Wednesday, August 6, 2014

The End...

I really appreciate all the readers over the year, but other commitments have become too burdensome.  Therefore, I am reluctantly ending the Indiana Tax Reporter.  I wish all my fellow tax wonks best of luck in the future and know that I will miss my daily tax fix!

Board Finds Taxpayer's 4-H Project Fails to Make Property "Agricultural"

Excerpts of the Board's Determination follow:

22. In this case, the Petitioners contend that a small portion of the subject property’s land should be classified as agricultural rather than residential. The statutory and regulatory scheme for assessing agricultural land requires the Board to treat challenges to those assessments differently than other assessment challenges. Indeed, the Indiana General Assembly directed the DLGF to establish rules for determining the true tax value of agricultural land. Ind. Code § 6-1.1-4-13(b). The DLGF, in turn, established a base rate to be used in assessing agricultural land across the State of Indiana.

23. Indiana Code § 6-1.1-4-13 states, however, that “[i]n assessing or reassessing land, the land shall be assessed as agricultural only when it is devoted to agricultural use.” Ind. Code § 6-1.1-4-13(a) (emphasis added). The word “devote” means “to attach the attention or center of activities of (oneself) wholly or chiefly on a specified object, field, or objective.” WEBSTER’S THIRD NEW INTERNATIONAL UNABRIDGED DICTIONARY AT 620.

24. Here, the Petitioners’ walking and exercising of animals raised for 4-H fair projects clearly fall short of a devotion to agricultural use. They failed to offer any evidence that their livelihood was in any way dependent on farming or the agricultural use of the subject property. The Petitioners also failed to offer any evidence as to how much time was devoted to walking and exercising the animals on the land. Further, they failed to offer evidence that their activities were “wholly or chiefly” attached to that field. The Petitioners even acknowledged that the livestock was not raised on this property; this property was only used to walk and exercise a few animals. The Board therefore finds that the Petitioners failed to raise a prima facie case that the property’s classification as residential excess acreage is in error.

Monday, August 4, 2014

Board Finds One Appeal Untimely and One Not Yet Before it; Taxpayer Failed to Proved Assessment Incorrect in Remaining Appeal

Excerpts of the Board's Determination follow:

34. For assessment year 2009, Petitioner filed his Form 130 with the PTABOA on February 20, 2009. There is nothing in the record to indicate the PTABOA acted on his request for review of the 2009 assessment. If a PTABOA does not act on a petition for review of assessment by the local assessing official within 180 days, the taxpayer can file his petition directly with the Board. I.C. § 6-1.1-15-1. The Form 131 filed with the Board listed the 2009 assessment of the subject property as being under appeal. The Board finds that since the PTABOA failed to timely respond to the Form 130 filed by Petitioner on February 20, 2009, the 2009 assessment of the subject property is properly before the Board.

35. For assessment year 2010, Petitioner filed his Form 131 on April 16, 2012, 59 days after the Notification of Final Assessment Determination was issued on February 17, 2012. In order to obtain a review by the Board, a party must file their Form 131 not later than forty-five days after the date of the notice of the determination by the PTABOA. Petitioner testified that he might have been out of the country or undergoing a medical procedure at that time that might have delayed him from filing the petition earlier. Petitioner offered no documentation or specific testimony to that effect. Petitioner’s appeal of the 2010 assessment is dismissed as untimely.

36. For assessment year 2011, Petitioner filed his Form 131 with the Board prior to filing his Form 130 with the PTABOA. Because he failed to file a separate petition for that tax year, Petitioner’s appeal is not properly before the Board. However, as more than 180 days have passed since Petitioner filed his Form 130 for 2011, and the PTABOA has not taken action, Petitioner may file a separate petition for 2011.

37. Thus, only the 2009 assessment is before the Board. Per the Property Record Card, in 2009 the subject property was assessed at $958,000 for the improvements and $63,200 for the land for a total assessment of $1,021,200. Resp’t Ex. 3.

38. An appraisal completed in conformance with the Uniform Standards of Professional Appraisal Practice is often the most effective method to rebut the presumption that an assessment is correct. O’Donnell v. Dep’t of Local Gov’t Fin. 854 N.E.2d 90, 94 (Ind. Tax Ct. 2006); Kooshtard Property VI, LLC v. White River Township Assessor, 836 N.E.2d 501, 506 N.6 (Ind. Tax Court 2005). Petitioner’s appraiser offered no opinion of value and no opinion of completeness for the property in 2009. Krause testimony.

39. Petitioner presented an analysis of three properties offered as comparable to the subject property. Pet’r Ex. A-1. The grid shows the subject property is .14 acres in size and the properties listed as comparable range in size from .31 acres to 7.32 acres. Petitioner’s comparison of the subject property with the comparable properties offered lacks probative value. A party offering such evidence must show that the properties are generally comparable to each other, and also must show how any relevant differences affect the relative values.  See Long, Supra 470-471 (holding that, in applying the sales-comparison approach, the taxpayers must explain how any differences between the properties affect the properties’ relative market value-in-use). Petitioner failed to explain or account for any differences in the properties, and how those differences affect the respective values.

