If a trusted, long-time bookkeeper hides the fact that she stopped filing our tax returns, is our company still hit with the negligence penalty?

Plain-English summary

A company whose trusted, long-time bookkeeper secretly stopped filing its tax returns and actively misled management escaped the late-filing penalties for the months she concealed — but still owed the penalty for an earlier return that predated any warning signs. Protest GRANTED IN PART and DENIED IN PART.

Sandia Oil Company operated gasoline distributorships and convenience stores in five states, including New Mexico. Lucy Strong had been its bookkeeper since 1982 and was responsible for timely preparing and filing gasoline, gross receipts, and withholding tax returns; she was never an owner, officer, or director. The company had a long history of timely compliance. In the second half of 1999, Strong appeared to be keeping current — returns were spread across her desk at work and home, she spoke often of working on them, and she routinely worked nights and weekends — but she had in fact stopped filing a number of returns.

When the owner, Doug Adams, noticed he had not signed tax checks recently, he asked Strong, and she told him another authorized officer had signed them. He offered her help preparing the returns; she declined. Because Strong picked up the company mail, she was also able to conceal certified letters from state tax agencies about unfiled returns. Strong appeared depressed for much of the year. After Thanksgiving she became ill and absent; Adams then found an empty file where returns should have been and, after a search, a box of partially completed returns — including a signed New Mexico gasoline tax return that had never been filed, with checks written but never cashed. Adams personally prepared and filed all the delinquent returns and paid the tax (a single gasoline-tax check of $309,102.23) by December 31, 1999. The Department nonetheless assessed penalties (and interest, which the parties later resolved), leaving only the penalties in dispute.

The legal standard: ordinary business care, and delegation is not enough by itself

A penalty assessment is presumed correct, and that presumption extends to penalties (Sections 7-1-17(C) and 7-1-3(X)). The negligence penalty under Section 7-1-69(A) applies to a failure to file or pay due to negligence — a lack of the ordinary business care and prudence a reasonable taxpayer would use. The hearing officer agreed with the Department that simply delegating tax duties to an employee does not, by itself, shield an employer: a negligent employee's conduct is generally charged to the employer (El Centro Villa), and the officer-versus-lower-level-employee distinction New Mexico draws for punitive damages does not apply to this penalty, which is not punitive.

Why most of the penalties were abated

But the standard is not whether the company could have done more in hindsight — it is whether it exercised the ordinary care a reasonable taxpayer would in similar circumstances. For the July through October 1999 periods, the company met that standard. Management was aware Strong seemed depressed but took steps to make sure it had not affected her work: they offered her help (refused), observed her working on returns, and, when Adams noticed the missing check signatures, he asked and was affirmatively misled by a previously trustworthy employee who told him another officer had signed. Strong also concealed the state agencies' warning letters. Over a relatively short four-month window, ordinary internal checks and balances might not reasonably be expected to catch the problem. So the company was not negligent, and those penalties were improper and abated.

Why one penalty stood

The November 1998 gross receipts tax return was different. That period predated any sign of trouble with Strong, and the company offered no evidence about the circumstances of that return beyond the assumption that Strong was supposed to file it and did not. Without more, the company failed to overcome the presumption of correctness, and Strong's negligence for that return was charged to the employer — so that penalty stood. The hearing officer added a caution: a system that failed to reveal non-filing for a longer period — say a full year — would probably fail the reasonableness test.

Result: protest GRANTED IN PART and DENIED IN PART — the July–October 1999 penalties were abated; the November 1998 penalty was upheld. (This is the flip side of D&O 01-16, where a company that gave one employee unchecked control with no review for more than two years was held negligent; here, active concealment over a short period and genuine oversight made the difference.)

What this means for you

Delegating tax filing to an employee does not, by itself, protect you

If you simply hand tax duties to an employee and they fail, the negligence penalty normally falls on your business, because the penalty is not a punishment for intentional wrongdoing and an employee's negligence is charged to the employer. You need to show your own conduct met the standard of ordinary care.

Active concealment by a previously reliable employee can defeat the penalty — over a short window

Sandia Oil won on most periods because management actually inquired, offered help, and was deliberately deceived by a long-trusted bookkeeper, over just four months. The test is ordinary business care, not perfect hindsight. Documenting the questions you asked and the answers you got matters.

Time matters — long undetected gaps look like a control failure

The hearing officer warned that letting non-filing go undetected for a year or more would likely fail the reasonableness test. Short, actively concealed lapses are treated differently from years of inattention. Periodic verification keeps you on the right side of that line.

