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 This document is effective as of its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.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

Individual provided sufficient documentation showing that she was an innocent spouse and had no knowledge of her deceased spouse's actions.

I. Individual Income Tax - Innocent Spouse.

Authority: IC 6-8.1-5-1; IC § 6-3-4-2; IRC § 6015; 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); Dept. of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579, (Ind. 2014); IRS Form 8857.

Taxpayer is an individual and claims to be an innocent spouse after discovering her late husband withdrew large sums of money from their joint retirement account. The Indiana Department of Revenue ("Department") issued a proposed income tax assessment for tax year 2016 based on the amount withdrawn. Taxpayer protested the proposed assessments. A hearing was conducted and this Letter of Finding results. Additional facts will be provided, as necessary.

I. Individual Income Tax - Innocent Spouse.

On October 23, 2017 Taxpayer, filed a 2016 Indiana Tax Return jointly on behalf of her and her deceased husband ("Husband"). Husband passed away in 2016. The Department discovered a discrepancy with Taxpayers' Federal return and Taxpayers' Indiana return. The Department assessed Taxpayers on November 22, 2019 and Taxpayer protested on January 28, 2020.

Taxpayer claims that she is an innocent spouse because Husband made large withdrawals during the 2016 tax year, from their joint retirement accounts and gave the money to another individual. Taxpayer states that Husband forged her signature on the documents to make those withdrawals. Taxpayer explains that she was unaware of and uninvolved in Husband's actions. Moreover, because she was unaware, she could not have reported the income.

As a threshold issue, it is 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 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, 867 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 shall be entitled to deference.

Central to this issue is IC § 6-3-4-2, which provides:

(Emphasis added).

Additionally, I.R.C § 6015 provides the following:

Taxpayer provided documentation including her W-2s, IN-40SP Innocent Spouse Worksheet, case law, Indiana Innocent Spouse Relief Form 8857, and documents showing the difference between her signature and the purported forged signature. Taxpayer's Exhibits D and E are copies of bank signature cards, which look entirely different from and predate Exhibit C Taxpayer's signature examples from IRS documents, which is the document Taxpayer contends Husband forged. The two signatures are plainly different.

Taxpayer cites IC § 6-3-4-2(d) as applicable in this protest because Taxpayer filed a joint return. IC § 6-3-4-2(d) explains that where a husband and wife file a joint return, one spouse will have no liability for the tax imposed upon the income of the other spouse. Taxpayer argues that this is the case here. Taxpayer claims to be an innocent spouse who should have no liability for her deceased husband's actions.

I.R.C § 6015(b) provides the process for Taxpayer's to seek relief. First Taxpayer filed a joint return for the taxable year. Additionally, in this case there is an understatement of tax attributable to Husband. Taxpayer timely filed a joint return according to the information that she was aware of. The forged signatures and withdrawals were unknown to Taxpayer at the time of filing. Thus, they were not included on the joint return and she is not liable for income tax on those amounts since she is an innocent spouse according to statues and I.R.C. Taxpayer signed and timely filed the return establishing that she had no reason to know that there was such an understatement. In this case, the Department is convinced that Wife should be relieved of the liability based on I.R.C § 6015(b) and IC § 6-3-4-2.

Taxpayer's protest sustained.

September 15, 2020