Step 1: Identifying the form of the equation.
The given differential equation is of the form:
\[
(1 + x^2) \, dt = \left( \tan^{-1} x - t \right) \, dx
\]
We can rewrite this as:
\[
\frac{dt}{dx} + t = \tan^{-1} x
\]
This is a first-order linear differential equation of the form:
\[
\frac{dy}{dx} + P(x)y = Q(x)
\]
where \( P(x) = -1 \) and \( Q(x) = \tan^{-1} x \).
Step 2: Finding the integrating factor.
The integrating factor \( \mu(x) \) is given by:
\[
\mu(x) = e^{\int P(x) dx}
\]
In this case, \( P(x) = -1 \), so the integrating factor is:
\[
\mu(x) = e^{\int -1 \, dx} = e^{-\tan^{-1} x}
\]
Thus, the correct integrating factor is \( e^{\tan^{-1} x} \).
Step 3: Conclusion.
Therefore, the integrating factor is \( e^{\tan^{-1} x} \), which makes option (D) the correct answer.