Fraud and other penalties

# (a)

If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75% of the portion of the underpayment which is attributable to fraud. If the Director establishes that any portion of an underpayment is attributable to fraud, the entire underpayment shall be treated as attributable to fraud, except with respect to any portion of the underpayment which the taxpayer establishes (by a preponderance of the evidence) is not attributable to fraud. In the case of a joint return, this section shall not apply with respect to a spouse unless some part of the underpayment is due to the fraud of such spouse. For purposes of this subsection, “underpayment” shall have the meaning ascribed to such term in § 6664(a) of the Internal Revenue Code (26 U.S.C. § 6664(a)), or successor provisions. The penalty prescribed by this subsection shall apply only in cases where a return of tax is filed.

# (b)

If an individual subject to tax under Chapter 11 of this title fails to file a declaration of estimated tax, or fails to pay all or any part of an installment of tax imposed under Chapter 11 of this title, such individual shall be deemed to have made an underpayment of estimated tax, and there shall be added to the tax an amount equal to 11/2% per month, or fraction thereof, of the amount of such underpayment for the period of the underpayment. The Director shall determine the amount of an underpayment of estimated tax by an individual in a manner consistent with the internal revenue laws of the United States.

# (c)

# (1)

In the case of any underpayment of tentative tax or installment of estimated tax required by Chapter 19 of this title, there shall be added to the tax for the taxable year an amount equal to 11/2% per month, or fraction thereof, of the amount of such underpayment for the period of the underpayment.

# (2)

For purposes of paragraph (c)(1) of this section, the amount of the underpayment shall be the excess of:

a. The amount of the tentative tax or installment payment which would be required to be made if the estimated tax were equal to 80% of the tax shown on the final return for the taxable year, or, if no such return was filed, 80% of the tax for such taxable year, over

b. The amount, if any, of the tentative tax or the installment paid on or before the last date prescribed for payment.

# (3)

For purposes of paragraph (c)(1) of this section, the period of the underpayment shall run from the date the tentative tax or installment was required to be paid to the first day of the fourth month following the close of the taxable year, or to the date on which paid, whichever is earlier.

# (4)

Notwithstanding the foregoing provisions of this subsection, no addition to tax shall be imposed under this subsection if the total amount of all payments of estimated tax made on or before the last date prescribed for the payment thereof equals or exceeds the amount which would have been required to be paid on or before such date if the estimated tax were the tax shown on the final return of the taxpayer for the preceding taxable year.

# (5)

Paragraph (c)(4) of this section shall apply only in the case of a small corporation. For purposes of this paragraph (c)(5), the term “small corporation” shall have the meaning set forth in § 1905(5) of this title.

# (d)

If any employer fails to pay the amount shown as tax on any withholding return filed pursuant to § 1154 of this title, there shall be added to the tax an amount equal to 1% of the tax required to be shown on such return for each month, or fraction thereof, during which such failure continues, not exceeding 25% in the aggregate. Such employer shall be liable for the payment of such additions to tax, and it shall not be collected from the employee.

# (e)

For tax periods beginning after December 31, 1999, any person required under Title 4 or this title to collect, account for and pay over any tax imposed by Title 4 or this title, other than § 3002 and Chapters 51 and 52 of this title, who wilfully fails to collect or truthfully account for and pay over such tax, or wilfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable for a penalty equal to the total amount of the tax evaded, or not collected or not accounted for and paid over. No addition to tax under subsection (a) of this section shall be imposed for any action or failure to act to which this subsection applies. The term “person” as used in this subsection, includes an officer or employee of a corporation, or a member, officer or employee of a pass-through entity, as defined in § 1601 of this title, who, as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs.

# (f)

In addition to any criminal penalty provided by law, any person who wilfully fails to pay, or to deduct or withhold and pay, any tax imposed under authority of this title or Title 4, or to make tender, sign or certify any return or declaration of estimated tax, or to supply any information within the time required by or under this title or Title 4, shall be liable for a penalty of not more than $3,000, in addition to any other amounts prescribed under this title, that shall be assessed and collected by the Director.

# (g)

# (1)

In addition to any criminal penalty provided by law, the Director shall assess a penalty of $500 whenever:

a. Any individual makes a false statement under § 1151 of this title which results in a decrease in the amounts deducted and withheld under subchapter VII of Chapter 11 of this title; and

b. As of the time such statement was made, there was no reasonable basis for such statement.

# (2)

The Director may waive in whole or in part the penalty imposed under paragraph (g)(1) of this section if the taxes imposed with respect to the individual under subchapter VII of Chapter 11 of this title for the taxable year are equal to or less than the sum of:

a. The credits against such taxes allowed by said subchapter; and

b. The payments of estimated tax on account of such taxes.

