Taxpayers, as husband and
wife, filed joint income tax returns for the 2009 and 2010 tax years. Husband
operated a home maintenance service company as a sole proprietorship and
reported the income on Schedule C with their federal income tax returns. The
Indiana Department of Revenue ("Department") conducted an audit of
Taxpayers' income tax returns and assessed additional income tax, interest, and
penalty for the tax years. The Department determined that Taxpayers had
underreported their taxable income.
...
Taxpayers disagreed with
the Department determination that Taxpayers had more income than Taxpayers
reported. Taxpayers assert that they did not know that when they sold personal
property that it counted as income and, therefore, did not keep the receipts or
documents for these transactions. Taxpayers state that they have kept good
records for their business and that they live more economically than the
average family of their size as reported in the Consumer Expenditure Survey.
While the Department did
use the Consumer Expenditure Survey during its investigation of Taxpayers, the
Department did not use it to make the assessment. The Department compared the
Taxpayer's reported income to the amount of expenditures that the Consumer
Expenditure Survey reported a family of Taxpayer's size would make in a year.
That comparison showed significant disparity between the amounts of income reported
by Taxpayers and the amount a taxpayer would have needed to earn to have met
their living expenditures for the year. Therefore, the Department decided to
investigate further and derive a method to account for and address this
disparity.
The Department applied the
"Cash T Method" to Taxpayers' available information to arrive at a
revised total audited income figure. Taxpayers' documentation presented during
the audit was used to determine the amount of Taxpayers' actual expenses for
the year ("actual expenses"). These actual expenses were compared to
the amounts of reported federal income, documented loans, and/or other reported
income ("reported income"). The difference between Taxpayers' actual
expenses and Taxpayers' reported income is the figure the Department determined
to be equal to the unreported income.
During the hearing,
Taxpayers' presented a check register with hand-written notations regarding the
transactions in the register. While the check register with hand-written
notations attempted to close the gap between Taxpayers' reported income and the
income determined by the audit, Taxpayers did not provide any additional
documentation to support either these handwritten notations or their position
regarding the underreporting of income.
A taxpayer has the
obligation to prepare a careful, methodical, and detailed factual presentation
of the evidence sufficient to refute the conclusions contained within the audit
report. In order to meet its burden, a taxpayer must "walk" the
Hearing Officer through each element of the taxpayer's proffered evidence;
Taxpayer does not meet its burden by presenting a check register with
hand-written notations, without invoices, receipts, or other supporting
documentation. The check register with hand-written notations, without more,
only serves as conclusory statements in the hope that the check register with
hand-written notations will speak for itself.
Taxpayers' check register
with hand-written notations and additional explanations proffered during the
hearing do not sufficiently refute the information or the results reached in
the Department's audit report. Pursuant to IC 6-8.1-5-1(c), all tax assessments are
presumed to be accurate, and the taxpayer bears the burden of proving that an
assessment is incorrect. Since Taxpayers failed to produce documentation that
demonstrates that the Department's assessment was incorrect, Taxpayers have
failed to meet their burden. Therefore, Taxpayers' protest is denied.
