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Judge rules in favor of Caterpillar in tax deduction dispute

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Indiana Tax Judge Martha Wentworth granted summary judgment to Caterpillar Inc. Thursday, finding the company’s foreign source dividends are deductible in calculating its state net operating losses available for carryover as a deduction from taxable income in future years.

In Caterpillar, Inc. v. Indiana Department of State Revenue, 49T10-0812-TA-70, for tax years 2000 through 2003, when Caterpillar calculated its Indiana adjusted gross income tax liability for those years, it started with its federal taxable income, which did not include its U.S. source dividends under I.R.C. § 243(a). Caterpillar’s federal taxable income did include, however, its foreign source dividends. As a result, Caterpillar took the foreign source dividend deduction under I.C. 6-3-2-12 and reported Indiana net operating losses on a separate company basis in each of those years, referred to in the opinion as the loss years.

The company also amended its returns for 1996 through 1999 to carryback the unused Indiana NOLs reported on its 2000 through 2002 loss year returns. Caterpillar sought a refund for overpaid taxes.

Both sides filed for summary judgment. The Department of Revenue claimed that Caterpillar was not entitled to deduct its FSDs in calculating its Indiana NOLs because the NOL statute neither expressly incorporates the FSD statute nor specifically references deducting FSDs as a modification in I.C. 6-3-1-3.5. Caterpillar contended that the method of calculating Indiana NOLs necessarily triggered the statutory deduction of FSDs because its FSD income was included in its adjusted gross income in calculating its Indiana NOL for 2000 through 2003.

Wentworth determined that “adjusted gross income” is a component of the Indiana NOL Statute and that Caterpillar’s FSD income is included in that adjusted gross income.

“The plain language of the Indiana NOL Statute itself requires the federal NOL to be modified under Indiana Code § 6-3-1-3.5; thus, the resulting calculations contain ‘adjusted gross income.’ Consequently, even though the term ‘adjusted gross income’ is not used in the Indiana NOL Statute, the components of the NOL calculation establish its presence,” she wrote.

“Federal taxable income is gross income minus the deductions allowed by the Internal Revenue Code. Caterpillar’s gross income (‘all income from whatever source derived’) included its FSD income. The facts further reveal that in calculating its federal taxable income for the Loss Years, Caterpillar did not deduct its FSDs from its gross income under I.R.C. § 245,” she continued. “Finally, the statutory adjustments delineated in Indiana Code § 6-3-1-3.5 did not require the subtraction of FSD income. As a result, Caterpillar’s FSDs were included in its federal taxable income, in its federal NOL, and in its adjusted gross income within the Indiana NOL Statute. Caterpillar was therefore entitled to deduct its FSD income under Indiana Code § 6-3-2-12 in calculating its Indiana NOLs.”

 

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  2. Unlike the federal judge who refused to protect me, the Virginia State Bar gave me a hearing. After the hearing, the Virginia State Bar refused to discipline me. VSB said that attacking me with the court ADA coordinator had, " all the grace and charm of a drive-by shooting." One does wonder why the VSB was able to have a hearing and come to that conclusion, but the federal judge in Indiana slammed the door of the courthouse in my face.

  3. I agree. My husband has almost the exact same situation. Age states and all.

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  5. Andrew, if what you report is true, then it certainly is newsworthy. If what you report is false, then it certainly is newsworthy. Any journalists reading along??? And that same Coordinator blew me up real good as well, even destroying evidence to get the ordered wetwork done. There is a story here, if any have the moxie to go for it. Search ADA here for just some of my experiences with the court's junk yard dog. https://www.scribd.com/document/299040062/Brown-ind-Bar-memo-Pet-cert Yep, drive by shootings. The lawyers of the Old Dominion got that right. Career executions lacking any real semblance of due process. It is the ISC way ... under the bad shepard's leadership ... and a compliant, silent, boot-licking fifth estate.

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