Verify filings independently — don't rely only on the employee's word

The problem here was hidden partly because one person prepared returns, drew checks, and picked up the mail. Confirm returns are actually filed and payments have cleared, and separate mail-handling from tax preparation, so a single employee cannot both fail to file and hide it.

Common questions

Q: Our bookkeeper hid that she stopped filing. Why would we owe any penalty at all?
A: Ordinarily an employee's negligence is charged to the employer, so the starting point is that the penalty applies. Sandia Oil escaped most of it only by proving its management exercised ordinary care and was actively misled over a short period.

Q: Why did the November 1998 penalty survive when the 1999 ones didn't?
A: The 1998 return predated any warning signs, and the company offered no evidence about what happened with it. Without that, it could not rebut the presumption that the penalty was correct, so that one period's negligence was charged to the employer.

Q: Isn't a lower-level employee's conduct treated differently from an officer's?
A: For punitive damages, New Mexico draws that distinction — but not for this tax penalty, which is not punitive. A bookkeeper's negligence can be charged to the employer just like a manager's.

Q: Would the result change if the problem had gone on longer?
A: Likely yes. The hearing officer noted that a system failing to catch non-filing for a year or more would probably fail the reasonable-care test. The short, concealed four-month window was central to abating the 1999 penalties.

Citations and references

Statutes and regulations:

• NMSA 1978, § 7-1-69(A) — negligence penalty (2% per month, up to 10%) for failing to timely file a return or pay tax, without intent to evade
• NMSA 1978, § 7-1-17(C) — an assessment of tax is presumed correct
• NMSA 1978, § 7-1-3(X) — "tax" includes related interest and civil penalty, so the presumption of correctness extends to penalties
• Regulation 3 NMAC 1.11.10 — defines taxpayer negligence (failure of ordinary business care, inaction where action is required, inadvertence/inattention)

Cases cited:

• El Centro Villa Nursing Center v. Taxation and Revenue Department, 108 N.M. 795, 779 P.2d 982 (Ct. App. 1989) — the Section 7-1-69(A) penalty is not punitive; a negligent agent's conduct is charged to the taxpayer
• Albuquerque Concrete Coring Company, Inc. v. Pan Am World Services, Inc., 118 N.M. 140, 879 P.2d 772 (1994) — the officer/lower-level-employee distinction New Mexico draws for punitive damages (held inapplicable to the tax penalty)
• Tiffany Construction Co. v. Bureau of Revenue, 90 N.M. 16, 558 P.2d 1155 (Ct. App. 1976), cert. denied, 90 N.M. 255, 561 P.2d 1348 (1977) — the presumption of correctness applies to penalty assessments

Source

• Listing: New Mexico Decisions & Orders
• Decision post: Sandia Oil Company
• Decision PDF: D&O 01-01

Original ruling text

BEFORE THE HEARING OFFICER
OF THE TAXATION AND REVENUE DEPARTMENT
OF THE STATE OF NEW MEXICO

IN THE MATTER OF THE PROTEST OF
SANDIA OIL COMPANY NO. 01-01
PROTEST TO ASSESSMENT NUMBERS
15669, 15670, 15672, 2484951, 2484974,
2484975, 2484976 AND 2486055

DECISION AND ORDER

This matter came on for formal hearing on November 27, 2000 before Gerald B.

Richardson, Hearing Officer. Sandia Oil Company, hereinafter, “Taxpayer”, was represented by

Patricia Tucker, Esq. of Laflin, Lieuwen, Tucker, Pick, Heer & Neerken, P.A. The Taxation and

Revenue Department, hereinafter, “Department”, was represented by Javier López, Special

Assistant Attorney General. At the close of the evidence, the parties requested the opportunity to

brief the issues. The Taxpayer submitted its brief and requested findings of fact and conclusions

of law on December 12, 2000. The Department submitted its brief and requested findings of fact

and conclusions of law on January 12, 2001. The Taxpayer submitted its reply brief by mailing

it on January 24, 2001 and it was received for filing on January 29, 2001 and the matter was

considered submitted for decision at that time. Based upon the evidence and arguments,

IT IS DECIDED AND ORDERED AS FOLLOWS:

FINDINGS OF FACT

1. Sandia Oil Company, Inc., hereinafter, “Taxpayer”, is a corporation which operates

gasoline distributorships and convenience stores in five states, including New Mexico.

