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 This document is effective on its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.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 Document.

For 2011 and 2012, Corporation demonstrated reasonable cause and thus the underpayment penalty was abated. Corporation however was responsible for a reduced underpayment penalty for 2013 and 2014 because it failed to affirmatively demonstrate reasonable cause for its failure to remit the required sufficient estimated payments.

I. Tax Administration - Underpayment Penalty.

Authority: IC § 6-3-4-4.1; IC § 6-8.1-10-2.1.

Taxpayer protests the Department's partial refund denials and a proposed assessment which stemmed from its amended income tax returns, arguing that the underpayment penalty should be abated.

Taxpayer is an out-of-state company doing business in Indiana. Beginning in tax year 2011, Taxpayer qualified for the Indiana "enterprise zone credit wages" ("Credits") to reduce its Indiana income tax liability. Taxpayer claimed the Credits in its Indiana corporate income tax returns (Form IT-20) each year and elected to carry forward the remaining Credits it did not use.

The Indiana Department of Revenue ("Department") adjusted Taxpayer's returns which reduced the Credits to be carried forwarded. As a result, the Department assessed Taxpayer additional income tax in March 2016. Taxpayer contacted the Department inquiring further on the calculation. A computer programming error was found in computing Taxpayer's income tax liability and Taxpayer was advised to amend its 2011 - 2014 returns to reflect the proper amount of carryovers regarding the Credits.

Taxpayer subsequently amended its 2011 - 2014 returns (Form IT-20Xs). Upon review of Taxpayer's IT-20Xs, the Department adjusted the filings (to account for the underpayment penalty), and afterwards refunded Taxpayer the remaining overpayments. The Department reduced the amounts of refund claimed in Taxpayer's 2011, 2013, and 2014 amended returns. For 2012, the Department determined that Taxpayer underpaid its estimated payments and was not entitled to any refund. The Department assessed an underpayment penalty for 2012 as a result.

Taxpayer timely protested the partial refund denials and the proposed assessment. A hearing was held. This decision ensues. Additional facts will be provided as necessary.

I. Tax Administration - Underpayment Penalty.

Upon review of Taxpayer's 2011 - 2014 amended returns, the Department refunded Taxpayer - after applying the underpayment penalty - reduced amounts of the overpayment for 2011, 2013, and 2014. For 2012, Taxpayer was assessed an underpayment penalty because the Credits were insufficient to reduce its tax liability. The Department's partial refund denials for 2011, 2013, and 2014 as well as the proposed assessment for 2012 stemmed from the imposition of the underpayment penalty for all the years. Taxpayer requested that the underpayment penalty to be abated.

IC § 6-3-4-4.1, in relevant part, states:

IC § 6-8.1-10-2.1(d) states that "[i]f a person subject to the penalty imposed under this section can show that the failure to . . . pay the full amount of tax shown on the person's return, . . . or pay the deficiency determined by the department was due to reasonable cause and not due to willful neglect, the department shall waive the penalty."

Taxpayer in this instance requested that the penalty to be abated, stating in part as follows:

Upon review, the Department's records showed that the Department's computer system erroneously adjusted Taxpayer's available Credits for the 2011 tax year without notifying Taxpayer of the adjustment. Without proper notice to Taxpayer, Taxpayer was not able to timely address the underlying issues of the proposed assessment, regardless of whatever the issues might have been at that time. The erroneously reduced Credits for 2011 were then carried forward to be applied in the 2012 tax year, which, in turn, resulted in additional underpayment for 2012. Thus, the Department agrees that the underpayment penalty for the 2011 and 2012 tax years should be abated.

For tax years 2013 and 2014, however, Taxpayer received adequate notice of the proposed assessment regarding the difference in calculation. In turn, Taxpayer should have been able to resolve the issues but it failed to do so. A further review of the Department's records showed that even if the now corrected amounts of Credits available to be carried forward were to be applied, the Credits would have remained insufficient. In other words, even after abating the 2011 and 2012 underpayment penalty, Taxpayer's additional Credits from those two years were insufficient to be carried forward and applied to the 2013 year. Taxpayer explained that the nature of its business may have caused the confusion and thus the underpayment. Given the totality of the circumstances, however, the Department is not able to abate the penalty without additional supporting information to affirmatively demonstrate reasonable cause. Specifically, Taxpayer chose to conduct its business of the "seasonal nature" - and is in a better position than the Department - to maintain its records and estimate its income tax liability. With the now corrected Credits to be carried forward, the underpayment penalty would be assessed in a lesser amount and Taxpayer was responsible for a reduced amount of the underpayment penalty for the 2013 and 2014 years.

Taxpayer's protest of the underpayment penalty is sustained, in part, and is denied, in part. The underpayment penalty for 2011 and 2012 will be abated. However, Taxpayer remained responsible for the underpayment penalty for 2013 and 2014.