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 This document is effective on its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.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

Individual failed to provide sufficient documentation and reasoning to prove that she did not claim losses three years in a row within a five-year period. Therefore, Individual's activities did not qualify as an activity engaged in for profit and so did not qualify for a claimed deduction.

I. Individual Income Tax - Loss deduction.

Authority: IC § 6-3-1-3.5; IC § 6-8.1-5-1; 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); I.R.C. § 183; IRC § 183: Activities Not Engaged in For Profit (ATG), https://www.irs.gov/pub/irs-utl/irc183activitiesnotengagedinforprofit.pdf (Last visited on December 14, 2020).

Taxpayer protests the Department's assessment.

Taxpayer is an Indiana resident who is a subcontractor for an Amish company. As the result of a records comparison with the Internal Revenue Service ("IRS"), the Indiana Department of Revenue ("Department") found that Taxpayer's federal-reported adjusted gross income did not match the Indiana-reported adjusted gross income tax. The Department therefore issued a proposed assessment for tax on the difference between the two reported adjusted gross income amounts. Taxpayer protested the assessment, the Department held a hearing, and this Letter of Findings results. Additional facts will be provided, as necessary.

I. Individual Income Tax - Loss deduction.

Taxpayer is a subcontractor for an Amish company. Taxpayer claimed a deduction for not profiting from her business in 2017. However, the IRS denied that deduction and assessed Taxpayer since she claimed the deduction three years in row and thus the IRS does not consider her business an activity engaged in for profit. The Department, because of a records comparison, then assessed Taxpayer for denied deduction amount.

IC § 6-3-1-3.5(a) provides the starting point to determine the taxpayer's taxable income and to calculate what would be their Indiana income tax after applying certain additions and subtractions to that starting point.

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 taxes 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.

I.R.C. § 183 provides:

I.R.C. § 183 generally limits deductions, in the case of an activity engaged in by a taxpayer if the activity is not engaged in for profit. IRC § 183: Activities Not Engaged in For Profit (ATG), p 2. The determination of whether an activity is an activity not engaged in for profit is a factual determination. Id. Neither the Code nor the Regulations provide an absolute definition. Id. They instead serve to provide guidance in formulating the facts necessary to determine whether an activity is a not-for-profit activity. Id.

Taxpayer provided returns from 2015-2017. Those returns showed that Taxpayer claimed losses in each one of those years. I.R.C. § 183(d) provides that "[I]f the gross income derived from an activity for 3 or more of the taxable years in the period of 5 consecutive taxable years. . . such activity shall be presumed for purposes of this chapter for such taxable year to be an activity engaged in for profit." Thus, the opposite is true. If Taxpayer claimed a loss for three or more of the taxable years in the period of 5 consecutive taxable years, such activity is not engaged in for profit. Taxpayer failed to provide the Department with evidence to the contrary. In fact, Taxpayer confirmed the IRS's ruling by providing documentation in which claimed loss is in tax years 2015, 2016, and 2017. Under IC § 6-8.1-5-1(c), it is the responsibility of Taxpayer to prove the Department's assessment wrong. Finally, the fact remains that Taxpayer's federal adjusted gross income was adjusted by the IRS at the federal level and Indiana bases its adjusted gross income off of that federally determined amount. Taxpayer has not established that the federal amount has been readjusted to match the amount reported to Indiana. Taxpayer failed to meet its burden under IC § 6-8.1-5-1(c).

Taxpayers' protest is denied.

December 22, 2020