Taxpayer is engaged in the information technology and
professional services industries serving government and non-government entities
and files Indiana adjusted gross income tax returns reporting its Indiana
activity. As the result of an audit, the Indiana Department of Revenue
("Department") determined that Taxpayer had adjusted gross income tax
liabilities for 2006, 2007, and 2008 and issued proposed assessments for the
additional adjusted gross income tax, interest, and penalties for the 2006,
2007, and 2008 fiscal year end March 30 tax years.
...
Taxpayer protests the reclassification of income from the
sales of two of its subsidiaries. Taxpayer states that its main line of
business is providing information technology services and that it acquired
these two subsidiaries in a merger which occurred prior to the audit years. At
hearing, Taxpayer stated that this merger was undertaken to allow Taxpayer to
acquire the merged company's information technology service subsidiaries and
that it never intended to operate these two subsidiaries as part of its core
business. After the merger, Taxpayer continued to operate these two
subsidiaries. Taxpayer also asserts that the sale of the two subsidiaries in
question represent non-business income because the sales were not conducted as
part of Taxpayer's normal business operations. The Department notes that the
burden of proving a proposed assessment wrong rests with the person against
whom the proposed assessment is made, as provided by IC § 6-8.1-5-1(c).
...
During the hearing, Taxpayer was asked to provide
documentation–i.e., board minutes, merger agreements, press releases, etc–that
would support its assertions that Taxpayer never intended to operate these
subsidiaries as part of its business strategy and that these subsidiaries were
only operated until a buyer could be found. Taxpayer was also asked to provide
documentation and analysis that would establish that the sale was not necessary
or essential to its regular trade or business–i.e., the subsidiaries in
question were not acquired, managed, and disposed of by Taxpayer in a process
integral to Taxpayer's regular trade or business. However, Taxpayer did not
provide any documentation to supports its assertions. Therefore, Taxpayer has
failed to meet its burden under IC § 6-8.1-5-1(c) to establish that the sales
of the two subsidiaries in question did not meet either the transactional test
or the functional test as provided in May. In fact, the Department, in
researching publicly available information that Taxpayer had included with its
reports to the U.S. Securities and Exchange Commission, found that Taxpayer's
merger agreement did not mention these operations being discontinued but
discussed other areas where operations were to be discontinued. In these
reports, Taxpayer also stated that its decision to sell the two subsidiaries
was part of its business strategy because it would raise capital, allow it to
pay debts, and allow it to refocus its operations on what it considered its
core operations.
Alternatively, Taxpayer asserts if the income is properly
classified as business income, these items of business income should be
included in the apportionment factor as well. It appears that these income
amounts may not have been taken into account in Taxpayer's apportionment
factor. While under IC § 6-8.1-5-1(c) Taxpayer has not proven that the
assessment is wrong, Taxpayer has raised an issue which should be considered
during a supplemental audit. The audit division is requested to review the
audit report, to review the accompanying documentation, and to make whatever
adjustments it deems warranted.
...
Taxpayer claims that the audit failed to take into account
certain "RAR adjustments" in the calculation of its Indiana adjusted
gross income.
It appears that Taxpayer may be correct. While under IC §
6-8.1-5-1(c), Taxpayer has not proven that the assessment is wrong, Taxpayer
has raised an issue which should be considered during a supplemental audit. The
audit division is requested to review the audit report, to review the
accompanying documentation, to review the amended returns Taxpayer filed
reporting the RAR adjustments, and to make whatever adjustments it deems
warranted.
...
Taxpayer claims that the audit made a "mathematical
error" in the calculation of its Indiana apportioned income for fiscal
year end March 20, 2007, as noted on page 19 of the audit report.
It appears that a multiplication error occurred. While under
IC § 6-8.1-5-1(c), Taxpayer has not proven that the assessment is wrong,
Taxpayer has raised an issue which should be considered during a supplemental
audit. The audit division is requested to review the audit report, to review
the accompanying documentation, and to make whatever adjustments it deems
warranted.
...
In this case, Taxpayer incurred a deficiency which the
Department determined was due to negligence under 45 IAC 15-11-2(b),
and so was subject to a penalty under IC § 6-8.1-10-2.1(a). While Taxpayer was
denied on certain of its protest issues, it has affirmatively established that
the deficiency was due to reasonable cause and not due to negligence, as
required by 45 IAC 15-11-2(c).
The negligence penalty will be waived.
