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 This document is effective on its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.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

Out-of-State Individual was not entitled to claim the benefit of withholding taxes originally withheld by the Lottery Commission on behalf of a Servicing Corporation; Out-of-State Individual was required to return income tax refunds erroneously issued by the Department.

I. Individual Income Tax - Withholding Refund.

Authority: IC § 6-3-4-8.2(c); IC § 6-3-4-9; IC § 6-8.1-5-1(c); Indiana Dep't of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463 (Ind. 2012); Miller Brewing Co. v. Indiana Dep't of State Revenue, 903 N.E.2d 64 (Ind. 2009); Wendt LLP v. Indiana Dep't of State Revenue, 977 N.E.2d 480 (Ind. Tax Ct. 2012); Scopelite v. Indiana Dep't of Local Gov't Fin., 939 N.E.2d 1138 (Ind. Tax Ct. 2010); Lafayette Square Amoco, Inc. v. Indiana Dep't of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007).

Taxpayer argues the Department's assessment of additional tax was incorrect because he was entitled to a refund of individual income tax purportedly withheld on his behalf.

An Indiana resident won a million dollar prize from the Indiana Lottery. The million dollar prize was payable to the lottery winner in twenty annual payments. The Lottery winner petitioned the circuit court for permission to transfer the rights to these payments to an out-of-state company here designated as "Servicing Corporation" in exchange for receiving a lesser but more immediate payment of the lottery proceeds. The circuit court approved transfer of the rights to Servicing Corporation. After the transfer, the Lottery Commission proceeded to issue Servicing Corporation the original Scheduled prize payments. The payments came in the form of checks issued by the Hoosier Lottery made payable to Servicing Corporation.

Servicing Corporation is in the business of buying and selling real estate receivables, structured settlement payments, annuity payments, and - as in the case of Indiana resident - structured lottery payment won by someone else.

Servicing Corporation in turn resold the rights to receive the Indiana Lottery payments to Taxpayer, an out-of-state individual. After the sale to Taxpayer, Servicing Corporation proceeded to issue Taxpayer annual payments representing Taxpayer's portion of the lottery proceeds. Those payments came in the form of checks issued by Servicing Corporation made payable to Taxpayer.

Taxpayer filed 2015, 2016, and 2017 Indiana income tax returns reporting the second-hand lottery payments. On those returns, Taxpayer claimed a credit for taxes he believed were withheld on his behalf by out-of-state Servicing Corporation. To that end, Taxpayer attached copies of form 1099-MISC ("Miscellaneous Income") issued by Servicing Corporation showing amounts of "state tax" ostensibly withheld on Taxpayer's behalf.

Servicing Corporation stated that it was entitled to issue Taxpayer the 1099-MISC forms because the Lottery Commission issued Servicing Corporation FORM W-2G ("Certain Gambling Winnings") showing "state income withheld" by the Lottery Commission on behalf of Servicing Corporation.

In response to Taxpayer's 2015, 2016, and 2017 Indiana tax returns, the Indiana Department of Revenue ("Department") issued Taxpayer refund checks based on tax amounts withheld on his behalf.

Subsequently, the Department issued Taxpayer proposed assessments of income tax on the ground that the amounts withheld on his behalf were not, in fact, actually withheld. In effect, the now disputed assessment represented the Department's efforts to recover the refund amounts issued Taxpayer. The Department attempted to recover the refunds because it had concluded that Servicing Corporation was not registered with the state and that Servicing Corporation had not set aside (withheld) any amount of money on Taxpayer's behalf.

Taxpayer disagreed with the assessment and submitted a protest to that effect. An administrative hearing was conducted during which Taxpayer explained the basis for the protest. This Letter of Findings results.

I. Individual Income Tax - Withholding Refund.

The issue is whether Taxpayer was entitled to claim the benefit of the withholding taxes originally withheld by the Lottery Commission on behalf of Servicing Corporation and that the Department's assessment of income tax is unjustified.

In this instance, Taxpayer's protest stems from the Department's assessment of individual income tax. As a threshold issue, all such 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). "[E]ach assessment and each tax year stands alone." Miller Brewing Co. v. Indiana Dep't of State Revenue, 903 N.E.2d 64, 69 (Ind. 2009). Thus, the taxpayer is required to provide documentation explaining and supporting its 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).

IC § 6-3-4-8.2(c) provides as follows:

IC § 6-3-4-8.2(c) places on the Lottery Commission responsibility for deducting and retaining income tax due on a recipient's "prize money."

The Lottery Commission fulfilled its responsibility to do so and notified Servicing Corporation that it fulfilled that responsibility by issuing the W-2Gs naming Servicing Corporation as the "WINNER" and the Hoosier Lottery as the "PAYER."

IC § 6-3-4-9 imposes a second and separate withholding responsibility:

As one of the entities enumerated in IC § 6-3-4-9, Servicing Corporation had a responsibility to withhold income taxes on behalf of Taxpayer who was the "recipient of such payment." Servicing Corporation ostensibly did so and issued Taxpayer the 1099-MISC forms naming Servicing Corporation as the "PAYER" and Taxpayer as the "RECIPIENT."

Taxpayer concludes that the withholding benefits "flows through" seamlessly from the Lottery Commission to Servicing Corporation and from Servicing Corporation to Taxpayer. Taxpayer explains that what the original lottery winner sold to Servicing Corporation was simply an "account number" and that what Servicing Corporation sold to Taxpayer was the one-and-the same "account number." The Department is unable to agree with Taxpayer's explanation. Servicing Corporation and Taxpayer are separate PAYERs and separate RECIPIENTs. Whether Servicing Corporation, as the secondary recipient of lottery benefits, had a responsibility to file its own tax returns is an interesting question but need not be addressed here. What is clear is what Servicing Corporation indicated to Taxpayer - that it withheld income tax on behalf of Taxpayer - was incorrect; there are no records of Servicing Corporation having filed with the Department or ever withholding income tax on behalf of Taxpayer.

Taxpayer failed to meet its statutory obligation under IC § 6-8.1-5-1(c) of establishing that the Department's assessment was wrong. Taxpayer was not entitled to the income tax refund checks and must now return those amounts.

Taxpayer's protest is respectfully denied.

June 15, 2018