Taxpayer is an Indiana company, which has two (2) accounts
with the Indiana Department of Revenue ("Department") for the
purposes of withholding state income tax: the 001 account for its employees and
the 002 account for its nonresident partners. For the 001 account, Taxpayer
files its returns monthly. For the 002 account, Taxpayer files its returns
annually.
Beginning January 2010, Taxpayer employed a payroll service
provider to prepare its withholding tax returns. In 2012, after an internal
review, the service provider changed Taxpayer's filing frequency of the 001
account from monthly to annually. As a result, Taxpayer did not file the
required monthly withholding returns for January, February, March, and April
2012.
In June, the Department assessed Taxpayer based on the best
information available ("BIA assessments") within the Department's
records. Upon receiving the Department's proposed assessments, Taxpayer's
service provider promptly filed the required monthly returns and remitted the
tax due; however, Taxpayer requested that the Department abate the statutory
interest and negligence penalty.
...
Pursuant to IC § 6-8.1-10-1(e), the Department does not have
the authority to waive the interest.
...
In this instance, the Department did not change Taxpayer's
filing frequency. Rather, Taxpayer's service provider changed Taxpayer's filing
frequency and did not file the required monthly returns until the Department
issued the BIA assessments in June 2012. The service provider explained that it
was an error attributed to its internal review concerning Taxpayer accounts. Nonetheless,
the service provider claimed that the Department should abate the penalty
"based on [Taxpayer's] past payment history." The service provider
further maintained that had the Department notified Taxpayer within the 30 days
when the January return was due, it would have filed the required monthly
returns and remitted the tax sooner.
Upon reviewing Taxpayer's payment history and the
documentation submitted by Taxpayer's service provider, the Department must
respectfully disagree. First, the Department's records shows that Taxpayer did
not maintain a good payment history. Second, it was the service provider who
changed Taxpayer's filing frequency, not the Department. The service provider
suggested that the Department is responsible to notify Taxpayer when its
January return was due, but the service provider could not demonstrate the
reasonable cause for its own error. Given the totality of the circumstances, in
the absence of other supporting documentation, the Department is not able to
abate the negligence penalty pursuant to the above mentioned statute and
regulation.
In short, Taxpayer's protest of the imposition of the
negligence penalty is respectfully denied.
