NOTICE: IC § 6-8.1-3-3.5 and IC § 4-22-7-7 require the publication of this document in the Indiana Register. This document provides the general public with information about the Department's official position concerning a specific set of facts and issues. This document is effective as of its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register. The "Holding" section of this document is provided for the convenience of the reader and is not part of the analysis contained in this Letter of Findings.

Business was able to provide documentation showing that it had carryover income tax payments from previous years and so did not underpay its estimated income tax payments for the years in question. The waiver of underpayment penalties was appropriate.

I. Tax Administration–Underpayment of Estimated Tax Penalty.

Authority: IC § 6-3-4-4.1; IC § 6-8.1-5-1; IC § 6-8.1-10-2.1; Dept. of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579 (Ind. 2014); Indiana Dept. of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463 (Ind. 2012); Lafayette Square Amoco, Inc. v. Indiana Dept. of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007); 45 IAC 15-11-2.

Taxpayer protests proposed assessments for penalties on the underpayment of estimated tax.

Taxpayer is an out-of-state business with Indiana-sourced income. After a review of Taxpayer's corporate tax accounts, the Indiana Department of Revenue ("Department") determined that there were discrepancies between the numbers provided by Taxpayer and the numbers in the Department's system. The Department made adjustments to reconcile these discrepancies which reduced the overpayments Taxpayer made in the fiscal tax years 2011, 2012, and 2013. This in turn resulted in the Department's determination that Taxpayer had underpaid its estimated tax payments in the fiscal tax years ending on July 3, 2011 ("2011") and June 30, 2013 ("2013"). The Department therefore issued proposed assessments for penalties on those underpayments. Taxpayer protested the imposition of those penalties. An administrative hearing was held and this Letter of Findings results. Further facts will be supplied as required.

I. Tax Administration–Underpayment of Estimated Tax Penalty.

Taxpayer protests the imposition of two penalties for underpayment of estimated adjusted gross income tax. One penalty applied to the fiscal tax year 2011 and the other penalty applied to the fiscal tax year 2013. In both cases, the Department determined that Taxpayer had underpaid its estimated Indiana adjusted gross income tax payments for the respective year. Taxpayer protests that in both cases it had carryover amounts from the previous year which it believed had been applied to the first quarterly estimated payment of each of the years at issue.

As a threshold issue, it is the Taxpayer's responsibility to establish that the existing tax assessment is incorrect. As stated in IC § 6-8.1-5-1(c), "The notice of proposed assessment is prima facie evidence that the department's claim for the unpaid tax is valid. The burden of proving that the proposed assessment is wrong rests with the person against whom the proposed assessment is made." Indiana Dept. of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463, 466 (Ind. 2012); Lafayette Square Amoco, Inc. v. Indiana Dept. of State Revenue, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007). Consequently, a taxpayer is required to provide documentation explaining and supporting his or her challenge that the Department's position is wrong. Further, "[W]hen [courts] examine a statute that an agency is 'charged with enforcing. . .[courts] defer to the agency's reasonable interpretation of [the] statute even over an equally reasonable interpretation by another party.'" Dept. of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579, 583 (Ind. 2014). Thus, all interpretations of Indiana tax law contained within this decision, as well as the preceding audit, shall be entitled to deference.

The relevant statute regarding estimated income tax payments is IC § 6-3-4-4.1, which states in relevant parts:

Taxpayer states that the estimated payments for both 2011 and 2013 were covered by overpayments from 2010 and 2012 respectively. Taxpayer believed that these carryovers from the previous years would cover portions of its estimated tax payments for 2011 and 2013. Taxpayer then made other quarterly estimated payments to complete its estimated tax payment duties. Taxpayer therefore believes that it satisfied the filing requirements listed in IC § 6-3-4-4.1(c) and that imposition of the penalty provided by IC § 6-3-4-4.1(d) is not warranted.

The penalty provided by IC § 6-3-4-4.1(d) directly refers to the penalty provided by IC § 6-8.1-10-2.1(b). IC § 6-8.1-10-2.1 states in relevant parts:

Next, the Department refers to 45 IAC 15-11-2(b), which states:

Finally, 45 IAC 15-11-2(c) provides in pertinent part:

In the instant case, Taxpayer has affirmatively established that it exercised ordinary business care and prudence in carrying out its estimated tax remittance duties. The Department's adjustments were correct and did result in reduced carryforward of overpayments, but those adjustments occurred after Taxpayer had filed its estimated income tax payments for 2011 and 2013. Taxpayer's estimated tax payments for 2011 and 2013 were accurate reflections of the estimated tax and overpayments prior to the Department's adjustments. Therefore, the Department's reductions of overpayments were correct, but the imposition of penalties was not.

Taxpayer's protest is sustained.