Tuesday, June 10, 2014

Revenue Waives Penalty Where Taxpayer Exercised "Ordinary Business Care and Prudence"

Excerpts of Revenue's Determination follow:

Taxpayer is an Indiana corporation. After an audit, the Indiana Department of Revenue ("Department") determined that Taxpayer had not properly remitted use taxes for the tax years 2010, 2011, and 2012.

The Indiana Department of Revenue ("Department") issued proposed assessments for base tax, ten percent negligence penalties, and interest. Taxpayer protests the imposition of the penalties.

All tax assessments are prima facie evidence that the Department's claim for the tax is valid, and the taxpayer bears the burden of proving that any assessment is incorrect. IC § 6-8.1-5-1(c); Indiana Dep't of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463, 466 (Ind. 2012); Lafayette Square Amoco, Inc. v. Indiana Dep't of State Revenue, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007). The issue before the Department is whether Taxpayer met its burden to prove the Department's assessment is incorrect.

A taxpayer who receives a proposed assessment after an audit "is subject to a penalty." IC § 6-8.1-10-2.1(a). The Department shall waive the penalty if the taxpayer demonstrates that the failure to pay the outstanding taxes "was due to reasonable cause and not due to willful neglect." IC § 6-8.1-10-2.1(d); see also 45 IAC 15-11-2. The taxpayer may demonstrate reasonable cause by showing affirmatively that it used "ordinary business care and prudence" in not paying the outstanding taxes. Whether a taxpayer demonstrates reasonable cause for penalty purposes is a fact-sensitive question and determined on a case-by-case basis. 45 IAC 15-11-2(b) and (c).

In this case, Taxpayer has met its burden and demonstrated ordinary business care and prudence. Consequently the penalties imposed for the tax years 2010, 2011, and 2012 may be waived, and Taxpayer's protest is sustained. However, Taxpayer is now aware of its use tax obligations, and a penalty will likely be imposed if this scenario occurs again.