making certain adjustments. IC § 6-3-1-3.5. Income from an S corporation flows through to the individual shareholder's personal income and is reported by the shareholders on their personal income tax returns. See I.R.C. § 1366. See also 45 IAC 3.1-1-66; 45 IAC 3.1-1-2(14); 45 IAC 3.1-1-7(6). Simply stated, an S Corporation - such as Taxpayer's company - is "[a] corporation whose income is taxed through its shareholders rather than through the corporation itself." Black's Law Dictionary 394 (9th ed. 2009). Pursuant to IC § 6-3-1-3.5, the Indiana income tax rules piggyback on the federal income tax statutes and regulations. Therefore, the federal rules and case law are generally applicable to determine an individual shareholder's tax liability. Any additional income received by the S-Corp as a profit passes through to the individual shareholders as income.

Taxpayer protests that the Department erred in denying the research and development tax credit for the years at issue. As stated above, Indiana follows the federal tax scheme with certain modifications. IC § 6-3-2-1(b); IC § 6-3-1-3.5(b). Indiana also provides certain tax credits which a taxpayer may claim to reduce its tax liability. See generally, IC § 6-3.1 and IC § 6-3.5. One of the tax credits available under Indiana tax law is the Indiana Qualified Research Expense Tax Credit under IC § 6-3.1-4-1 et seq. The 2003 statute, which was effective until December 31, 2015, and is relevant to the tax years at issue (the "2003 Indiana Statute"), provides:

IC § 6-3.1-4-4 (2003) (Emphasis added).

Further, "qualified research expense" under the 2003 Indiana Statute is "as defined in Section 41(b) of the Internal Revenue Code as in effect on January 1, 2001[.]" IC § 6-3.1-4-1 (2003) (emphasis added). "Qualified research" is defined in the Internal Revenue Code ("IRC") under section 41(d). IRC subsection 41(d) defines qualified research in pertinent part as follows:

26 U.S.C. § 41(d)(1).

This provision sets out a four-pronged test for qualified research: first, the research must have qualified as a business deduction under § 174. See id. § 41(d)(1)(A); second, the research must be undertaken to "discover information which is technological in nature." Id. § 41(d)(1)(B)(i); third, the taxpayer must intend to use the information to develop a new or improved business component. Id. § 41(d)(1)(B)(ii); and finally, the taxpayer must pursue a "process of experimentation" during substantially all of the research. Id. § 41(d)(1)(C).

The three projects examined in the Audit Report are as follows:

In order to qualify for the research and expense credit, a taxpayer must meet the four-part test listed above, provide documentation that it meets the test, and provide documentation that the credits earned are directly linked to qualified research. Further, even if a taxpayer meets all four parts of the four part test, a taxpayer must substantiate the cost under I.R.C. § 41. A taxpayer has to link specific employees to specific portions of the claimed research and development activities. A taxpayer must accurately calculate how much time any employee spent on any portion of the claimed research and development. Under IC § 6-8.1-5-4 "Every person subject to a listed tax must keep books and records so that the department can determine the amount, if any, of the person's liability. . . ." In addition, Treas. Reg. § 1-41-4(d)(1) (2001) states that for taxpayer to receive the research and development tax credit, a taxpayer must:

Thus, a taxpayer in Indiana claiming the research and development credit for the years January 1, 2003-December 31, 2015, must keep contemporaneous documentation.

Regarding documentation provided during the audit, the Audit Report states that Taxpayer "[i]nitially . . . only provided a one page spreadsheet of the wages and supplies taken for the credit." The auditor, after talking to Taxpayer's power of attorney (POA), stated that "the taxpayer did provide further information on 3 projects that were the largest each year." The Audit Report further states:

The Audit Report also states:

The research and development credit is broken down into a four part test: (1) whether the expenditure can be treated as an expense under I.R.C. § 174; (2) whether the expenditure was part of an undertaking for the purpose of discovering information which is technological in nature; (3) whether the application is intended to be useful in the development of a new or improved business component; and (4) whether substantially all of the activities constitute elements of a process of experimentation. I.R.C. § 41.

The Audit Report went through the four part test as it relates to Taxpayer. The Audit Report concluded that "taxpayer failed to provide contemporaneous records of the research being conducted," and that "[t]here was not substantial documentation to substantiate the credit taken." The lack of proper documentation vitiates Taxpayer's argument and will be addressed below.

"The term 'qualified research' means research with respect to which expenditures may be treated as expenses under section 174. . ." I.R.C. § 41(d)(1)(A). I.R.C. § 174 states:

The Audit Report cites to Treas. Reg. § 1.174-2(a)(1). That regulation defines "research and experimental expenditure,"

The Audit Report stated, regarding this first part of the four-part test:

Taxpayer's response to the Audit Report is that the "auditor's claim of insufficient documentation has nothing to do with the section 174 test . . . ." Taxpayer argues that the Audit Report is actually "challeng[ing] the Taxpayer's substantiation of qualified research expenses (QRE's) claimed in calculating the REC." Later in its protest letter Taxpayer argues that regarding documentation:

Regarding IRC § 6001, Taxpayer states that "[a]lthough [it] provides little guidance as to what is 'sufficient to show whether or not such person is liable for tax,' the statute does specifically state that a taxpayer shall 'render such statements' with regard to their tax liability." Taxpayer concludes that this language means that "oral or written statements by a taxpayer should be acknowledged and utilized to support positions with respect to its tax liability." Taxpayer also cites to Union Carbide Corp. v. Comm'r, T.C. Memo 2009-50 (2009 WL 605161) (U.S. Tax Ct. 2009) and United States v. McFerrin, 570 F.3d 672 (5th Cir. 2009). In a memorandum prepared in 2016, Taxpayer's accounting firm concedes that "[d]etailed invoices are not generated specifically for the test kitchen or first run production batches[;]" nonetheless, the accounting firm, due to Cohan v. Comm'r, 39 F.2d 540 (2d Cir. 1930), believes that "an estimate of the costs are acceptable." As will be seen below, this Letter of Findings is in agreement with the Audit Report that "[t]here was not substantial documentation to substantiate the credit taken."