40. Petitioner also presented a document titled “Calculation of Land Value for Dixie Way North Area” that ostensibly compares the value of the subject property’s land with the land values of three motels ranging in size from four to eight acres and ranging in value from $91,800 to $321,600. Pet’r Ex. B. Again, Petitioner failed to explain or account for any differences in the parcels and how those differences compare with the land of the subject property. See Long, Supra 470-471. Petitioner’s contentions as to the value of the subject property consist largely of conclusory statements. Conclusory statements do not constitute probative evidence. Whitley Products, Inc. v. State Bd. of Tax Comm’rs, 704 N.E.2d 1113, 1119 (Ind. Tax Ct. 1998. Petitioner has failed to present a prima facie case for reduction of the assessment.

41. Respondent conceded at the hearing that the improvements to the subject property were only 60% complete rather than 100% complete as Respondent had previously determined. Respondent also testified that, using the appropriate tax tables, the total cost of the improvements to Petitioner’s property is $903,833. Respondent calculates that 60% of $903,833 results in an assessment of $543,300 for the improvements for 2009. Mandrici testimony.

Friday, August 1, 2014

Three Cases Filed in Tax Court in July

07/17/14Princess City Plaza LLC v. St. Joseph Co. AssessorN/A71T10-1406-TA-49
07/17/14Indiana Finance Financial Corp. v. Ind. Dep't of State RevenueN/A49T10-1407-TA-47
07/17/14Indiana Finance Co. v. Ind. Dep't of State RevenueN/A49T10-1407-TA-48

Revenue Finds Taxpayer Failed to Prove Corporation's Payments were not Distributions

Excerpts of Revenue's Determination follow:

Taxpayers, husband and wife, are two shareholders of an Indiana S corporation ("Corporation"). Corporation's gain or loss passes through to Taxpayers, and Taxpayers report the income or deduct the loss in their federal and Indiana individual income tax returns according to I.R.C. § 1366 and IC § 6-3-1-3.5.

In 2013, the Indiana Department of Revenue ("Department") conducted a Sales/Use Tax audit of Corporation's business records. Pursuant to the audit, the Department found that Corporation made various payments to Taxpayers to cover Taxpayers' personal expenditures. Thus, the Department conducted a separate investigation concerning Taxpayers' individual income tax on those specific payments. As a result of the investigation, the Department determined that Corporation made additional distributions to Taxpayers. Those additional distributions reduced Taxpayers' stock basis in Corporation below zero, and, as a result, created additional taxable income that was not reported on Taxpayers' individual income tax returns for the tax years 2009 and 2010 ("Tax Years at Issue"). The Department thus assessed Taxpayers additional income tax, interest, negligence penalty and underpayment penalty.

Taxpayers, to the contrary, claimed that the Department's assessments were overstated.

In this instance, Taxpayers asserted that the Department's assessments were overstated because not all the listed payments were paid to Taxpayers for their personal expenses. In addition to copies of Corporation's unaudited qualified Accountant's Compilation Report for the Tax Years at issue ("Report"), Taxpayers submitted copies of Corporation's bank statements for its Money Market Account 101XXXXX for the Tax Years at Issue to support their protest.

Upon reviewing Taxpayers' supporting documentation, however, the Department is not able to agree that the Department's assessments were overstated. Specifically, in this instance, Taxpayers stated that since Corporation "is a small family-owned business, the owners [i.e., Taxpayers] put in money and take out money as needed all the time." Thus, there is no dispute that, during the Tax Years at Issue, Corporation made various distributions to Taxpayers when Taxpayers took out money from Corporation for their personal expenses. Also, there is no dispute as to the shareholder's basis established in Corporation's 1120S returns for the Tax Years at Issue for each of Corporation's shareholders, including Taxpayers. Rather, the Department's investigation report listed various payments made from Corporation to Taxpayers for their personal expenses, and determined that these payments, as additional distributions to Taxpayers, reduced both Taxpayers' basis in Corporation below zero. As a result, the Department's investigation report concluded that these distributions created additional taxable income to Taxpayers because the basis could not be below zero.

In this instance, Taxpayers made various statements disputing the Department's assessments in their July 23, 2013, protest letters. For example, the Department determined that Corporation made a distribution to Taxpayers, in the amount of $19,302.24, in December 2009. Taxpayers asserted that "Accounts Receivable Shareholders – 55[percent] shareholder percentage in the amount of $19,302.24 was paid back in the tax year 2010." However, Taxpayers' documentation failed to demonstrate that this payment was not distribution to Taxpayers for the Tax Years at Issue. Specifically, Corporation's unaudited qualified Report only contained Corporation's "Year-End Financial Statements," which included summaries of "Statement of Assets, Liabilities, & Equity," "Statement of Related Earnings," and "Statement of Revenue and Expenses" for the Tax Years at Issue. Corporation's Report further stated for the accountant who compiled the information for Corporation, a disclaimer, that he has "not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or provide any assurance about whether the financial statements are in accordance with the income tax basis of accounting." Additionally, Corporation's monthly bank statements simply contained monthly summaries of check deposits, withdraws, and account balances concerning its Money Market Account 101XXXXX. Taxpayers' documentation neither explained which of Corporation's payment or payments were paid to Taxpayers for their personal expenses, nor those payments which would not have been considered as distributions to Taxpayers.

