Ohio – Refund of Penalties and Interest Granted Due to Employee Fraud

SALT Report 1831 – The Ohio Board of Tax Appeals reversed the Ohio Tax Commissioner’s assessment of penalties and interest imposed on a Taxpayer because the Taxpayer was the victim of employee fraud.

In 2006, the Taxpayer hired a business manager to handle all of the financial operations of its company.  For more than a year, the business manager did not file sales tax returns or remit any sales tax collected by the Taxpayer’s company.  In 2008, the Taxpayer discovered that the business manager had been concealing notices from the Department of Revenue regarding missing returns and payments.  At the same time, the Taxpayer learned that the business manager had been stealing other funds from the company.

The Taxpayer contacted the Department of Revenue seeking advice on how to handle the assessments and penalties.  After several conversations, the Department recommended that the Taxpayer pay the full amount and file a petition for reassessment. The Taxpayer was also urged to file a claim for refund of the penalties and interest that were imposed even though the Taxpayer was beyond the 60 day filing period.

The Tax Commissioner denied the claim for refund saying that he was statutorily bound by R.C. 5739.07 which states that the Commissioner can only refund penalties and interest for taxes that are “illegally or erroneously paid.” The Taxpayer appealed the decision.

The Board of Appeals heard the case and ruled in favor of the Taxpayer noting that under this type of circumstance the Taxpayer’s request for refunds of penalties and interest may be granted.  Further, the Board reversed the Tax Commissioner’s initial ruling noting that the full amount of penalties, interest, and all other charges imposed on the Taxpayer should have been abated by the Tax Commissioner during the first hearing.

For Further Information:

Ohio Board of Tax Appeals – No. 2011-A-760