Iowa Administrative Code › Agency 701 - Revenue Department › Title I - Administration › Chapter 10 - Interest, Penalty, Exceptions to Penalty, and Jeopardy Assessments › Rule 701-10.7 - Waiver of Penalty

Current through Register Vol. 47, No. 3, July 24, 2024
Under certain circumstances, the penalty for failure to
				  timely file a return, failure to timely pay the tax due with the filing of a
				  return, or failure to pay following an audit by the department is waived. The
				  taxpayer has the burden to prove the necessary conditions to waive a
				  penalty.
(1) Definitions. For purposes
				of this rule, the following definitions apply:
"Act of God"
means an unusual and
				  extraordinary manifestation of nature which could not reasonably be anticipated
				  or foreseen and cannot be prevented by human care, skill, or foresight.
"Immediate family"
includes the spouse,
				  children, or parents of the taxpayer. There is a rebuttable presumption that
				  relatives of the taxpayer beyond the relation of spouse, children, or parents
				  of the taxpayer are not within the taxpayer's immediate family for purposes of
				  the waiver exceptions.
"Sanctioned self-audit program"
means an
				  audit performed by the taxpayer with forms provided by the department as a
				  result of contact by the department to the taxpayer prior to voluntary filing
				  or payment of the tax. Filing voluntarily without contact by the department
				  does not constitute a sanctioned self-audit.
"Substantial authority"
means the weight of
				  authorities for the tax treatment ofan item is substantial in relation to the
				  weight of authorities supporting contrary positions.
In determining whether there is substantial authority, only
				  the following will be considered authority: applicable provisions of Iowa
				  statutes; the Internal Revenue Code; Iowa administrative rules construing those
				  statutes; court cases; administrative rulings; legal periodicals; department
				  newsletters and tax return instruction booklets; tax treaties and regulations;
				  and legislative intent as reflected in committee reports.
Conclusions reached in treaties, legal opinions rendered by
				  other tax professionals, descriptions of statutes prepared by legislative
				  staff, legal counsel memoranda, and proposed rules and regulations are not
				  authority.
There is substantial authority for the tax treatment of an
				  item if there is substantial authority at the time the return containing the
				  item is due to be filed or there was substantial authority on the last day of
				  the taxable year to which the return relates.
The taxpayer must notify the department at the time the
				  return or payment is originally due of the substantial authority the taxpayer
				  is relying upon for not filing the return or paying the tax due.
(2) Documentation. Unless
				otherwise indicated, written documentation is required to support the waiver of
				a penalty.
(3) For failure to
				timely file a return or failure to timely pay tax due, the 5 percent penalties
				shall be waived upon a showing of the following exceptions.
a. An amount of tax greater than $0 is due
				and at least 90 percent of the tax required to be shown due has been paid by
				the due date of the tax return. This exception does not apply to the penalty
				for failure to timely file by a specified business under subrule
				10.6(2).
b. A taxpayer required to
				file a monthly or quarterly return is allowed one late return or one late
				payment within a three-year period.
(1) The
				use by the taxpayer of any other penalty exception under this subrule will not
				count as a late return or payment for purposes of this subrule.
(2) If the taxpayer receives this waiver, the
				taxpayer must make timely filings and payments for three years prior to being
				eligible for another waiver under this paragraph.
(3) This exception does not apply to an
				income return, a franchise return, or a moneys and credits return.
(4) This exception will automatically be
				applied to a return or payment by the department if the taxpayer is eligible
				for the exception.
(5) This
				exception is determined on the basis of the tax period for which the return or
				payment is due and not the date on which the return is filed or payment is
				made.