# (h)

Penalties prescribed under the provisions of this chapter shall be additions to tax and shall be assessed, collected and paid in the same manner as taxes.

# (i)

For purposes of subsection (a) of this section (relating to underpayments due to fraud), the amount shown as the tax by the taxpayer upon the return shall be taken into account in determining the amount of the underpayment only if such return was filed on or before the due date of such return, determined with regard to any extension of time for such filing.

# (j)

If any check or money order in payment of any amount receivable under this title or Title 4 is not duly paid, in addition to any other penalties provided by law, there shall be paid as a penalty by the person who tendered such check or money order an amount equal to 2% of the amount of such check or money order, except that if the amount of such check or money order is less than $750, the penalty under this subsection shall be $15 or the amount of such check or money order, whichever is the lesser. This subsection shall not apply if the person tendered such check or money order in good faith and with reasonable cause to believe it would be duly paid. For purposes of this subsection, any other method of payment, including but not limited to payment by electronic funds transfer, payment by means of the automated clearing house, or payment by credit card, debit card or charge card shall be considered a payment by check or money order.

# (k)

# (1)

If:

a. Any part of any understatement of liability with respect to any return or claim for refund is due to a position for which there was not a realistic possibility of being sustained on its merits;

b. Any person who is an income tax return preparer with respect to such return or claim knew (or reasonably should have known) of such position; and

c. The relevant facts affecting the tax treatment of the item affected by such position were not adequately disclosed in such return or claim or in a statement attached to such return or claim (or in a federal return or a statement attached thereto, a copy of which was filed with such return or claim) or indicate such position was frivolous;

such person shall pay a penalty of $250 with respect to such return or claim unless it is shown that there is reasonable cause for the understatement and such person acted in good faith.

# (2)

If any part of any understatement of liability with respect to any return or claim for refund is due:

a. To a wilful attempt in any manner to understate the liability for tax by a person who is an income tax return preparer with respect to such return or claim; or

b. To any reckless or intentional disregard of rules or regulations by any such person;

such person shall pay a penalty of $1,000 with respect to such return or claim. With respect to any return or claim, the amount of the penalty payable by any person by reason of this paragraph (k)(2)b. shall be reduced by the amount of any penalty paid by such person by reason of paragraph (k)(1) of this section.

# (3)

a. If at any time there is a final administrative determination or a final judicial decision that there was no understatement of liability in the case of any return or claim for refund with respect to which a penalty under paragraph (k)(1) or (2) of this section has been assessed, such assessment shall be abated, and if any portion of such penalty has been paid the amount so paid shall be refunded to the person who made such payment as an overpayment of tax without regard to any period of limitations which, but for this subparagraph, would apply to the making of such refund.

b. For purposes of this subsection, the term “understatement of liability” means any understatement of the net amount payable with respect to the tax imposed under Chapter 11 or Chapter 19 of this title or any overpayment of the net amount creditable or refundable with respect to any such tax. Except as otherwise provided in paragraph (k)(3)a. of this section, the determination of whether or not there is an understatement of liability shall be made without regard to any administrative or judicial action involving the taxpayer.

# (l)

Any person who:

# (1)

Aids or assists in, procures, or advises with respect to, the preparation or presentation of any portion of a return, affidavit, claim or other document;

# (2)

Knows or has reason to believe that such portion will be used in connection with any material matter arising under this title or Title 4; and

# (3)

Knows that such portion (if so used) would result in an understatement of the liability for tax of another person;

shall pay a penalty with respect to each such document in the amount determined in accordance with, and subject to the limitations contained in, § 6701 of the Internal Revenue Code (26 U.S.C. § 6701), or successor provisions. Except as provided in subsection (m) of this section, the penalty imposed by this subsection shall be in addition to any other penalty provided by law.

# (m)

No penalty shall be assessed under subsection (k) of this section on any person with respect to any document for which a penalty is assessed on such person under subsection (l) of this section.

# (n)

In addition to any other penalty provided by law, any person who is a paid tax preparer with respect to any return or claim for refund who fails to sign the return or claim for refund and to provide their preparer tax identification number as required by § 548 of this title, shall pay a civil penalty of $50 for each such failure, unless it can be shown that the failure was due to reasonable cause. The civil penalty imposed on any paid tax preparer with respect to returns or claims for refund filed during any calendar year shall not exceed $25,000. The Division of Revenue may use an amount equal to the total penalties collected under this section to regulate paid tax preparers, including, without limitation, commencing actions permitted under § 549 of this title.