DEPARTMENT OF STATE REVENUE

02-20080135P.LOF

Letter of Findings Number: 08-0135P

Corporate Income Tax

For the Tax Period 2002-2004

ISSUE

The Taxpayer protests the imposition of the ten percent negligence penalty.

STATEMENT OF FACTS

The Taxpayer is a manufacturer with a plant in Indiana. Pursuant to an audit for the tax period 2002-2004, the Indiana Department of Revenue (Department) assessed additional adjusted gross income tax, supplemental net income tax, interest, and penalty. The Taxpayer paid the tax assessments and protested the penalty assessment. The Taxpayer submitted a letter in support of its protest and waived a hearing. This Letter of Findings is based upon a review of the documentation in the file.

DISCUSSION

The Taxpayer protests 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.

The Taxpayer provided substantial documentation indicating that it used reasonable care and prudence in the conduct of its business. The negligence penalty is not warranted in this situation.

FINDING

The Taxpayer's protest to the imposition of the penalty is sustained.

DIN: 20081029-IR-045080783NRA

Composed: Apr 27,2024 7:52:12AM EDT

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