On August 28, 2018, the Department assessed the Taxpayers for $3,425.63 in tax, interest, and penalty. This amount included $98.02 in estimated payment penalty. On August 17, 2018, the Taxpayers previously had been sent an adjustment notice stating the estimated payments recorded on their 2017 income tax return were more than the amount received by the Department. On September 29, 2018, the Taxpayers protested the Department’s assessment challenging the late penalty, underpayment penalty, and interest. The main issue to be decided in this protest was whether the Taxpayers were negligent in not meeting their requirement to make estimated tax payments when they cashed a check mistakenly sent to them by the Department refunding part of their payments. The Taxpayers had an obligation to make estimated payments for 2017. On their 2016 return they indicated that the amount of the overpayment for that year should be carried forward to the 2017 tax year and be counted toward their estimated payments. But on May 26, 2017, the Taxpayers instead received a refund check from the Department and cashed it, explaining that they had assumed the Department must have been correct to send it to them. Not until they received the adjustment notice the following year did the Taxpayers realize that a portion of their estimated payments were missing. Though they conceded they did owe the tax and the interest, the Taxpayer’s argued that they should not owe the penalty because they had not been negligent. But the Hearing Officer disagreed. The definition of negligence described in statute includes “erroneous belief or inattention.” Though the Hearing Officer agreed it was very unfortunate that the Department had made the mistake of sending the refund check, the Taxpayers had a reasonable duty of asking why they would receive such a check and the possible tax consequences of cashing it. At no time did the Taxpayers contact the Department or a tax adviser about the refund. This, the Hearing Officer decided, falls under the definition of negligence, and so ordered the penalty to be paid and the protest denied.
Ronald and Paula Peterson