Indiana – Factoring fee expense disallowed when circular flow of funds exists

December 2013


In a recent Letter of Findings, an Indiana corporate income taxpayer was required to add back certain factoring fee expenses when calculating its corporate income tax. The Letter of Findings concluded that the related finance entity returned such factoring fees to the taxpayer in the form of tax free dividends and/or intercompany loans. The circular flow of funds between the taxpayer and the finance entity supported the Department’s determination to disallow a portion of the factoring fee expenses in order to fairly reflect the taxpayer’s Indiana income.

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