2. During 1999, the officers, directors and owners of Taxpayer were Jack Douglas

Adams (Doug Adams) and Steven Beddingfield. Taxpayer was formed in 1982. At that time,

the owner and president was Tony Bernitsky.

3. Lucy Strong was bookkeeper of Sandia Oil Company from its inception in 1982

through December of 1999. She had previously worked for Tony Bernitsky at another oil

company.

4. Lucy Strong was never an owner, officer, or director of Sandia Oil Company. She

was a paid employee. During 1999, she was a subordinate of Doug Adams.

5. During her employment at Sandia Oil Company in the 1990’s, Lucy Strong was

office manager and bookkeeper and among her responsibilities were the timely preparation and

filing of both the various gasoline tax returns and gross receipts and withholding tax returns.

6. Lucy Strong prepared gasoline tax returns for five states, and also prepared the

company’s federal employment tax returns and New Mexico gross receipts tax returns. She

signed the returns as bookkeeper.

7. The corporation’s federal income tax returns were prepared by an outside accountant

after the end of its fiscal year on September 30.

8. Until the periods in issue, the company had a long history of timely compliance with

both return filing and taxpaying responsibilities.

9. In 1999, the only persons authorized to sign checks for the corporation were Doug

Adams, Tony Bernitsky and Steve Beddingfield.

10. During 1999, Susan Sanchez was the accounts payable clerk for the corporation.

11. Although Ms. Sanchez was the accounts payable clerk, Lucy Strong also had the

ability to draw checks, and often did so for tax payments.

12. As of July 1, 1999, there was a change in the manner in which New Mexico gasoline

tax was to be reported for sales by the corporation to Nambe Pueblo.

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13. The change was anticipated, and the corporation sent Lucy Strong to all available

seminars held by the Department explaining the change in the law and the new method of

reporting.

14. During July through November of 1999, Lucy Strong gave all outward appearances

of remaining current on filing the appropriate gasoline and gross receipts tax returns. She had

returns spread over her desk, both at work and at home. She spoke often of working on the tax

returns. She routinely worked after hours and on weekends.

15. During this period, an assistant was hired for Lucy Strong to assist her with the tax

return preparation. He was employed for about two months.

16. At one point during the last half of 1999, Doug Adams mentioned to Lucy Strong that

he had not signed tax checks in the recent past, and was told by Lucy Strong that the tax checks

were being signed by Steve Beddingfield.

17. At one point during this period, Doug Adams asked Lucy Strong if she needed any

help in preparing the tax returns, and was told by Lucy Strong that she did not need any help.

18. From April of 1999 throughout the rest of the year, Lucy Strong appeared to her

coworkers and personal friends to be depressed. She mentioned depression several times to

Sonja Kortsch.

19. Sonja Kortsch first met Lucy Strong through Kortsch’s husband, who was a

housemate of Lucy Strong. She became personal friends with Lucy Strong, and that friendship

continued throughout 1999.

20. Sonja Kortsch began work at Sandia Oil Company as a receptionist, and later became

an auditor. Ms. Kortsch became an auditor in late 1998, and became a dispatcher in October of

1999.

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21. During the time that Sonja Kortsch was receptionist, she would often assist Lucy

Strong in copying returns for the files or doing other clerical matters regarding the returns.

22. It was the practice of the company after the end of the fiscal year on September 30 to

compile financial information for that fiscal year for transmittal to the outside accountants who

prepared the income tax returns of the corporation.

23. It generally took a few weeks after the end of a fiscal year for the material to be

compiled for transmittal to the accountants.

24. Some time in early November, 1999, Doug Adams asked Lucy Strong for the

materials compiled for the outside accountant, so that he could review them prior to transmitting

those materials. Lucy Strong responded that she had not yet completed her work and needed

some more time to compile the materials.

25. Sometime after Thanksgiving, Lucy Strong became ill and was absent from the

office.

26. During Lucy Strong’s absence, Doug Adams began to pick up the office mail. One

day, in the mail was a certified mail letter from the tax department of another state informing the

corporation that it had not filed a tax return which was due. Doug Adams then went to the

corporation files to look for the missing tax return and found an empty file where the tax returns

should be.

27. Doug Adams asked Sonja Kortsch to call Lucy Strong and ask her where the missing

tax returns were.

28. Lucy Strong responded that there was a box of tax returns in her office.

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29. A search was made by Sonja Kortsch, Suzie Sanchez and Doug Adams for the box of

tax returns. It was not found in Lucy Strong’s office, which was a fairly contained area, nor was

it found in any other part of the corporation’s offices or storerooms.

