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 This document is effective as of its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.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 Supplemental Letter of Findings.

Restaurant operator provided sufficient evidence to have its penalty abated.

I. Tax Administration–Penalties.

Authority: IC § 6-8.1-5-1; IC § 6-8.1-5-4; 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 the imposition of penalties.

Taxpayer is a restaurant operator with retail businesses in Indiana. As the result of an audit, the Indiana Department of Revenue ("Department") determined that Taxpayer had underreported corporate income tax for the tax periods March 2016 through December 2018. The Department issued proposed assessments for corporate income tax, penalties, and interest for those years. Taxpayer protested the assessed penalties, stating that it hired an accountant to file taxes and this individual misled the company into believing the tax returns were completed correctly. Taxpayer waived its right to an administrative hearing. This decision therefore relies on evidence submitted alongside Taxpayer's protest. Further facts will be provided as necessary.

II. Tax Administration–Penalties.

Taxpayer protests the imposition of penalties associated with its corporate income tax audit. The Department notes that penalty waiver is permitted if the taxpayer shows that the failure to timely pay the full amount of the tax was due to reasonable cause and not due to willful neglect.

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 [D]epartment's claim for the unpaid tax is valid . . . [t]he 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)(internal quotes omitted). Thus, all interpretations of Indiana tax law contained within this decision shall be entitled to deference.

Taxpayer protests the imposition of penalties pursuant to IC § 6-8.1-10-2.1. Penalty waiver is permitted if a taxpayer shows that the failure to pay the full amount of the tax was due to reasonable cause and not due to willful neglect. 45 IAC 15-11-2(b) clarifies the standard for the imposition of the negligence penalty as follows:

The standard for waiving the negligence penalty is given at 45 IAC 15-11-2(c) as follows:

Taxpayer protests the Department's assessment of penalties, stating that its previous accountant was a CPA hired in good faith to prepare its tax returns. During the audit process, Taxpayer fired this CPA and hired a new CPA to make corrections to the previous returns and to file taxes correctly going forward. Taxpayer has also established via documentation that it has taken legal action against its former CPA. After review of the documentation and analysis provided in the protest process, the Department agrees that waiver of penalties is warranted. Taxpayer provided sufficient explanation of the cause of the underpayments and has taken steps to rectify those errors. Waiver of penalties is warranted under 45 IAC 15-11-2(c).

Taxpayer's protest to the imposition of penalties is sustained.

February 10, 2023