As mentioned earlier, Taxpayers bear the burden of proving that the Department's assessments are wrong and are required to provide documentation explaining and supporting their protest. Given the totality of the circumstances, in the absence of other supporting documentation, the Department is not able to agree that Taxpayers meet their burden of proof demonstrating that the Department's assessments were not correct.

In short, Taxpayers' protest is respectfully denied.

IBJ Reports State Eases into Rollout of Software in Tax Fix

From the Indianapolis Business Journal:

The Indiana Department of Revenue is five to seven years from replacing the 1990s software that processes the bulk of the state’s tax dollars and that auditors cited in the wake of massive accounting errors.

Auditors who reviewed the DOR in 2012 said antiquated, piecemeal technology contributed to the two mistakes, together worth a half billion dollars, and recommended that the state adopt an integrated tax system. Revenue Commissioner Mike Alley said it’s too risky to move more than $17 billion in tax collections to a single system in one leap.

“If something goes awry, all [of a] sudden you’ve lost the capability of collecting revenue for the state of Indiana,” Alley said.
After spending two years focused on people and processes, Alley said, the department is “dipping a toe” into new software with a small pilot program this year. The DOR will use software by Massachusetts-based Revenue Sources Inc., which specializes in state governments, to handle three specialty taxes. Revenue Sources Inc. is also providing audit-management software, and the department expects to spend a total of $6.56 million.

If the company’s product works well, the DOR might choose to buy it, or some other off-the-shelf software, to handle everything. Next year, the department will conduct a study of its options, which could also include a custom-built system.

A banker appointed by former Gov. Mitch Daniels in the wake of the accounting crisis, Alley hopes that when the time comes for a major software purchase, the DOR will have generated enough additional revenue to pay for it.

Equipped with better report-generating tools, the DOR’s delinquent-accounts team boosted collections of overdue taxes 48 percent, to $260.9 million, in the fiscal year that ended June 30

Revenue Withdraws Notice of Intent to Adopt Rule Concerning Death Taxes


Notice of Withdrawal
LSA Document #14-144

LSA Document #14-144, posted at 20140514-IR-045140144NIA, is withdrawn.

Parties Agreed on Property's Value, but Board Makes No Finding On Whether Value Rolls Forward As No Appeal on Later Years was Before it

Excerpts of the Board's Determination follow:

A. Summary of Rosetta’s case

13. The subject property contains a building that was constructed as a freight terminal in 1992. The property sold for $290,000 on May 17, 2010.

14. Rosetta hired Michelle Farrington, an Indiana Licensed General Appraiser, to appraise the property in connection with Rosetta’s appeal. Farrington used the sales-comparison and income approaches to analyze the property’s value. Based on those approaches, she valued the property at $500,000 as of January 1, 2007. Farrington certified that she prepared her appraisal in conformance with the Uniform Standards of Professional Appraisal Practice. Farrington testimony; Pet’r Ex. 6.4

15. Rosetta asked for an assessment of $500,000 in accordance with Farrington’s appraisal. Rosetta further argued that the $500,000 assessment should carry forward to 2009 and 2010, because the Assessor had assessed the property for the same amount ($1,014,400) in all three years. For support, Rosetta pointed to Ind. Code § 6-1.1-15-1(e), which provides, in relevant part: “A change in an assessment made as a result of a notice for review filed by a taxpayer… remains in effect from the assessment date for which the change is made until the next assessment date for which the assessment is changed under this article.”

16. The Assessor is wrong in claiming that Rosetta’s voluntary withdrawal of its appeal for 2009 operated as a waiver of its claim that any change stemming from this appeal should carry forward to 2009 and 2010. Rosetta’s withdrawal of its Form 131 petition for 2009 is irrelevant to the question of whether a decision by the Board reducing the 2008 assessment carries forward. Bickel argument.

B. Summary of the Assessor’s case

17. Based on Farrington’s appraisal, the Assessor agrees that the subject property’s assessment for 2008 should be reduced to $500,000. Agostino argument.

18. The Assessor, however, disagrees with Rosetta’s claim that the change for 2008 carries forward to 2009 and 2010. Rosetta withdrew its 2009 appeal, explaining: “we have since learned that the appeal was intended to be only for the 2008 assessment….” Bd. Ex. A. The doctrines of waiver and estoppel therefore preclude Rosetta from claiming that the reduction for 2008 should carry forward. Agostino argument.


19. Through Farrington’s appraisal, Rosetta offered probative evidence that the subject property’s true tax value for the 2008 assessment was $500,000. The Assessor agreed. Rosetta is therefore entitled to have the property’s March 1, 2008 assessment reduced to $500,000.

20. Although Rosetta argued that the 2008 assessment should carry forward to 2009 and 2010, those assessments are not before the Board in this appeal. The Board therefore makes no finding on that issue.