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 This document is effective as of its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.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

Married couple established that they had paid income tax upon the income at issue in the appropriate years. Therefore, no further income tax is applicable.

I. Income Tax–Assessment.

Authority: IC § 6-3-1-3.5; IC § 6-3-2-1; IC § 6-8.1-5-1; 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); 45 IAC 3.1-1-1.

Taxpayers protest the imposition of Indiana individual income tax.

II. Tax Administration–Penalty and Interest.

Authority: IC § 6-8.1-10-1; IC § 6-8.1-10-2.1; 45 IAC 15-11-2.

Taxpayers protest the imposition of penalty and interest.

Taxpayers are a married couple residing in Indiana. As the result of a public information review, the Indiana Department of Revenue ("Department") determined that Taxpayers had received income in the years 2015 and 2016 and so owed Indiana income tax on that income. The Department therefore issued proposed assessments for income tax, penalty, and interest for those years. Taxpayers protested the proposed assessments. An administrative hearing was held and this Letter of Findings results. Further facts will be supplied as required.

I. Income Tax–Assessment.

Taxpayers protest the assessment of Indiana income tax for the years 2015 and 2016. The Department based its determination that additional income tax was due on the data it reviewed from publicly available information. That information suggested that Taxpayers had unreported income in those years. Taxpayers state that, while the publicly available information is correct, it is also incomplete. Specifically, Taxpayers state that, regardless of the source of the income at issue, Indiana income tax was properly reported and paid on that income in the correct reporting periods.

As a threshold issue, it is the Taxpayers' 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 [D]epartment'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 Dept. of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463, 466 (Ind. 2012); Lafayette Square Amoco, Inc. v. Indiana Dept. of State Revenue, 897 N.E.2d 289, 292 (Ind. Tax Ct. 2007). Consequently, a taxpayer is required to provide documentation explaining and supporting his or her challenge that the Department's position is wrong. Further, "[W]hen [courts] examine a statute that an agency is 'charged with enforcing . . . [courts] defer to the agency's reasonable interpretation of [the] statute even over an equally reasonable interpretation by another party.'" Dept. of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579, 583 (Ind. 2014). Thus, all interpretations of Indiana tax law contained within this decision, as well as the preceding audit, shall be entitled to deference.

First, the Department refers to IC § 6-3-2-1(a), which states:

Next, IC § 6-3-1-3.5 defines adjusted gross income as:

In the instant case, Taxpayers state that they reported the income at issue on their federal and state income tax returns. Also, they paid the appropriate amount of Indiana income tax to Indiana for the years 2015 and 2016. In support of this position, Taxpayers provided substantial documentation including, but not limited to, copies of their 2015 and 2016 Indiana and federal income tax returns and their federal tax return transcripts for those years.

After review of the documents and analysis supplied in the protest process, the Department agrees with Taxpayers' protest. While the publicly available information upon which the Department relied in reaching its determination that income tax was due for 2015 and 2016 was correct, it was also incomplete. Review of the full information successfully addresses the Department's original determination. Therefore, Taxpayers have met the burden imposed under IC § 6-8.1-5-1(c) and have proven the proposed assessments wrong.

Taxpayers' protest is sustained.

II. Tax Administration–Penalty and Interest.

Taxpayers requested that the Department abate the negligence penalty and interest. 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 a taxpayer establishes that its failure to pay a tax was due to reasonable cause and not due to negligence, as provided by 45 IAC 15-11-2(c). The taxpayer must demonstrate that it exercised ordinary business care in carrying out or failing to carry out a duty giving rise to the penalty. Reasonable cause is fact sensitive and will vary based on the facts of each individual case.

In this instance, Taxpayers have demonstrated that their actions were reasonable as described in 45 IAC 15-11- 2(c). As discussed in Issue I above, Taxpayers timely paid Indiana income tax on the income in question. This qualifies as reasonable. Regarding interest, under IC § 6-8.1-10-1(e), the Department is not permitted to waive interest. However, in this case there is no base income tax upon which to impose interest. Therefore, the imposition of interest is moot.

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

Taxpayers are sustained on Issue I regarding the imposition of income tax. Taxpayers are sustained on Issue II regarding the imposition of penalty and are also sustained regarding the imposition of interest since the imposition of interest is moot.

December 5, 2019