State, DuPont both get partial victories in appeal of assessments

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The Indiana Tax Court has granted partial summary judgment to the Indiana Department of State Revenue and a Delaware-based industrial, agricultural and manufacturing business after finding both parties erred in their filing and assessments of 2005 through 2007 tax returns.

After a 2009 audit into the 2005, 2006 and 2007 consolidated tax returns filed for E.I. DuPont De Nemours and Co. and its subsidiaries, the Indiana Department of State Revenue found DuPont had improperly reported net operating losses, interest expense deductions and a research and development expense reduction. Specifically, the audit found DuPont mischaracterized the 2001 sale of the DuPont Pharmaceuticals Company as non-business income and misreported interest expense deductions on loans DuPont received from DuPont Energy Co. and DuPont Global Operations Inc. in 1995, 1999 and 2005.

Accordingly, the revenue department reclassified the gain DuPont received from the sale of DPC as apportionable business income, eliminated the interest expense deductions on the three loans and eliminated a 2007 research and development expense deduction. Each of these adjustments increased DuPont’s adjusted gross income and also reduced the net operating losses the company could carry forward.

The adjustments led to the issuance of proposed assessments against DuPont for an additional $394,490 in liability in 2006 and $376,328 in 2007, plus interest. A $37,627 penalty was also assessed against DuPont for tax year 2007.

DuPont protested the proposed assessments, but the revenue department denied it, prompting the instant appeal in E.I. Dupont De Nemours and Company v. Indiana Department of State Revenue, 49T10-1307-TA-65. On appeal, DuPont claimed the three adjustments were improper, and both parties filed cross-motions for summary judgment.

Specifically, DuPont argued the department’s retroactive adjustments to net operating losses were improper under Indiana Code 6-8.1-5-2, which it claimed prohibited the department from making adjustments tax years before 2005 because those years were outside the statute of limitations. But in a Tuesday opinion, Indiana Tax Court Judge Martha Blood Wentworth disagreed with that reasoning and instead said the accuracy of the NOL deductions in 2005, 2006 and 2007 was contingent upon the accuracy of DuPont’s 2001 NOL calculation.

Thus, because the department’s audits were reviews of accuracy, “it was incumbent upon the Department to examine and perhaps even recalculate the NOL DuPont reported in 2001,” Wentworth said. Further, I.C. 6-8.1-5-2(a) prohibits the issuance of a proposed assessment more than three years after a return is filed, but is silent on whether adjustments may be made in that timeframe, she said.

However, Wentworth disagreed with the reclassification of DuPont’s gains from the 2001 sale of DPC as business income, finding the company’s sale of its subsidiaries was not its regular trade or business, DPC was not an integral piece of DuPont’s business and DuPont and DPC were not unitary.

Wentworth also disagreed with the department’s disallowance of DuPont’s interest expense deductions in 2006 and 2007, finding the subsidiaries were “amply funded” to issue the loans to DuPont and that the interest rates on the loans qualified under the “arm’s-length” standard, thus prohibiting the department from denying the interest expense deductions under I.C. 6-3-2-2(m).

Finally, Wentworth determined DuPont’s 2007 research and development deduction was improper because “Indiana does not provide a specific deduction from the adjustment gross income tax base for R&D expenses” and because DuPont’s choice to take a federal R&D expense credit meant its I.R.C. section 63 taxable income could not include a deduction for the same expenses taken as a federal credit. However, the judge struck down the imposition of a penalty for the 2007 tax year, finding DuPont’s “’differences in its interpretation of the applicable Indiana tax law’ were reasonably based.”

Summary judgment was granted to DuPont on the issues of apportionable business income, intercompany interest deductions and the 2007 penalty, while summary judgment was granted to the department on the issues of the retroactive adjustments and the research and development deduction.


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  1. He TIL team,please zap this comment too since it was merely marking a scammer and not reflecting on the story. Thanks, happy Monday, keep up the fine work.

  2. You just need my social security number sent to your Gmail account to process then loan, right? Beware scammers indeed.

  3. The appellate court just said doctors can be sued for reporting child abuse. The most dangerous form of child abuse with the highest mortality rate of any form of child abuse (between 6% and 9% according to the below listed studies). Now doctors will be far less likely to report this form of dangerous child abuse in Indiana. If you want to know what this is, google the names Lacey Spears, Julie Conley (and look at what happened when uninformed judges returned that child against medical advice), Hope Ybarra, and Dixie Blanchard. Here is some really good reporting on what this allegation was: Here are the two research papers: 25% of sibling are dead in that second study. 25%!!! Unbelievable ruling. Chilling. Wrong.

  4. Mr. Levin says that the BMV engaged in misconduct--that the BMV (or, rather, someone in the BMV) knew Indiana motorists were being overcharged fees but did nothing to correct the situation. Such misconduct, whether engaged in by one individual or by a group, is called theft (defined as knowingly or intentionally exerting unauthorized control over the property of another person with the intent to deprive the other person of the property's value or use). Theft is a crime in Indiana (as it still is in most of the civilized world). One wonders, then, why there have been no criminal prosecutions of BMV officials for this theft? Government misconduct doesn't occur in a vacuum. An individual who works for or oversees a government agency is responsible for the misconduct. In this instance, somebody (or somebodies) with the BMV, at some time, knew Indiana motorists were being overcharged. What's more, this person (or these people), even after having the error of their ways pointed out to them, did nothing to fix the problem. Instead, the overcharges continued. Thus, the taxpayers of Indiana are also on the hook for the millions of dollars in attorneys fees (for both sides; the BMV didn't see fit to avail itself of the services of a lawyer employed by the state government) that had to be spent in order to finally convince the BMV that stealing money from Indiana motorists was a bad thing. Given that the BMV official(s) responsible for this crime continued their misconduct, covered it up, and never did anything until the agency reached an agreeable settlement, it seems the statute of limitations for prosecuting these folks has not yet run. I hope our Attorney General is paying attention to this fiasco and is seriously considering prosecution. Indiana, the state that works . . . for thieves.

  5. I'm glad that attorney Carl Hayes, who represented the BMV in this case, is able to say that his client "is pleased to have resolved the issue". Everyone makes mistakes, even bureaucratic behemoths like Indiana's BMV. So to some extent we need to be forgiving of such mistakes. But when those mistakes are going to cost Indiana taxpayers millions of dollars to rectify (because neither plaintiff's counsel nor Mr. Hayes gave freely of their services, and the BMV, being a state-funded agency, relies on taxpayer dollars to pay these attorneys their fees), the agency doesn't have a right to feel "pleased to have resolved the issue". One is left wondering why the BMV feels so pleased with this resolution? The magnitude of the agency's overcharges might suggest to some that, perhaps, these errors were more than mere oversight. Could this be why the agency is so "pleased" with this resolution? Will Indiana motorists ever be assured that the culture of incompetence (if not worse) that the BMV seems to have fostered is no longer the status quo? Or will even more "overcharges" and lawsuits result? It's fairly obvious who is really "pleased to have resolved the issue", and it's not Indiana's taxpayers who are on the hook for the legal fees generated in these cases.