Example: Taxpayer A, a retail business with multiple
				  employees, has not been late in filing returns or making payments for five
				  years. Taxpayer A files its withholding return for the fourth quarter of 2020,
				  due January 20, 2021, on the due date but does not make the payment until the
				  next day. Taxpayer A incurs the penalty for failing to timely pay, but the
				  penalty will be waived under this exception. Taxpayer A is not eligible for a
				  waiver for a late return filing or late payment again until the due date for
				  the fourth quarter of 2023.
c. Death of a taxpayer, a member of the
				immediate family of the taxpayer, or the person directly responsible for filing
				the return and paying the tax, when the death interferes with timely filing of
				a return or timely payment of tax. The taxpayer will be provided an extension
				of 30 days from the date the return or payment is originally due without
				incurring penalty. There is a rebuttable presumption that a death that occurs
				more than 30 days before the original date the return or payment is due does
				not interfere with timely filing or payment. The taxpayer, or taxpayer's legal
				representative, has the burden of supplying proof of when the death
				occurred.
d. The onset of serious,
				long-term illness or hospitalization of the taxpayer, a member of the
				taxpayer's immediate family, or the person directly responsible for filing the
				return and paying the tax when such illness or hospitalization interferes with
				the timely filing of a return or timely payment of tax.
(1) There is a rebuttable presumption that
				the onset of an illness or hospitalization that precedes the due date of the
				return or payment form by more than 30 days does not interfere with the timely
				filing or timely payment of tax.
(2) The taxpayer will be provided an
				extension of at least 30 days from the date the return or payment form is
				originally due or until the illness or hospitalization no longer reasonably
				interferes with the taxpayer's ability to file the return without incurring
				penalty.
(3) The taxpayer has the
				burden of proof on whether or not a serious, long-term illness or
				hospitalization has occurred, when it occurred, and how the illness or
				hospitalization interfered with the taxpayer's ability to timely file a return
				or timely pay.
e.
				Destruction of records by fire, flood, or act of God when the destruction
				interferes with the timely filing of a return or timely payment of tax. There
				is a rebuttable presumption that an "act of God" that precedes the due date of
				the return or payment by 30 days or more did not interfere with the timely
				filing or payment.
f. The taxpayer
				presents proof that the taxpayer at the due date of the return or payment
				relied upon applicable, documented, written advice made specifically to the
				taxpayer, to the taxpayer's preparer, or to an association representative of
				the taxpayer from the department, state department of transportation, county
				treasurer, or Internal Revenue Service. The advice should be relevant to the
				agency offering the advice and not beyond the scope of the agency's area of
				expertise and knowledge. The reliance must be the direct cause of the failure
				to file or failure to pay, and the advice must be current and not superseded by
				a court decision, ruling of a quasi-judicial body such as an administrative law
				judge or the director, or by the adoption, amendment, or repeal of a rule or
				law.
g. Reliance upon the results
				of a previous audit was a direct cause for failure to file or pay where the
				previous audit expressly and clearly addressed the issue and the previous audit
				results have not been superseded by a court decision or by adoption, amendment,
				or repeal of a rule or law.
h. The
				taxpayer presents documented proof of substantial authority to rely upon a
				particular position or upon proof that all facts and circumstances are
				disclosed on a return. Mathematical, computation, or transposition errors are
				not considered as facts and circumstances disclosed on a return. These types of
				errors will not be considered as penalty exceptions.
i. The return or payment is timely, but
				erroneously, mailed with adequate postage to the Internal Revenue Service,
				another state agency, or a local government agency and the taxpayer provides
				proof of timely mailing with adequate postage. The taxpayer must provide
				competent evidence of the mailing as stated in Iowa Code section
				622.105.
j. The tax has been paid
				by the wrong licensee and the payments were timely remitted to the department
				for one or more tax periods prior to notification by the department.
k. The failure to file was discovered through
				a sanctioned self-audit program conducted by the department.
l. The availability of funds in payment of
				tax required to be made through electronic funds transfer is delayed and the
				delay of availability is due to reasons beyond the control of the taxpayer.
m. For estates with disclaimers, a
				penalty will not be imposed for failure to pay or a late-filed Iowa inheritance
				tax return if the sole reason for the failure to pay or late-filed inheritance
				tax return is due to a beneficiary's decision to disclaim property or disclaim
				an interest in property from the estate. However, for the penalty to be waived,
				the Iowa inheritance tax return must be filed and all tax must be paid to the
				department within the later of nine months from the date of death or 60 days
				from the delivery or filing date of the disclaimer pursuant to Iowa Code
				section
				633E.12.