Thursday, June 6, 2013

Revenue Waived Penalty Where Taxpayer Misunderstood Obligation but Corrected Filing on Own Initiative When it Discovered Error

Excerpts of Revenue's Determination follow:

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Taxpayer was established as an Indiana S corporation in 2009. Taxpayer had failed to file IT-20S timely returns for the years 2009 and 2010. In 2012 Taxpayer filed the 2009 and 2010 returns and was assessed a $250 penalty for each of those years for the failure to file the tax returns in a timely manner. The Department subsequently waived the 2009 penalty as a courtesy for a first-time incident. However the 2010 penalty remained. Taxpayer protested the imposition of the 2010 penalty.
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Penalty waiver is permitted if the taxpayer shows that the failure to pay the full amount of the tax was due to reasonable cause and not due to willful neglect. IC § 6-8.1-10-2.1(d).
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Taxpayer argued that it relied on the Department's IT-20S instruction booklet, as well as information on the Department's website, for guidance in its tax return filing obligations. Taxpayer read the 2010 booklet – under the heading "Who Must File and When" – to mean that only S corporations that were doing business in Indiana and deriving gross income in Indiana had a filing obligation. Since Taxpayer claims it did not have income for those two years, Taxpayer did not file returns. When, in 2012, Taxpayer finally realized that it had a filing obligation when it incurred losses, Taxpayer then filed the 2009 and 2010 returns at the same time in 2012 on its own initiative. The late filing of the returns triggered the penalties.
 
Generally ignorance of the law is treated as negligence. 45 IAC 15-11-2. In this instance, because the Department waived the penalty for 2009 (and the 2010 return was filed at the same time), and because Taxpayer has provided sufficient documentation and explanation to demonstrate that it did not willfully neglect its tax filing obligations, the Department will waive the 2010 $250 penalty.