Taxpayer is an individual who is one of the shareholders of an Indiana S corporation. The S corporation owns two convenience store locations that are attached to gas stations. The S corporation is responsible for the gasoline sales at location one, but a separate gasoline company is responsible for the gasoline sales at location two. The Indiana Department of Revenue ("Department") performed sales and income tax audits of the S corporation for the 2009, 2010, and 2011 tax years. As a shareholder of the S corporation, those income tax assessments flow through to Taxpayer. The Department reviewed the S corporation's business records. The Department determined that the S corporation's records were inadequate. Taxpayer did not have daily cash register Z-tapes, original sales records, expense reports, and/or monthly sales recaps.
As a result of the Department's audit, the Department issued proposed assessments of additional sales tax based on the "best information available." The Department determined that Taxpayer had not collected and/or reported the proper amount of sales tax on its sales of diesel fuel, gasoline, and convenience store items. Pursuant to IC § 6-8.1-5-1 and 45 IAC 2.2-6-8 , sales tax was assessed on these additional taxable sales. The S corporation protested the sales tax assessment. For further information relating to the sales tax assessment, please refer to Letter of Findings 04-20130028 in which the S Corporation was denied in part and sustained in part subject to the results of a supplemental audit.
The Department also made adjustments to the S corporation's adjusted gross income based upon the additional taxable sales adjustments. Since these income tax assessments flow through to Taxpayer as a shareholder in the S corporation, the Department issued proposed assessments to Taxpayer for the additional adjusted gross income tax on his share of the S corporation income, as well as penalty and interest. Taxpayer protested the income tax assessments pending resolution of the related sales tax investigation (See Letter of Findings 04-20130028).
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Taxpayer was assessed additional income tax based upon the adjustments made to the S corporation's adjusted gross income from the "additional taxable sales" determination made in the S corporation's sales and use tax audit. The S corporation protested the sales tax assessment. Please refer to Letter of Findings 04-20130028 for further information relating to the S corporation's sales tax protest. Since the S corporation's protest was denied in part and sustained in part subject to the results of a supplemental audit, the amount of "additional taxable sales" may be adjusted by the results of the supplemental audit. If the "additional taxable sales" in the S corporation's sales tax audit are adjusted by the results of the supplemental audit, then the "additional taxable sales" in the S corporation's income tax audit should also be adjusted.
Accordingly, Taxpayer's protest of the imposition of additional individual income tax–based upon the S corporation's additional income from the "additional taxable sales" determined in the audit–is also sustained subject to the results of the S corporation's sales tax supplemental audit. However, Taxpayer's protest is denied to the extent that the supplemental audit of the additional documentation does not result in the audit division making an adjustment to the "additional taxable sales."
