DEPARTMENT OF STATE REVENUE
02-20150451P.LOF
Letter of Findings Number: 02-20150451P
Tax Administration: Penalty
For Tax Period: March 30, 2014
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 This document is effective as of its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.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.
HOLDING
Business did not establish that it exercised ordinary business care and prudence, thus penalties were properly assessed.
ISSUE
I. Tax Administration-Penalties and Interest.
Authority: IC § 6-8.1-5-1; IC § 6-3-4-4.1; IC § 6-8.1-10-2.1; IC § 6-8.1-10-1; 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); Wendt LLP v. Indiana Dept. of State Revenue, 977 N.E.2d 480 (Ind. Tax Ct. 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 the imposition of penalties and interest.
STATEMENT OF FACTS
The Indiana Department of Revenue ("Department") issued on April 13, 2015, a proposed assessment to Taxpayer. The proposed assessment included a penalty assessment. Taxpayer filed a written protest with the Department. An administrative hearing was held, and this Letter of Findings results. More facts will be provided below as needed.
I. Tax Administration–Penalties and Interest.
DISCUSSION
As a threshold issue, it is 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.
Taxpayer's letter to the Department, dated September 1, 2015, states:
The taxpayer acknowledges its responsibility to pay estimated taxes in accordance with Indiana's tax statutes and regulations. However, the taxpayer disagrees with the penalty assessed on the underpayment of estimated taxes preceding the filing of Indiana's Corporate Income Tax Return.
Further, Taxpayer states:
The reason our tax was underpaid and late is because in process of preparing quarterly estimates, 1) the amount of federal taxable income that we were forecasting was less than the actual amount of federal taxable income that we reported to the IRS due to changes in forecasted book vs [sic] actual tax deduction differences, and 2) our forecasted apportionment factor was less than actual apportionment factor on the actual Indiana return.
Turning to the applicable law, IC § 6-3-4-4.1 states the following regarding estimated tax returns:
(a) Any individual required by the Internal Revenue Code to file estimated tax returns and to make payments on account of such estimated tax shall file estimated tax returns and make payments of the tax imposed by this article to the department at the time or times and in the installments as provided by Section 6654 of the Internal Revenue Code. However, the following apply to estimated tax returns filed and payments made under this subsection:
(1) In applying Section 6654 of the Internal Revenue Code for the purposes of this article, "estimated tax" means the amount which the individual estimates as the amount of the adjusted gross income tax imposed by this article for the taxable year, minus the amount which the individual estimates as the sum of any credits against the tax provided by
IC 6-3-3.
(2) Estimated tax for a nonresident alien (as defined in Section 7701 of the Internal Revenue Code) must be computed by applying not more than one (1) exclusion under
IC 6-3-1-3.5(a)(3) and
IC 6-3-1-3.5(a)(4), regardless of the total number of exclusions that
IC 6-3-1-3.5(a)(3) and
IC 6-3-1-3.5(a)(4) permit the taxpayer to apply on the taxpayer's final return for the taxable year.
(b) Every individual who has adjusted gross income subject to the tax imposed by this article and from which tax is not withheld under the requirements of section 8 of this chapter shall make a declaration of estimated tax for the taxable year. However, no such declaration shall be required if the estimated tax can reasonably be expected to be less than one thousand dollars ($1,000). In the case of an underpayment of the estimated tax as provided in Section 6654 of the Internal Revenue Code, there shall be added to the tax a penalty in an amount prescribed by
IC 6-8.1-10-2.1(b).
(c) Every corporation subject to the adjusted gross income tax liability imposed by this article shall be required to report and pay an estimated tax equal to the lesser of:
(1) twenty-five percent (25[percent]) of such corporation's estimated adjusted gross income tax liability for the taxable year; or
(2) the annualized income installment calculated in the manner provided by Section 6655(e) of the Internal Revenue Code as applied to the corporation's liability for adjusted gross income tax.
A taxpayer who uses a taxable year that ends on December 31 shall file the taxpayer's estimated adjusted gross income tax returns and pay the tax to the department on or before April 20, June 20, September 20, and December 20 of the taxable year. If a taxpayer uses a taxable year that does not end on December 31, the due dates for filing estimated adjusted gross income tax returns and paying the tax are on or before the twentieth day of the fourth, sixth, ninth, and twelfth months of the taxpayer's taxable year. The department shall prescribe the manner and forms for such reporting and payment.
