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While the power to issue a jeopardy assessment has been referred to as part of a state’s “power of the purse, not its power of the sword,” state and local taxing authorities have shown a propensity to impose jeopardy assessments. Indiana Dep’t of State Revenue v. Adams, 762 N.E.2d 728, 732-33 (Ind. 2002). Luckily, state courts increasingly are willing to look behind jeopardy assessments to determine whether the statutory requirements for their issuance have been met. In Garwood v. Indiana Dep’t of State Revenue, No. 82T10-0906-TA-29 (Ind. Tax Ct. Aug.19, 2011), the Indiana Tax Court invalidated 16 jeopardy assessments issued by the Indiana Department of Revenue as a result of the Department’s abuse of its jeopardy assessment authority.

The Garwoods supplemented their dairy farm income by breeding and selling dogs.  Prompted by a series of consumer complaints, the Indiana Attorney General investigated the Garwoods. Undercover Attorney General agents purchased dogs and found that the Garwoods had failed to pay Indiana income tax and to collect and remit sales tax. In addition, the Garwoods did not register as retail merchants or file sales tax returns. The Department served jeopardy assessments on the Garwoods at their home and demanded immediate payment of the tax, interest, and penalties alleged to be owed. When the Garwoods informed a Department official that they could not pay immediately, the Department served them with jeopardy tax warrants and, on that same morning, state officials, police, and 60 volunteers from various humane societies raided the farm and seized all 240 of the Garwoods’ dogs, including their house pets and farm dogs. Later that day, the seizures were made public in a television press conference and newspaper interview (which the court described as a “media circus”). A day later, state officials sold all of the Garwoods’ dogs for a total of $300.Continue Reading Indiana Jeopardy Assessments (and Taxpayer) Turn Out to be a Dog

Indiana just launched a new unclaimed property compliance enforcement effort that is bringing unwelcome news to some holders. In early April, Indiana sent out formal notices to holders indicating that fines could apply for failure to timely report and remit unclaimed property. In some cases, not only did holders receive the warning notice, but also an actual assessment and invoice reflecting the threatened fines. The letters accompanying these assessments indicated that the holder has 60 days to pay the assessment, including the fine, or demonstrate to the Indiana unclaimed property authorities that the assessment was incorrect. Adding salt to the wound, the letters indicated that failure to comply may subject the company to an audit.

Idaho, on the other hand, recently passed a law that eases the compliance burden associated with reporting unclaimed corporate securities and related distributions. HB 174 (effective July 1, 2011). Idaho’s new law makes two major changes to corporate securities reporting: (1) a requirement that the owner is actually “lost” before the dormancy period commences, and (2) clarification of the requirements for reporting unclaimed dividends paid pursuant to dividend reinvestment program accounts (DRIP accounts).Continue Reading The “I’s” Have It: Indiana and Idaho Unclaimed Property Developments

Several states are turning to contingent-fee audit contractors, sometimes referred to as “bounty hunters,” as a means of increasing corporate income tax collections. Bounty hunter firms are compensated based on the tax assessed, thus encouraging these firms to aggressively assess taxpayers.

Not surprisingly, contingent-fee-based auditors are supporting legislation in several states that would require state tax agencies to enter into contingent-fee audit contracts. Contingent-fee audits are viewed by corporate taxpayers (and some courts) as unfair, hostile, and bad public policy because the auditors have a financial stake in the outcome of the audit.Continue Reading Bounty Hunters Gone Wild! States Turn to Controversial Contingent-Fee Auditors

When is an insurance company “subject to” premium tax? Recently, the Indiana Tax Court answered this question in United Parcel Service, Inc. v. Indiana Department of Revenue, 49T10-0704-TA-24 (December 29, 2010), concluding that an insurance company is “subject to” premium tax when it is placed under the authority, dominion, control, or influence of the tax, and not simply when it is required to pay the tax. 

In United Parcel Service, the Indiana Department of Revenue had determined that UPS should have included the income of two affiliated foreign reinsurance companies in its Indiana worldwide unitary corporation income tax return. UPS, however, maintained that its affiliated foreign reinsurance companies should be excluded because the Indiana statutes provided that there is no income tax on the adjusted gross income of insurance companies “subject to” the Indiana gross premium tax.Continue Reading Inclusion of Insurance Company in Unitary Return – When Is an Insurance Company “Subject to” Premium Tax?