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 This document is effective on its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.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

The Department agreed with Agricultural Science business that it was entitled to claim a foreign source dividend deduction on its 2020 corporate income tax return; Agricultural Science company included a completed Schedule IT-20FSD with its 2020 return and the Department erred in finding that the schedule was incomplete.

I. Indiana Corporate Income Tax - Foreign Source Dividend Deduction.

Authority: IC § 6-3-2-12; 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); I.R.C. § 61(a)(7); Income Tax Information Bulletin 78 (January 2003)

Taxpayer argues that the Department erred in disallowing the Foreign Source Dividend Deduction (FSDD) claimed on Taxpayer's 2020 income tax return.

Taxpayer is an agricultural services company headquartered outside Indiana but conducting business in this state. Taxpayer routinely files Indiana corporate income tax returns and did so for the tax year 2020. The Indiana Department of Revenue ("Department") reviewed the return and, in a letter dated February14, 2022, assessed approximately $500,000 in additional tax, penalties, and interest. The Department explained:

Taxpayer disagreed with the assessment and submitted a protest to that effect. In its protest submission, Taxpayer explained:

An administrative hearing was scheduled in order to allow Taxpayer and its representatives an opportunity to further explain the basis for its protest and the reasons why Taxpayer was entitled to the FSDD. This Letter of Findings is based on the written protest and the explanations contained therein.

I. Indiana Corporate Income Tax - Foreign Source Dividend Deduction.

The issue is whether Taxpayer has met its burden of establishing that the information provided on its 2020 Schedule IT-20FSD was sufficient to establish that it was entitled to claim a FSDD.

As with any assessment of Indiana listed taxes, it is Taxpayer's responsibility to establish that the proposed assessments of tax, interest, and penalty are incorrect. As stated in IC § 6-8.1-5-1(c) and Indiana case law, "The notice of proposed assessment is prima facie evidence that the department's claim for the unpaid tax is valid, including during an action appealed to the tax court under this chapter. 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).

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 are entitled to deference.

Taxpayer argues that it was entitled to claim the FSDD in its 2020 Indiana return. At the federal level, such dividends are included in the definition of a corporation's "gross income." I.R.C. § 61(a)(7) provides:

(Emphasis added).

Indiana mirrors the federal provision as provided at IC § 6-3-2-12 which defines, in part, foreign source dividends.

Income Tax Information Bulletin 78 (January 2003) explains:

Taxpayer's IT-20FSD detailed dividends received from various foreign entities each of which is 100 percent owned by Taxpayer. However, the Department disallowed the deduction because it found that the information contained in "Column A" calling for the recipient's federal employer identification number ("FEIN") could not be verified.

In this case, the Department erred in denying the credit because Taxpayer here has met its burden of establishing that the information included in the IT-20FSD was sufficient for the Department to confirm and calculate the amount of the deduction.

Taxpayer's protest is sustained.

November 23, 2022