(d) The penalty prescribed by
IC 6-8.1-10-2.1(b) shall be assessed by the department on corporations failing to make payments as required in subsection (c) or (f). However, no penalty shall be assessed as to any estimated payments of adjusted gross income tax which equal or exceed:
(1) the annualized income installment calculated under subsection (c); or
(2) twenty-five percent (25[percent]) of the final tax liability for the taxpayer's previous taxable year.
In addition, the penalty as to any underpayment of tax on an estimated return shall only be assessed on the difference between the actual amount paid by the corporation on such estimated return and twenty-five percent (25[percent]) of the corporation's final adjusted gross income tax liability for such taxable year.
(e) The provisions of subsection (c) requiring the reporting and estimated payment of adjusted gross income tax shall be applicable only to corporations having an adjusted gross income tax liability which, after application of the credit allowed by
IC 6-3-3-2 (repealed), shall exceed two thousand five hundred dollars ($2,500) for its taxable year.
(f) If the department determines that a corporation's:
(1) estimated quarterly adjusted gross income tax liability for the current year; or
(2) average estimated quarterly adjusted gross income tax liability for the preceding year;
exceeds five thousand dollars ($5,000), after the credit allowed by
IC 6-3-3-2 (repealed), the corporation shall pay the estimated adjusted gross income taxes due by electronic funds transfer (as defined in
IC 4-8.1-2-7) or by delivering in person or overnight by courier a payment by cashier's check, certified check, or money order to the department. The transfer or payment shall be made on or before the date the tax is due.
(g) If a corporation's adjusted gross income tax payment is made by electronic funds transfer, the corporation is not required to file an estimated adjusted gross income tax return.
(h) An individual filing an estimated tax return and making an estimated tax payment under this section must designate:
(1) the portion of the estimated tax payment that represents estimated state adjusted gross income tax liability; and
(2) the portion of the estimated tax payment that represents estimated local income tax liability under
IC 6-3.5.
The department shall adopt guidelines and issue instructions as necessary to assist individuals in making the designations required by this subsection.
(Emphasis added).
IC § 6-8.1-10-2.1(b), referenced above, states in relevant part:
(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.
In its protest letter Taxpayer states in part:
The taxpayer receives the state apportionment and accounting information a few months prior to filing the state return on the extended due date. The taxpayer was not aware of the increased activity in the state of Indiana prior to the preparation and filing on January 15, 2015. The taxpayer paid the tax liability due at the time of filing and did not willfully underpay its estimated taxes. We do believe our method meets the reasonable cause test because we utilized a very typical method for forecasting tax payments.
The Department notes that Taxpayer was assessed a penalty regarding the estimated taxes due, and also assessed a negligence penalty and interest too. Interest is imposed pursuant to IC § 6-8.1-10-1, and the Department notes that waiver of interest is not permitted under IC § 6-8.1-10-1(e). The waiver of the negligence penalty 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 in relevant part:
(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.
(Emphasis added).
Taxpayer has failed to sufficiently develop its argument on the matter. See Wendt LLP v. Indiana Dept. of State Revenue, 977 N.E.2d 480, 485 n.9 (Ind. Tax Ct. 2012) (quoting Scopelite v. Indiana Dep't of Local Gov't Fin., 939 N.E.2d 1138, 1145 (Ind. Tax. Ct. 2010), which stated "that poorly developed and non-cogent arguments are subject to waiver" by the Indiana Tax Court). Taxpayer asserts that it "utilized a very typical method for forecasting tax payments" without establishing that its method was in fact the norm for the industry. Taxpayer's argument is in effect that it was "not aware of the increased activity in the state . . . ." Taxpayer failed to make timely estimated tax payments. Also, Taxpayer's return was due on July 15, 2014 yet it was not filed until January 6, 2015. Taxpayer has not demonstrated that it exercised ordinary business care and prudence.
FINDING
Taxpayer's protest is denied.
Posted: 12/28/2016 by Legislative Services Agency
DIN: 20161228-IR-045160549NRA
Composed: May 04,2024 3:03:56PM EDT
A
PDF version of this document.