Under Indiana law, "Every person subject to a listed tax must keep books and records so that the department can determine the amount, if any, of the person's liability. . . ." IC § 6-8.1-5-4. In addition, Treas. Reg. § 1-41-4(d)(1) (2001) states that for taxpayer to receive the research and development tax credit, a taxpayer must:

And IRC § 6001 also states–in the clause prior to the one regarding rendering statements–that "[e]very person liable for any tax imposed by this title . . . shall keep such records . . . ." And Indiana's statute (IC § 6-8.1-5-4) has similar mandatory language–"must keep books and records . . . ." The affidavits provided by Taxpayer were signed in February of 2017; the audit reviewed "fiscal years ending 9/30/2012, 9/30/13, 9/30/2014, and 9/30/2015." Thus Taxpayer failed to keep contemporaneous documentation. Additionally, the affidavits provided are not detailed and sufficiently informative for the matter at hand. For example, one of the February 2017 affidavits states in part:

The "Affidavit Supplement" then states "Services and Activities" such as "[d]etermine appropriate product specifications," "[d]evelop/create recipes and formulations for product," "[d]evelop new projects," among other services and activities. The affidavit supplement then lists the dates and projects, stating for example: "1. [Customer's] chili concentrate - reduce cook times." This affidavit is a post-hoc estimation with no real explanation of how the percentage of time was arrived at, years after the project. In other words, Taxpayer has not supported these post-hoc estimates.

The Audit Report, citing "Treas. Reg. 1.41-4(d) (TD 8930)," which states in part:

Treasury Decision 8930 (T.D. 8930, 66 F.R. 280-01), 2001 WL 34028585 at 294-5.

After looking at TD 8930, the Audit Techniques Guide: Credit for Increasing Research Activities (June 2005), and IC § 6-8.1-5-4, the Audit Report states: "the taxpayer has not provided records that substantiate the amounts reported on returns filed by the taxpayer. The taxpayer has not provided records that substantiate the amounts of the credits reported on its returns." Further, the Audit Report states "taxpayer has not provided this contemporaneous documentation or contemporaneous documentation to support the employee research participation percentages that it used to calculate the qualified research expenses (QRE's)."

The Audit Report notes that regarding the four part test, Taxpayer may have met some of the elements. For instance, regarding the technological in nature prong of the test, the Audit Report states:

In fact, the Audit Report is replete with comments regarding the lack of documentation as it relates to the four part test:

Regarding the business component portion of the test:

And two further examples of the Audit Report discussing the lack of documentation illustrate the problem:

And:

As the foregoing analysis has shown, Taxpayer has not overcome the lack of proper documentation issues that are endemic to its protest. But even if, arguendo, the Taxpayer could provide proper documentation, there is still the issue of excluded activities under IRC 41. As the Audit Report states, "[t]here are certain research activities that are specifically excluded from qualified research under IRC section 41(d)(4)," namely "any research related to the adaptation of an existing business component to a particular customer's requirement or need." The Audit Report then cites to the June 2005 Audit Technique Guide: Credit for Increasing Research Activities. That guide states in relevant part that the "exclusion applies if the taxpayer's activities relate to adapting an existing business component to a particular customer's requirement or need," and that "[a] contractor's adaptation of an existing business component to a taxpayer's particular requirement or need is not qualified research." Audit Technique Guide: Credit for Increasing Research Activities (June 2005) https://www.irs.gov/businesses/audit-techniques- guide-credit-for-increasing-research-activities-i-e-research-tax-credit-irc-41-qualified- research-activities (last visited January 17, 2018). The auditor found that:

Taxpayer's response, in summary, is that it may not be "inventing chili, but there are multiple recipes for chili" and that Taxpayer's formula for a specific chili for [Taxpayer's client] is a new formula and a new product." Taxpayer's argument is flawed, and can be shown by noting that by Taxpayer's logic adding anything to chili would be a new product. Additionally, Taxpayer makes an analogical argument that attempts to compare its chili to the creation of an electric car for purposes of IRC § 41. The Department does not find Taxpayer's analogy edifying or persuasive.

Taxpayer has not met the burden of proving the proposed assessments wrong, as required by IC § 6-8.1-5-1(c).

Taxpayer's protest is denied.

II. Tax Administration–Penalty.

IC § 6-8.1-10-2.1(j) states, "If a partnership or an S corporation fails to include all nonresidential individual partners or nonresidential individual shareholders in a composite return as required . . . a penalty of five hundred dollars ($500) per partnership or S corporation is imposed on the partnership or S corporation."

Taxpayer's protest states that it disagrees "with the auditor's decision to impose a $500 penalty per year for the failure to file [a] composite schedule." Per the protest letter, this was "due to the disallowance of the REC," with the auditor "determin[ing] that composite schedules were required to be filed with the Taxpayer's 2013 and 2014 Form IT-20S."

As noted supra, Taxpayer's protest regarding the REC was denied. No further argumentation was provided or developed regarding this issue by Taxpayer. A taxpayer is required to provide documentation explaining and supporting its challenge that the Department's denial 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). Taxpayer has failed to meet its burden of proof under IC § 6-8.1-5-1(c).

Taxpayer's protest of the penalty is denied.

Taxpayer's protest regarding the research and development expense tax credit is denied. Taxpayer's protest of the penalty is denied.