30. When Lucy Strong was told that the box could not be located, she continued to insist

that the box was in her office.

31. That night, Lucy Strong went into the office after other office personnel had left, and

stayed in the office until about 2:00 a.m. the next morning.

32. The following morning, the box with year-end materials was found in a cubicle office

that had been searched without success the day before.

33. In reviewing the materials in the box, Doug Adams found a number of partially

completed tax returns for various states and federal withholding tax returns. Among the returns

found was a copy of the New Mexico gasoline tax return for September of 1999 signed by Lucy

Strong.

34. He then had staff search for vouchers to see if checks had been drawn to pay the taxes

for the months for which copies of returns were missing. He found that vouchers did exist for

payments of the various taxes which were delinquent.

35. Mr. Adams then went to the checkbooks to see if checks for those taxes had cleared.

He found that none of those checks had cleared, and that the funds were still in the corporate

bank account. Among the returns not filed were the gasoline tax returns for September, copies of

which were found in Lucy Strong’s year-end box.

36. Mr. Adams then checked with the various taxing authorities to confirm which returns

were missing.

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37. Mr. Adams discussed the situation of the delinquent returns with a representative of

the Taxation and Revenue Department. That representative advised him to file the returns for

November of 1999 before the due date of December 25, in order to prevent the accrual of interest

and penalties on those returns, and to file the other delinquent returns by December 31 in order to

stop the accrual of an additional month’s interest and penalties.

38. Lucy Strong did not return to work at Sandia Oil Company after the discovery of the

tax delinquencies. Her illness, which began with strep throat, developed into pneumonia and she

had a slipped disk which required her to remain in bed for three months. She would not take

telephone calls from anyone at Sandia Oil other than Sonja Kortsch, and eventually refused to

take her calls. She became a recluse, and has not returned to work at other employment.

39. During the remainder of December, Mr. Adams personally prepared delinquent

returns for New Mexico, federal employment taxes, and returns due to other states. He worked

on Christmas Eve of 1999 to complete and mail the returns for November of 1999 in order to

avoid any late filing penalty or interest on those returns. The returns were mailed on December

24, 1999.

40. Throughout the next week, Mr. Adams prepared, signed and dated the gasoline tax

returns for August, September and October. Those nine returns were all completed, signed and

dated by December 31, 1999.

41. Mr. Adams prepared a Request for Voucher Check dated December 31, 1999, for a

check in the amount of $309,102.23, in payment of the amount shown to be due on the nine

gasoline tax returns, copies of which were introduced as Exhibits 2, 3 and 4.

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42. Check number 9033 was issued on December 31, 1999 in response to the Request for

Voucher Check. That check was payable to the New Mexico Taxation and Revenue Department

in the amount of $309,102.23.

43. All nine returns were mailed, with the check for full payment of the taxes shown to be

due thereon on December 31, 1999.

44. On January 25, 2000, the Department issued Assessment Nos. 2484951, 2484974,

2484975, and 2484976 to the Taxpayer, assessing penalty and interest for unpaid gross receipts

taxes for the November, 1998; July, 1999; August, 1999 and September, 1999 reporting periods.

45. On January 27, 2000, the Department issued Assessment No. 2484955 to the

Taxpayer, assessing penalty and interest for unpaid gross receipts taxes for the October, 1999

reporting period.

46. On February 17, 2000, the Department issued Assessment Nos. 15669, 15670, 15671

and 15672 to the Taxpayer, assessing penalty and interest for unpaid gasoline taxes for the July

through October, 1999 reporting periods.

47. On February 23, 2000, the Taxpayer wrote to the Department requesting an extension

of time to file a protest to the assessments referenced in Findings 45, 46 and 47, above.

48. On March 22, 2000, the Taxpayer filed a written protest to the assessments referenced

in Findings 45, 46 and 47, above.

49. On April 25, 2000, the Department granted a retroactive extension of time to protest

the assessments referenced in Findings 45, 46, and 47, above and acknowledged the Taxpayer’s

protest of said assessments.

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50. The Department and the Taxpayer have resolved their dispute as to the amount of

interest assessed and the formal hearing concerned only the assessment of penalty. After

adjustments, the amounts of penalty remaining in issue are as follows:

GASOLINE TAXES

July, 1999 $11,230.27
August, 1999 $ 7,868.84
September, 1999 $ 4,959.09
October, 1999 $ 2,732.27

GROSS RECEIPTS TAX

November, 1998 $152.87
July, 1999 $898.75
August, 1999 $877.79
September, 1999 $719.65
October, 1999 $561.68

DISCUSSION

The sole issue to be determined herein is whether the assessment of penalty for the late

filing of tax returns and the late payment of taxes is appropriate in the circumstances of this case.

