Michigan Administrative Code › Department - Treasury › Bureau of Tax & Economic Policy › Taxpayers Bill of Rights › Part 4 - INFORMAL CONFERENCE › Section R. 205.1012 - Taxpayer negligence determination; burden of proof; examples of negligence; examples of reasonable cause for waiving negligence penalty

Current through Vol. 24-12, July 15, 2024
Rule 12.
(1)
				  Negligence is the lack of due care in failing to do what a reasonable and
				  ordinarily prudent person would have done under the particular circumstances.
				  The standard for determining negligence is whether the taxpayer exercised
				  ordinary care and prudence in preparing and filing a return and paying the
				  applicable tax in accordance with the statute. The facts and circumstances of
				  each case will be considered.
(2)
				  When the department imposes a negligence penalty, the department bears the
				  burden of establishing facts to support a finding of negligence and the
				  taxpayer bears the burden of establishing facts that will negate a finding of
				  negligence. The taxpayer shall file a written statement that explains, in
				  detail, the facts which are relied upon to defeat the penalty and which
				  constitute reasonable cause.
(3)
				  The following illustrative examples, when clearly established, are generally
				  considered to constitute negligence:
Example no. 1: The income tax and single business tax
					 instructions clearly require the prepayment of the annual tax, but the taxpayer
					 remits estimated tax payments of less than the required amount.
Example no. 2: A taxpayer fails to file an income tax or
					 single business tax amended return within 120 days, as required by law, after a
					 final alteration, modification, recomputation, or determination of a deficiency
					 under the provisions of the internal revenue code.
Example no. 3: The taxpayer has been assessed a tax
					 deficiency. There is a subsequent audit of the taxpayer that results in a
					 similar deficiency for a subsequent tax period resulting from the taxpayer's
					 failure to correct internal controls and reporting procedures that contributed
					 to the original assessment.
Example no. 4: The income tax and single business tax
					 instructions clearly require payment of the estimated annual tax at the time of
					 filing an extension request. The taxpayer understates and underpays the annual
					 liability with the extension request.
Example no. 5: The estate tax act requires an amended
					 return to be filed within 60 days of the date of the federal determination. The
					 personal representative fails to file the amended return within the 60 days
					 allowed.
(4) The following
				  illustrative examples, when clearly established, are generally considered to
				  constitute reasonable cause for purposes of waiving the negligence penalty:
Example no. 1: The taxpayer was assessed a deficiency of
					 sales and use taxes and negligence penalty on the taxpayer's first audit.
					 Reporting procedures were not adequate during the audit period. The taxpayer
					 overstated and understated food deductions in each year. The taxpayer claimed a
					 resale exemption on fixed asset purchases, expense items, and out-of-state
					 purchases. The taxpayer hired an accountant after the deficiency was issued.
					 The taxpayer has subsequently invested in a new system for record keeping
					 purposes. Reasonable cause has been established because corrective steps were
					 taken to prevent the recurrence of this situation.
Example no. 2: The taxpayer was assessed an income tax
					 deficiency and negligence penalty. The taxpayer is a Michigan resident who is
					 employed in a neighboring state. The taxpayer's employer withheld income tax
					 for the wrong state. The taxpayer's employer provided the taxpayer and the
					 department with a letter acknowledging the error as an error of the employer.
					 The taxpayer requests a waiver of the negligence penalty. Reasonable cause has
					 been established because the taxpayer's employer created the error and
					 acknowledged the error. The taxpayer exercised ordinary care and
					 prudence.