North Dakota tax authorities may waive or reduce penalty and interest on delinquent state income taxes for good cause shown.[1] The North Dakota Administrative code provides three ways a taxpayer may show good cause.
First, penalties and interest may be waived for good cause if the taxpayer has been cooperative during the audit process and has a history of correct filing.[2]
Second, interest may be waived for good cause if the Tax Commissioner fails to issue a notice of determination, respond to the statement of grounds, or issue a notice of reconsideration in accordance with each respective deadline.[3]
Third, one hundred percent of the penalty will be waived and two-thirds of the interest will be waived for good cause if the taxpayer can produce a letter that requested an opinion, produce the written opinion signed by the division director or director supervisor, and demonstrate the taxpayer’s detrimental reliance on the advice provided in the opinion.[4]
There is no case law further defining good cause for the purposes of waiving or reducing penalty and interest on late paid state income taxes in North Dakota.
Practice tips if the taxpayer does not fall within one of these three categories: Argue that the statutory waiver for “good cause” is broader than the administrative rule and the administrative rule only outlines some, but not all, of the ways “good cause” may be shown to reduce penalty and interest. For example, under the IRS “good cause” waiver, penalty can be waived if the tax filing or payment was impeded by natural disaster, sickness, death, some kinds of reliance on the advice of tax professionals, and other grounds for good cause. It is worth arguing that North Dakota should also accept those grounds as good cause.
For a “history of correct filing” waiver, argue that principles of IRS first time offender penalty abatement may be considered. The IRS generally may waive penalty if the taxpayer has been compliant for the previous three years.
Jared M. Le Fevre is a Partner in the Tax, Trusts and Estates Practice Group of Crowley Fleck PLLP. Mr. Le Fevre represents taxpayers before the IRS, IRS Independent Office of Appeals, Tax Court, Federal District Court and state tax agencies throughout Montana, Wyoming, North Dakota, Idaho, and Utah. Mr. Le Fevre is involved in federal and state and local tax audits, appeals, and tax resolution throughout these western states. Mr. Le Fevre also advises clients on the tax effects of business and real estate transactions.
[1] N.D. Cent. Code § 57-38-45(5).
[2] N.D. Admin. Code § 81-01.1-01-09(1).
[3] N.D. Admin. Code § 81-01.1-01-09(2).
[4] N.D. Admin. Code § 81-01.1-01-10.