There is a presumption of correctness which attaches to the assessment of tax pursuant to § 7-1-

17(C) NMSA 1978. Additionally, unless the context of the usage of the term requires otherwise,

“tax” is defined to include the amount of any interest or civil penalty relating to taxes. § 7-1-

3(X) NMSA 1978. Thus, the presumption of correctness attaches to an assessment of penalty as

well. Tiffany Construction Co. v. Bureau of Revenue, 90 N.M. 16, 558 P.2d 1155 (Ct. App.

1976), cert. denied, 90 N.M. 255, 561 P.2d 1348 (1977). Thus, the burden was on the Taxpayer

to overcome the presumption that the assessment of penalty was proper.

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The imposition of penalty is governed by the provisions of Section 7-1-69(A) NMSA 1978

(1998 Repl. Pamp.), which imposes a penalty of two percent per month, up to a maximum of ten

percent:

…in the case of failure, due to negligence or disregard of rules and regulations, but without
intent to evade or defeat any tax, to pay when due any amount of tax required to be paid,...
or to file by the date required a return….

This statute imposes penalty based upon negligence (as opposed to a willful or fraudulent intent) for

failure to timely pay tax. Taxpayer "negligence" for purposes of assessing penalty is defined in

Regulation 3 NMAC 1.11.10 as:

1) failure to exercise that degree of ordinary business care and prudence
which reasonable taxpayers would exercise under like circumstances;
2) inaction by taxpayers where action is required;
3) inadvertence, indifference, thoughtlessness, carelessness, erroneous
belief or inattention.

The Department argues that the Taxpayer was negligent and penalty was properly assessed

because Lucy Strong was an employee of the Taxpayer, she was negligent in failing to timely file

the tax returns for her employer, and under the doctrine of respondeat superior, the Taxpayer is

liable for the negligent acts of its employee and must bear the consequences of those acts.

The Taxpayer argues that a distinction should be made, in terms of the imposition of

penalty, between the actions of corporate officers and managers and those of lower level employees.

In making this argument, the Taxpayer relies on the distinction New Mexico courts have drawn with

respect to liability for punitive damages, between the acts of corporate officers and managers and

those of lower level employees who are not authorized to exercise all corporate powers. See,

Albuquerque Concrete Coring Company, Inc. v. Pan Am World Services, Inc., 118 N.M. 140, 879

P.2d 772 (1994). This distinction has no applicability to the imposition of tax penalty, however.

This distinction was specifically rejected by the Court of Appeals, which stated that the distinction:

9
does not apply in this case because, as discussed above, the penalty
imposed under Section 7-1-69(A) bears no resemblance to punitive
or exemplary damages, which are limited to punishment of conduct
that is intentional. (citation omitted)

El Centro Villa Nursing Center v. Taxation and Revenue Department, 108 N.M. 795, 798, 779

P.2d 982 (Ct. App. 1989).

The Taxpayer also argues that Ms. Strong had reliably and timely filed its tax returns for

many years and that it reasonably relied upon Ms. Strong in continuing to do so. The Taxpayer also

presented testimony that Ms. Strong had been observed working on tax returns, that Mr. Adams had

noticed that he had not signed any checks recently to pay taxes and he had inquired of Ms. Strong

about that fact and had been informed that another officer had signed the checks, and that Mr.

Adams had asked Ms. Strong if she needed any help with preparing the taxes and she had said no

help was needed. The Taxpayer thus argues that it exercised the degree of ordinary business care

and prudence which reasonable taxpayers would have exercised in similar circumstances,

establishing that it was not negligent under the standard of Regulation 3 NMAC 1.10.11.

I agree with the Department that merely delegating the duties to an employee or agent would

not be sufficient for a taxpayer to escape the imposition of penalty when the employee or agent was

negligent in performing their duties. The negligent acts of the agent or employee would be

attributable to the taxpayer. This was the holding of the Court of Appeals in El Centro Villa,

supra., which upheld the imposition of penalty upon a taxpayer who had delegated the obligation to

prepare and file its tax returns to an accountant. In that case the taxpayer had received unusual and

large Medicaid payments based upon Medicaid reimbursement adjustments made by the Human

Services Department. Although the taxpayer reported gross receipts taxes on its normal Medicaid

payments, it failed to report and pay tax on the adjustment payments. The court found negligence

on the part of both the taxpayer and its accountant. The finding of negligence by the taxpayer was

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based on the taxpayer’s failure to alert its accountant to the unusual payments and the nature of

those payments. The court found that the accountant was negligent in failing to implement an

accounting system in such a way that checks and balances in the system would have alerted the

accountant to the unusual income items so that they would be examined and reported properly for

tax purposes.

