Taxpayer is an Indiana homeowners association which was –
according to Taxpayer – a "non-profit domestic corporation" – from
2007 through 2011. At the conclusion of 2011, the Taxpayer was involuntarily
dissolved by the Indiana Secretary of State for failure to file a "Business
Entity Report." Upon application for reinstatement, the Indiana Department
of Revenue ("Department") requested that Taxpayer submit Indiana
corporate tax returns.
...
Taxpayer reported income on its tax returns but offset that
income by claiming expenses for "common grounds and assoc[iation]
welfare." The Department disallowed the claimed expenses.
Taxpayer argues that the assessment is simply the result of
its own error in filing the returns. Taxpayer argues that it had no taxable
"income" for the years at issue and that the proposed assessment is
attributable to its own errors on the Indiana returns.
In response to the proposed assessment, Taxpayer submitted
amended Indiana returns showing "zero" federal taxable income for
each of the years at issue. In addition, Taxpayer submitted corresponding
federal returns which do indeed show "zero" federal taxable income
for each year.
Taxpayer asks that the Department simply process the amended
("corrected") returns and adjust its state tax liability to reflect
those corrected returns.
...
Taxpayer's argument necessarily rests on establishing that it
has "zero" federal taxable income. The authority for that assertion
is found at I.R.C § 528(d) which states in relevant part:
Homeowners association taxable income defined.
(1) Taxable income defined.--For purposes of this section,
the homeowners association taxable income of any organization for any taxable
year is an amount equal to the excess (if any) of
(A) the gross income for the taxable year (excluding any
exempt function income), over
(B) the deductions allowed by this chapter which are
directly connected with the production of the gross income (excluding exempt
function income), computed with the modifications provided in paragraph (2).
In addition to the Indiana amended returns and the
corresponding federal returns, Taxpayer supplied copies of financial statements
purporting to establish that it correctly reported income and expenses on its
federal returns.
Taxpayer has met its burden of establishing that the
proposed assessment was erroneous and that the Indiana amended returns
correctly reflect the amount of taxable income reported on the federal returns.
