-IR- Database Guide
-IR- Database: Indiana Register


Letter of Findings: 03-20110356P
Withholding Tax
For the Tax Year Ending December 31, 2010

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 It shall remain in effect until the date it is superseded or deleted by the publication of a new document in the Indiana Register.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.
I. Withholding Tax – Late Payment Penalty & Interest.
Authority: IC § 6-8.1-5-1; IC § 6-8.1-10-2.1; IC § 6-8.1-10-1; 45 IAC 15-11-2.
Taxpayer seeks abatement of the penalty for late payment of nonresident partner withholding tax.
Taxpayer is a limited liability company. Taxpayer remitted nonresident partner withholding tax after the statutory deadline for that payment. The Indiana Department of Revenue ("Department") issued a ten-percent penalty along with interest, which Taxpayer protested.
I. Withholding Tax – Late Payment Penalty & Interest.
Taxpayer argues that it is entitled to abatement of the penalty for late payment of withholding tax on behalf of its nonresident partners.
IC § 6-8.1-10-2.1 states in relevant part:
(a) If a person:
(1) fails to file a return for any of the listed taxes;
(2) fails to pay the full amount of tax shown on the person's return on or before the due date for the return or payment;
(3) incurs, upon examination by the department, a deficiency that is due to negligence;
(4) fails to timely remit any tax held in trust for the state; or
(5) is required to make a payment by electronic funds transfer (as defined in IC 4-8.1-2-7), overnight courier, or personal delivery and the payment is not received by the department by the due date in funds acceptable to the department; the person is subject to a penalty.
(b) Except as provided in subsection (g), the penalty described in subsection (a) is ten percent (10 [percent]) of:
(1) the full amount of the tax due if the person failed to file the return;
(2) the amount of the tax not paid, if the person filed the return but failed to pay the full amount of the tax shown on the return;
(3) the amount of the tax held in trust that is not timely remitted;
(4) the amount of deficiency as finally determined by the department; or
(5) the amount of tax due if a person failed to make payment by electronic funds transfer, overnight courier, or personal delivery by the due date.
Under IC § 6-8.1-5-1(c), "The burden of proving that the proposed assessment is wrong rests with the person against whom the proposed assessment is made." An assessment – including the negligence penalty – is presumptively valid.
Departmental regulation 45 IAC 15-11-2(b) defines negligence as "the failure to use such reasonable care, caution, or diligence as would be expected of an ordinary reasonable taxpayer." Negligence is to "be determined on a case-by-case basis according to the facts and circumstances of each taxpayer." Id.
IC § 6-8.1-10-2.1(d) allows the Department to waive the penalty upon a showing that the failure to pay the deficiency was based on "reasonable cause and not due to willful neglect." Departmental regulation 45 IAC 15-11-2(c) requires that 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...."
Taxpayer provided information establishing that 2011 was the first year Taxpayer was required to withhold for non-resident members. Taxpayer had recently transformed from two long-standing corporations to a single flow through entity and as it dealt with the challenges of reconfiguring its tax compliance procedures it missed its filing deadline. Taxpayer also had incurred losses for several years prior to 2010 and it did not anticipate remitting withholding tax for 2010. When Taxpayer realized that it had a withholding tax liability, Taxpayer immediately remitted the tax. Based on the circumstances presented by Taxpayer in this case, Taxpayer has provided sufficient information to conclude that it acted reasonably with regard to its 2010 nonresident partner withholding tax payment in this particular instance only.
As for Taxpayer's protest of the assessment of interest, IC § 6-8.1-10-1(e) specifically prohibits waiver of interest.
Taxpayer's protest of the ten-percent negligence penalty is sustained; while Taxpayer's protest of the interest is respectfully denied.

Posted: 01/25/2012 by Legislative Services Agency

DIN: 20120125-IR-045120018NRA
Composed: Jun 18,2018 5:41:17PM EDT
A PDF version of this document.