Applying the reasoning of El Centro Villa, the penalty assessed by Assessment No.

2484951 with respect to the Taxpayer’s November, 1998 gross receipts tax return, was properly

imposed. This return was for a period prior to the time that the Taxpayer had observed any problems

with Ms. Strong’s demeanor or her work and the Taxpayer presented no evidence about the

circumstances surrounding this return other than it is assumed that Ms. Strong had the duty to

prepare and file this return and that she failed to do so. In the absence of other evidence, the

Taxpayer has failed to carry its burden to overcome the presumption of correctness attaching to the

assessment of penalty and Ms. Strong’s negligence is properly attributable to the Taxpayer.

With regard to the other penalty assessments, covering the periods of July through October,

1999, the Taxpayer presented substantial evidence to explain why it had not become aware of the

fact that Ms. Strong had not filed the returns. Although the Taxpayer’s management was aware of

Ms. Strong’s apparent depression, it took actions to ensure that her mental problems had not

affected her responsibility to prepare and file the returns at issue. They offered her assistance in

preparing the returns, which she refused. They observed her working on tax returns. Mr. Adams

asked about the payment of the taxes because he had noticed that he had not signed any tax checks

in the recent past. In response, Ms. Strong affirmatively misled Mr. Adams, informing him that the

checks had been signed by the other officer authorized to sign such checks. Ms. Strong also

apparently concealed the letters from the various state tax agencies asking about non-filed returns,

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because she picked up the mail. Could the Taxpayer have done more to ensure that tax reports were

being filed and taxes paid? Of course. In hind-sight, a number of things could have been done

which could have revealed the problem, such as asking to see copies of the returns, etc. The legal

standard to be applied, however, is not did the Taxpayer do everything it could to ensure that such

things do not happen. The standard is whether the Taxpayer failed to exercise the degree of

ordinary business care and prudence which reasonable taxpayers would exercise under similar

circumstances. In the circumstances of this case, where inquiry was made by the Taxpayer’s

management and the management was affirmatively misled by the actions and words of an

employee who had been trustworthy in the past, and the time frame in which taxes were not paid

was of a relatively short duration1 such that internal checks and balances might not reasonably be

expected to detect the problem, I believe that the Taxpayer exercised the degree of ordinary business

care and prudence which reasonable taxpayers would be expected to exercise. As such, the

Taxpayer has presented sufficient evidence to establish that it did not act negligently with respect to

the non-filing and non-payment of taxes for the July through October, 1999 time period.

CONCLUSIONS OF LAW

1. The Taxpayer filed timely, written protests to Assessment Nos. 15669, 15670, 15672,

2484951, 2484974, 2484975, 2484976 and 2486055 and jurisdiction lies over both the parties and

the subject matter of this protest.

2. The presumption of correctness which attaches to the assessment of tax also applies to

the assessment of penalty.

1
The time frame referenced is the four month period of July through November, 1999. A system which fails to
reveal a non-filing and non-payment problem for a longer period, such as the year between November of 1998 and
November, 1999 would probably fail the reasonableness test.

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3. The Taxpayer failed to present evidence sufficient to rebut the presumption of

correctness with respect to the penalty assessed by Assessment No. 2484951 for the November,

1998 reporting period.

4. With respect to the late filing and payment of taxes for the periods of July 1999 through

October, 1999, the Taxpayer established that it exercised the degree or ordinary business care and

prudence which reasonable taxpayers would exercise under similar circumstances where it was

affirmatively misled by a previously reliable employee with respect to the timely reporting and

filing of its returns for those periods. Thus, the Taxpayer met its burden of establishing that it was

not negligent with respect to the late filing and payment of taxes for said period and the assessment

of penalty was improper.

For the foregoing reasons, the Taxpayer’s protest IS HEREBY GRANTED IN PART AND

DENIED IN PART.

IT IS FURTHER ORDERED that the Department abate the penalty portions of Assessment

Nos. 15669, 15670, 15672, 2484974, 2484975, 2484976 and 2486055.

DONE, this 26TH day of February, 2001.

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