Taxpayer is an out-of-state corporation with operations in
Indiana. As the result of a federal income tax adjustment, Taxpayer had
additional Indiana income tax for the tax year 2010. Following an audit
covering the tax years 2008, 2009, and 2010, the Indiana Department of Revenue
("Department") issued proposed assessments for additional Indiana
adjusted gross income tax for those years. The Department also sent a notice
that Taxpayer owed a ten percent quarterly estimated tax underpayment penalty
for 2010.
...
Taxpayer
protests the imposition of penalty. IC § 6-3-4-4.1(c) and (d) provide:
(c) Every corporation subject to the adjusted gross income
tax liability imposed by this article shall be required to report and pay an
estimated tax equal to the lesser of:
(1) twenty-five percent (25 [percent]) of such corporation's
estimated adjusted gross income tax liability for the taxable year; or
(2) the annualized income installment calculated in the
manner provided by Section 6655(e) of the Internal Revenue Code as applied to
the corporation's liability for adjusted gross income tax.
A taxpayer who uses a taxable year that ends on December 31
shall file the taxpayer's estimated adjusted gross income tax returns and pay
the tax to the department on or before April 20, June 20, September 20, and
December 20 of the taxable year. If a taxpayer uses a taxable year that does
not end on December 31, the due dates for filing estimated adjusted gross
income tax returns and paying the tax are on or before the twentieth day of the
fourth, sixth, ninth, and twelfth months of the taxpayer's taxable year. The
department shall prescribe the manner and forms for such reporting and payment.
(d) The penalty prescribed by IC 6-8.1-10-2.1(b)
shall be assessed by the department on corporations failing to make payments as
required in subsection (c) or (f). However, no penalty shall be assessed as to
any estimated payments of adjusted gross income tax which equal or exceed:
(1) the annualized income installment calculated under
subsection (c); or
(2) twenty-five percent (25 [percent]) of the final tax
liability for the taxpayer's previous taxable year.
In addition, the penalty as to any underpayment of tax on an
estimated return shall only be assessed on the difference between the actual
amount paid by the corporation on such estimated return and twenty-five percent
(25 [percent]) of the corporation's final adjusted gross income tax liability
for such taxable year.
The Department refers to IC § 6-8.1-10-2.1, which states in
relevant parts:
...
(b) Except as provided in subsection (g), the penalty
described in subsection (a) is ten percent (10 [percent]) of:
(1) the full amount of the tax due if the person failed to
file the return;
(2) the amount of the tax not paid, if the person filed the
return but failed to pay the full amount of the tax shown on the return;
(3) the amount of the tax held in trust that is not timely
remitted;
(4) the amount of deficiency as finally determined by the
department; or
(5) the amount of tax due if a person failed to make payment
by electronic funds transfer, overnight courier, or personal delivery by the
due date.
...
(d) If a person subject to the penalty imposed under this
section can show that the failure to file a return, pay the full amount of tax
shown on the person's return, timely remit tax held in trust, or pay the
deficiency determined by the department was due to reasonable cause and not due
to willful neglect, the department shall waive the penalty.
(e) A person who wishes to avoid the penalty imposed under
this section must make an affirmative showing of all facts alleged as a
reasonable cause for the person's failure to file the return, pay the amount of
tax shown on the person's return, pay the deficiency, or timely remit tax held
in trust, in a written statement containing a declaration that the statement is
made under penalty of perjury. The statement must be filed with the return or
payment within the time prescribed for protesting departmental assessments. A
taxpayer may also avoid the penalty imposed under this section by obtaining a
ruling from the department before the end of a particular tax period on the
amount of tax due for that tax period.
....
Negligence, on behalf of a taxpayer is defined as the
failure to use such reasonable care, caution, or diligence as would be expected
of an ordinary reasonable taxpayer. Negligence would result from a taxpayer's
carelessness, thoughtlessness, disregard or inattention to duties placed upon
the taxpayer by the Indiana Code or department regulations. Ignorance of the
listed tax laws, rules and/or regulations is treated as negligence. Further,
failure to read and follow instructions provided by the department is treated
as negligence. Negligence shall be determined on a case by case basis according
to the facts and circumstances of each taxpayer.
The department shall waive the negligence penalty imposed
under IC 6-8.1-10-1
if the taxpayer affirmatively establishes that the failure to file a return,
pay the full amount of tax due, timely remit tax held in trust, or pay a deficiency
was due to reasonable cause and not due to negligence. In order to establish
reasonable cause, the taxpayer must demonstrate that it exercised ordinary
business care and prudence in carrying out or failing to carry out a duty
giving rise to the penalty imposed under this section.
In this case, Taxpayer incurred a deficiency which the
Department determined was due to negligence under 45 IAC 15-11-2(b),
and so was subject to a penalty under IC § 6-8.1-10-2.1(b), as provided by IC §
6-3-4-4.1(d). Taxpayer has affirmatively established that its failure to pay
the deficiency was due to reasonable cause and not due to negligence, as
required by 45 IAC 15-11-2(c).
