20080730-IR-045080557NRA Letter of Findings: 08-0137P Tax Administration For the Tax Years 2002 and 2003

DEPARTMENT OF STATE REVENUE

01-20080137P.LOF

Letter of Findings: 08-0137P

Tax Administration

For the Tax Years 2002 and 2003

NOTICE: Under IC § 4-22-7-7, this document is required to be published in the Indiana Register and is effective on its date of publication. It shall remain in effect until the date it is superseded or deleted by the publication of a new document in the Indiana Register. The publication of the document will provide the general public with information about the Department's official position concerning a specific issue.

ISSUE

I. Tax Administration – Imposition of Negligence Penalty.

Authority: IC § 6-8.1-10-2.1, 45 IAC 15-11-2.

Taxpayer protests the assessment of negligence penalty.

STATEMENT OF FACTS

Taxpayer failed to timely file income tax returns. The Indiana Department of Revenue ("Department") assessed penalty and interest on late filings for the years in question. Taxpayer paid the base income tax and interest owed to the Department, but protests the assessment of the negligence penalty for reasonable cause.

I. Tax Administration – Imposition of Negligence Penalty.

DISCUSSION

Taxpayer protested the imposition of the ten percent negligence penalty pursuant to IC § 6-8.1-10-2.1. Indiana Regulation 45 IAC 15-11-2(b) clarifies the standard for the imposition of the negligence penalty as follows:

Negligence, on behalf of a taxpayer is defined as the failure to use such reasonable care, caution, or diligence as would be expected of an ordinary reasonable taxpayer. Negligence would result from a taxpayer's carelessness, thoughtlessness, disregard or inattention to duties placed upon the taxpayer by the Indiana Code or department regulations. Ignorance of the listed tax laws, rules and/or regulations is treated as negligence. Further, failure to read and follow instructions provided by the department is treated as negligence. Negligence shall be determined on a case by case basis according to the facts and circumstances of each taxpayer.

The standard for waiving the negligence penalty is given at 45 IAC 15-11-2(c) as follows:

The department shall waive the negligence penalty imposed under IC 6-8.1-10-1 if the taxpayer affirmatively establishes that the failure to file a return, pay the full amount of tax due, timely remit tax held in trust, or pay a deficiency was due to reasonable cause and not due to negligence. 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 under this section. Factors which may be considered in determining reasonable cause include, but are not limited to:

(1) the nature of the tax involved;

(2) judicial precedents set by Indiana courts;

(3) judicial precedents established in jurisdictions outside Indiana;

(4) published department instructions, information bulletins, letters of findings, rulings, letters of advice, etc;

(5) previous audits or letters of findings concerning the issue and taxpayer involved in the penalty assessment.

Reasonable cause is a fact sensitive question and thus will be dealt with according to the particular facts and circumstances of each case.

Taxpayer has affirmatively established, as required by 45 IAC 15-11-2(c), that the failure to pay income tax in a timely manner was due to a medical condition. Taxpayer has provided sufficient evidence to establish that the late filings were due to reasonable cause and not due to negligence. Taxpayer is on notice that as he continues to deal with an ongoing medical condition he has an obligation to make arrangements for timely payment of his taxes.

FINDING

Taxpayer's protest of the assessment of negligence penalty is sustained, therefore negligence penalty for the years in question is waived.

Posted: 07/30/2008 by Legislative Services Agency

DIN: 20080730-IR-045080557NRA

Composed: Nov 01,2016 12:26:00AM EDT

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