Taxpayer was assessed a ten percent penalty by the Indiana Department of Revenue ("Department") for the tax year 2010. Taxpayer filed a protest regarding the proposed assessment.
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Taxpayer argues that it is entitled to abatement of a ten percent penalty. Taxpayer argues that it was "the obligation of another entity to pay" the taxes. Taxpayer explains its facts thusly:
[Taxpayer], a Texas resident, owns [Company S], a Texas LLC, which owns a 49 percent interest in [Company C], an Indiana LLC.
And further:
[Company S], has no control over [Company C]. [Company S] received payments from [Company C] in 2010. [Company C] was required by Indiana law to withhold on its nonresident partners, but failed to do so. [Company S] made payments to [Taxpayer] in 2010, which did not require any Indiana withholding.
Taxpayer asserts he "was justified in expecting [Company C] to properly report and withhold any Indiana income taxes that would be due on behalf of its non-resident partners...." Taxpayer then cites to Indiana's IT-65 Partnership Return booklet regarding partnerships.
Taxpayer then states:
[Company C] failed to meet its withholding obligation in 2010. When [Taxpayer] discovered [Company C's] error in early 2011, [Company C] told him it was too late for them to pay over the required taxes. Therefore, [Taxpayer] immediately filed a late 2010 Indiana individual income tax return and paid the taxes himself. Beginning in 2011, [Company C] began to properly withhold and remit the state income taxes as required.
At the hearing, Taxpayer's representative argued that Taxpayer reasonably relied upon [Company C's] withholding duty, and that Taxpayer had relied upon the advice of a tax professional.
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Based upon a "case-by-case" analysis and after reviewing "the facts and circumstances" of the Taxpayer, the Department finds that Taxpayer has established "reasonable cause" and that the penalty should be abated. Taxpayer relied upon the reporting duties of Company C, and upon Taxpayer's discovery that Company C had not properly reported, Taxpayer "filed a late 2010 Indiana individual income tax return and paid the taxes himself."
