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 This document is effective as of its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.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

S-corporation protested that the Department's determination of income was incorrect. S-corporation did not provide sufficient documentation to support its protest. Penalties were not waived.

I. Corporate Income Tax–Composite Tax Return.

Authority: IC § 6-3-4-13; IC § 6-8.1-5-1; 45 IAC 3.1-1-66; Indiana 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); 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 corporate income tax assessments.

II. Tax Administration–Penalties and Interest.

Authority: IC § 6-8.1-10-2.1; IC 6-8.1-10-1.

Taxpayer protests the imposition of penalties and interest.

Taxpayer, an S-corporation, operates a retail business ("Business") with gasoline sales and an attached convenience store. Pursuant to a sales tax audit of Business, the Indiana Department of Revenue ("Department") determined that Taxpayer underreported its sales and income. In an audit for income tax, the Department determined that Taxpayer underreported income tax, failed to withhold Indiana adjusted gross income tax ("AGIT") on a non-resident shareholder, and failed to file composite returns for tax years 2015, 2016, and 2017. The Department therefore assessed corporate income tax, penalties, and interest for those years. Taxpayer protested this imposition of tax, penalties, and interest. An administrative hearing was held and this Letter of Findings results. Further facts will be supplied as needed.

I. Corporate Income Tax–Composite Tax Return.

Taxpayer protests the Department's proposed corporate income tax assessments for tax years 2015 through 2017. As the result of a related sales tax audit, the Department determined that Taxpayer had underreported taxable sales and therefore also had underreported additional income. Taxpayer argues that it properly filed all tax returns, which would wholly eliminate Taxpayer's liabilities.

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 Dep't of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463, 466 (Ind. 2012); Lafayette Square Amoco, Inc. v. Indiana Dep't of State Revenue, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007). 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, 485 n.9 (Ind. Tax Ct. 2012). When an agency is charged with enforcing a statute, the jurisprudence defers to the agency's reasonable interpretation of that statute "over an equally reasonable interpretation by another party." Indiana Dep't of State Rev. v. Caterpillar, Inc., 15 N.E.3d 579, 583 (Ind. 2014).

First, the Department refers to IC § 6-3-4-13, which states in relevant part(s):

Therefore, under IC § 6-3-4-13, a corporation must withhold AGIT on nonresident shareholders and file composite returns to reflect the withholdings. A corporation is liable for failing to withhold composite tax, and these liabilities are considered unpaid AGIT.

Further, 45 IAC 3.1-1-66 states, in relevant part:

Next, the Department refers to IC § 6-8.1-5-1(b), which states:

In the instant case, Taxpayer argues that Business properly filed all tax returns. The Department disagrees with Taxpayer's argument. First, Taxpayer was denied on the related sales tax protest, and total audited sales and income were not reduced. Second, Taxpayer provided no tax documentation to verify its claims. Third, Business is liable under IC § 6-3-4-13(a) because Business did not file the composite returns required by IC § 6-3-4-13(j). For those reasons, the Department is not convinced by Taxpayer's argument, and Taxpayer's liabilities are considered unpaid AGIT under IC § 6-3-4-13(d). Therefore, Taxpayer has not met the burden under IC § 6-8.1-5-1(c) of proving the proposed assessment wrong.

Taxpayer's protest is denied.

II. Tax Administration–Penalties and Interest.

Taxpayer protests the imposition of penalties and interest under IC § 6-8.1-10-2.1(h), (j) and IC § 6-8.1-10-1(a), respectively.

On penalties, IC § 6-8.1-10-2.1 states, in relevant part(s):

Therefore, the Department only waives penalties on reasonable cause. Failure to withhold composite tax incurs a twenty percent penalty, and failure to file composite returns incurs a $500 penalty.

In the instant case, the Department disagrees with Taxpayer's argument. Taxpayer failed to file composite returns as required by IC § 6-3-4-13(j), which incurred the $500 penalty under IC § 6-8.1-10-2.1(j). Further, as established in the sales tax audit, Taxpayer failed to accurately withhold on the proper amount of income as required by IC § 6-3-4-13(a), which incurred the twenty percent penalty under IC § 6-8.1-10-2.1(h). While Taxpayer was denied on the related sales tax protest, even if the protest was sustained and no additional sales were applied, meaning that there would be no additional income to tax, the fact remains that Taxpayer failed to file composite returns for the income it acknowledges was paid to its non-resident shareholder. This alone warrants the imposition of the $500 penalty. Finally, IC § 6-8.1-10-1(e) prevents the Department from waiving interest. Therefore, Taxpayer has not established reasonable cause for its failure to perform its filing duties. Waiver of penalties is not warranted under IC § 6-8.1-10-2.1(d).

Taxpayer's protest is denied.

Taxpayer's protests of the proposed corporate income tax, penalty, and interest assessments are denied.

August 13, 2019