DEPARTMENT OF STATE REVENUE

01-20070491P.LOF

Letter of Findings Number: 07-0491P

Individual Income Tax-Penalty

For the Period 2006

ISSUE

Taxpayer protests the imposition of the ten percent negligence penalty.

STATEMENT OF FACTS

Taxpayer filed an individual income tax return for 2006. On the return, Taxpayer claimed a deduction for net bonus depreciation of roughly $300,000. Taxpayer received a refund based on the return as filed.

After the filing of the original tax return, Taxpayer received amended information from two limited liability companies indicating that the proper amount of the net bonus depreciation deduction should have been $21. Taxpayer filed amended returns for 2006 upon receipt of the corrected information. The Department assessed penalty against Taxpayer, which Taxpayer protested.

The Department sent a letter to Taxpayer stating that Taxpayer could request a hearing by replying to the letter within twenty (20) days of the letter. Taxpayer did not reply to the Department's letter. Due to Taxpayer's failure to reply, this Letter of Findings is written based on the information in Taxpayer's protest file and other Department records relating to Taxpayer.

DISCUSSION

Taxpayer protests the imposition of the ten percent negligence penalty on Taxpayer's subsequently-determined underpayment.

Penalty waiver is permitted if the taxpayer shows that the failure to pay the full amount of the tax was due to reasonable cause and not due to willful neglect. IC § 6-8.1-10-2.1. The Indiana Administrative Code, 45 IAC 15-11-2 further provides:

(b) "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.

(c) 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 filed timely individual income tax returns. The subsequently-determined error was the result of a third party, not Taxpayer. Taxpayer did not have reason to know of the originally-determined error. Furthermore, Taxpayer has not been subject to penalty for any prior taxes or periods. Based on these factors, Taxpayer has provided sufficient information to justify penalty waiver.

FINDING

Taxpayer's protest is sustained.

DIN: 20080402-IR-045080135NRA

Composed: Apr 28,2024 8:36:12AM EDT

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