Thursday, September 5, 2013

Revenue Abates Underpayment Penalty Where Taxpayer's Position Did Not Constitute "Willful Neglect"

Taxpayer is an out-of-state business which reports and pays Indiana corporate income tax. Taxpayer made estimated payments for 2011. The Department of Revenue ("Department") assessed Taxpayer an "underpayment" penalty for taxes paid during that period. Taxpayer disagreed with the penalty and submitted a protest to that effect.

Taxpayer protests the imposition of a ten-percent penalty imposed because of Taxpayer's failure to make sufficient estimated tax payments as required pursuant to IC § 6-3-4-4.1(d).
Taxpayer does not dispute the fact that it underpaid the amount of corporate income tax owed for 2011. However, Taxpayer explains that there are mitigating factors which warrant exercise of the discretion permitted under IC § 6-8.1-10-2.1. Taxpayer explains that during the time period in which the tax was due, its corporate offices were being moved from one state to another and that it experienced substantial employee turn-over, and that the oversight was promptly remedied.
IC § 6-8.1-10-2.1(d) states that, "If a person subject to the penalty imposed under this section can show that the failure to . . . pay the full amount of tax shown on the person's return . . . 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."
Departmental regulation 45 IAC 15-11-2(b) defines negligence as "the failure to use such reasonable care, caution, or diligence as would be expected of an ordinary reasonable taxpayer." Negligence is to "be determined on a case-by-case basis according to the facts and circumstances of each taxpayer." Id.
Departmental regulation 45 IAC 15-11-2(c) requires that 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 . . . ."
Taxpayer erred when it underpaid its estimated corporate income tax liability. However, there is insufficient information to establish that Taxpayer's position was so egregious as to constitute "willful neglect." Based on a "case-by-case" analysis and after reviewing "the facts and circumstances of each taxpayer" the Department agrees that the penalty should be abated.