DEPARTMENT OF STATE REVENUE
04-20160510P.LOF
Letter of Findings: 04-20160510P
Negligence Penalty
For Tax Years 2013 and 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 This document is effective on its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.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
Corporation provided sufficient documentation to support its penalty abatement request.
ISSUE
I. Tax Administration - Negligence Penalty.
Taxpayer requests that the Department abate the negligence penalty.
STATEMENT OF FACTS
Taxpayer, an S Corporation, is doing business in Indiana. In 2015, the Indiana Department of Revenue ("Department") audited Taxpayer's business records for the tax years 2013 and 2014. Pursuant to the audit, the Department determined that Taxpayer purchased certain tangible personal property to be used in the course of its business without paying sales tax or self-assessing use tax. As a result, the Department assessed additional use tax, penalty, and interest.
Taxpayer paid the base tax and interest, but it requested that the Department abate the negligence penalty. A phone hearing was held. This Letter of Findings ensues. Additional facts will be provided as necessary.
I. Tax Administration - Negligence Penalty.
DISCUSSION
The Department's audit imposed a ten percent negligence penalty for the tax period in question. Taxpayer requested that the Department abate the negligence penalty.
Pursuant to IC § 6-8.1-10-2.1(a), the Department may assess a ten (10) percent negligence penalty if the taxpayer:
(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.
(b) further states:
"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 Department may waive a negligence penalty as provided in
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.
In this instance, Taxpayer requested that the Department abate the negligence penalty for various reasons. Primarily, Taxpayer asserted that its actions were due to reasonable cause and not due to negligence. Taxpayer explained that it generally complies with the Indiana tax law because the audit made no adjustments for either corporate income tax or withholding tax. Rather, the audit only made adjustments for sales [and use] tax. Taxpayer further stated that it was not aware that sales tax is due on its rental and purchase of equipment and tools pursuant to lump sum construction contracts. Taxpayer also stated that it has changed its internal procedure to ensure sales/use tax is paid or remitted on its rental and purchase of equipment and tools pursuant to lump sum construction contracts. Thus, going forward, the issue will not recur.
After a review of the Department's records, Taxpayer overall maintains a good compliance history. Thus, the Department agrees that Taxpayer demonstrates that the negligence penalty should be abated.
FINDING
Taxpayer's protest of the imposition of negligence penalty is sustained.
Posted: 01/25/2017 by Legislative Services Agency
DIN: 20170125-IR-045170025NRA
Composed: May 02,2024 4:09:08PM EDT
A
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