Taxpayers, also referred to as Husband or Wife, are individuals. Taxpayers moved to Indiana in April 2010. In December 2010, Husband received settlement proceeds from a lawsuit concerning his employment while he was a resident of Florida ("settlement proceeds"). Taxpayers did not include the settlement proceeds as income on their Indiana individual income tax return. The Indiana Department of Revenue ("Department") issued a proposed assessment for Indiana individual income taxes based on the inclusion of the settlement proceeds.
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Taxpayers protest the Department's inclusion of the settlement proceeds as income subject to Indiana's individual income tax.
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In this case, Taxpayers became residents of Indiana in April 2010. Husband received the settlement proceeds in December 2010. At the time Husband received the settlement proceeds, Taxpayers were residents of Indiana. Their 2010 Indiana adjusted gross income was subject to Indiana's individual income tax. The settlement proceeds were included in Taxpayers' 2010 federal adjusted gross income, and there is no statutory modification inIC 6-3-1-3.5 (a) (as in effect tax year 2010) fitting the Taxpayers' situation. The settlement proceeds were income for Indiana individual income tax purposes for the tax year 2010, and Taxpayers' protest is respectfully denied.
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The Department assessed a ten percent negligence penalty for tax year 2010. Taxpayer protests the imposition of the penalty. The Department will determine whether the penalty imposed shall be waived.
A taxpayer who "incurs, upon examination by the department, a deficiency that is due to negligence . . . 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 also45 IAC 15-11-2 . The taxpayer may demonstrate reasonable cause demonstrating that it used "ordinary business care and prudence" in failing to pay 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, Taxpayers have demonstrated that they had a reasonable cause for their failure to pay the proper amount of individual income taxes in 2010. The penalty shall be waived.
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