Taxpayer is a communications company headquartered outside Indiana but conducting business within this state and within numerous other states. Taxpayer prepared 2009 and 2010 Indiana corporate tax returns and submitted those returns to the Indiana Department of Revenue ("Department"). Taxpayer failed to correctly calculate the amount of tax due. On the ground that Taxpayer had underreported its income, the Department assessed ten-percent penalties for both 2009 and 2010.
Taxpayer disagreed with the penalty assessments and submitted a protest to that effect. An administrative hearing was conducted during which Taxpayer's representative explained the basis for the protest. A Letter of Finding ("LOF") was issued addressing the penalty imposed for the year 2010 on the ground that "Taxpayer has met its burden . . . of establishing that the ten-percent negligence should be abated."
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Taxpayer explains that it "files a combined basis return, including a large number of corporate subsidiaries" and that its apportionment calculation employs a "special methodology outlined in [Tax Policy Directive 6 (June 1992)]." In addition, Taxpayer stated that the calculation of its liability was complicated "as a result of the multi-year transition from 3-factor multistate apportionment to single-sales factor apportionment." Taxpayer further explained that it "inadvertently experienced software issues when calculating the proper apportionment and tax due calculation" and that the software issue "directly resulted in the additional amounts of tax shown on the notices."
The Department erred when it failed to fully address the penalties for both the years 2009 and 2010 in the original LOF. Taxpayer correctly points out that the circumstances which led to the imposition of the 2010 penalty are identical to the circumstances which led to the imposition of the 2009 penalty. Similarly, the standards under which penalties may be abated are applicable to both the 2009 and 2010 penalty.
As explained in the original LOF, Taxpayer is a substantial, sophisticated business entity which is fully capable of routinely calculating the amount of income tax owed Indiana. There is insufficient information to establish that Taxpayer's error in these circumstances was so egregious as to constitute "willful neglect" or that Taxpayer failed to exercise the "ordinary business care and prudence" expected of an "ordinary reasonable taxpayer." 45 IAC 15-11-2 (b), (c). Based on a "case-by-case" analysis and after reviewing "the facts and circumstances of each taxpayer" the Department agrees that Taxpayer has met its burden under IC § 6-8.1-5-1(c) of establishing that the ten-percent negligence penalty should be abated for both the years 2009 and 2010.
