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Bill Number: 1330 Ratification Number: 780 Act Number 660 Introducing Body: Senate Subject: Relating to interest on unpaid or additional tax
(A660, R780, S1330)
AN ACT TO AMEND SECTION 12-54-20, AS AMENDED, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO INTEREST ON UNPAID OR ADDITIONAL TAX, SO AS TO PROVIDE THAT WHENEVER THE TAX COMMISSION ISSUES A WARRANT OF TAX EXECUTION, INTEREST MUST BE CALCULATED ON THE AMOUNT OF TAX DUE FROM THE TIME THE TAX WAS DUE UNTIL PAID IN ITS ENTIRETY, AND TO AMEND SECTION 12-54-30, RELATING TO REFUNDS OR CREDITS FOR OVERPAYMENT OF TAXES AND THE INTEREST ON THE REFUNDS OR CREDITS, SO AS TO PROVIDE THAT INTEREST MAY ALSO BE PAID ON INCOME TAX REFUNDS PROVIDED FOR UNDER SECTION 12-7-1980 AND TO AMEND SECTION 12-54-40, AS AMENDED, RELATING TO PENALTIES FOR FAILURE TO FILE A RETURN OR TO PAY REQUIRED AMOUNT OF TAXES, SO AS TO PROVIDE, AMONG OTHER THINGS, NEW AND ADDITIONAL PENALTIES FOR FAILURE TO FILE OR PAY OR REPORT THE APPROPRIATE AMOUNT OF TAX, AND TO AMEND THE 1976 CODE BY ADDING SECTION 12-54-155 SO AS TO ESTABLISH A PENALTY FOR A SUBSTANTIAL UNDERSTATEMENT OF TAX AND TO AMEND THE 1976 CODE BY ADDING SECTION 12-54-225 SO AS TO AUTHORIZE THE SOUTH CAROLINA TAX COMMISSION TO ENTER INTO AGREEMENTS WITH OTHER STATES FOR THE MUTUAL EXCHANGE OF INFORMATION CONCERNING TAX RETURNS.
Be it enacted by the General Assembly of the State of South Carolina:
Period; calculating interest
SECTION 1. Section 12-54-20 of the 1976 Code, as last amended by Act 170 of 1987, is further amended to read:
(A) Any person who fails to remit the tax due or additional tax as provided by law must be charged interest at the rate established by the commission in the same manner and at the same time as the underpayment rate prescribed by the Internal Revenue Code. Interest must be calculated on the full amount of tax or portion of it, exclusive of penalties from the time the tax or additional tax was due until paid in its entirety. The provisions of this section apply to all taxes levied or assessed by the commission.
(B) Whenever the commission issues a warrant or tax execution under its hand, interest must be calculated on the amount of tax due from the time the tax or additional tax was due until paid in its entirety."
Overpayment; refund; interest
SECTION 2. Section 12-54-30 of the 1976 Code is amended to read:
"Section 12-54-30. If the commission discovers on examination of a return or otherwise that the tax, penalty, or interest paid by any person is in excess of the amount legally due, the commission may order a refund or give credit for the overpayment. Upon the allowance of a credit or refund of any tax, penalty, or interest paid, interest is allowed and paid on the amount of the credit or refund at the rate provided for in Section 12-54-20 from the date the tax, penalty, or interest was paid to the date the order for refund or credit was issued. No interest may be paid on income tax refunds provided for under Sections 12-9-380 and 12-7-1980 during the first seventy-five days following the due date for the filing of the return or the date the return was filed, whichever occurs later."
Penalties; failure to file, payor
SECTION 3. Section 12-54-40(b)(1), (2), and (3) of the 1976 Code are amended to read:
"(1) In the case of failure to file a return on or before the date prescribed by law, (determined with regard to any extension of time for filing), there must be added to the amount required to be shown as tax on the return, a penalty of five percent of the amount of the tax if the failure is for not more than one month, with an additional five percent for each additional month or fraction of the month during which the failure continues, not exceeding twenty-five percent in the aggregate. For the purpose of this paragraph, the amount of tax required to be shown on the return must be reduced by the amount of any part of the tax which is paid on or before the date prescribed for payment of the tax and by the amount of any credit against the tax which may be claimed upon the return. In case of a failure to file a return of tax within sixty days of the date prescribed for filing the return (determined with regard to any extension of time for filing), the addition to tax must not be less than the lesser of one hundred dollars or one hundred percent of the amount required to be shown as tax on the return.
(2) (a) In case of failure to pay the amount shown as tax on any return on or before the date prescribed by law (determined with regard to any extension of time for paying), there must be added to the tax due a penalty of one-half of one percent of the amount of the tax if the failure is for not more than one month, with an additional one-half of one percent for each additional month or fraction of the month, during which the failure continues, not exceeding twenty-five percent in the aggregate.
(b) In case of failure to pay any amount in respect of any tax required to be shown on a return which is not so shown (including an assessment) within ten days of the date of the notice and demand for payment, there must be added to the amount of tax stated in the notice and demand one-half of one percent of the amount of the tax if the failure is for not more than one month, with an additional one-half of one percent for each additional month or fraction of a month during which the failure continues, not exceeding twenty-five percent in the aggregate.
(c)(1) If any part of an underpayment is due to negligence or disregard of regulations, there must be added to the tax an amount equal to the sum of five percent of the underpayment and an amount equal to fifty percent of the interest payable under Section 12-54-20.
(2) There must not be taken into account under this subsection any portion of an underpayment attributable to fraud with respect to which a penalty is imposed under subsection (d).
(3) For purposes of this subsection, 'negligence' includes any failure to make a reasonable attempt to comply with the provisions of this title, and 'disregard' includes any careless, reckless, or intentional disregard.
(d)(1) If any part of any underpayment of tax required to be shown on a return is due to fraud, there is added to the tax an amount equal to the sum of seventy-five percent of the portion of the underpayment which is attributable to fraud and an amount equal to fifty percent of the interest payable under Section 12-54-20 with respect to that portion for the period beginning on the last day prescribed by law for payment of the underpayment (determined without regard to any extension) and ending on the date of the assessment of the tax or, if earlier, the date of the payment of the tax.
(2) If the commission establishes that any portion of an underpayment is attributable to fraud, the entire underpayment must be treated as attributable to fraud, except with respect to any portion of the underpayment which the taxpayer established is not attributable to fraud.
(3) In case of a joint return, this subsection does not apply with respect to a spouse unless some part of the underpayment is due to the fraud of the spouse.
(e) If any penalty is assessed under subsection (d) for an underpayment of tax which is required to be shown on a return, no penalty (relating to failure to file such return or pay tax) must be assessed with respect to the portion of the underpayment which is attributable to fraud.
(3) A person who is liable to obtain a license or purchase stamps for identification purposes, who fails to obtain or display the license properly, or who fails to affix the stamps properly, or fails to comply with statutory provisions, is subject to a penalty of not less than fifty dollars nor more than five hundred dollars for each failure. For failure to obtain or display a license as prescribed in Sections 12-21-2720 and 12-21-2730, the penalty is fifty dollars for each failure to comply."
Understatement of tax
SECTION 4. The 1976 Code is amended by adding:
(a) If there is a substantial understatement of tax for any taxable period, there must be added to the tax an amount equal to twenty-five percent of the amount of any underpayment attributable to the understatement.
(b)(1)(A) For purposes of this section, there is a substantial understatement of tax for any taxable period if the amount of the understatement for the taxable period exceeds the greater of ten percent of the tax required to be shown on the return for the taxable period or five thousand dollars.
(B) In the case of a corporation other than an S corporation or a personal holding company (as defined in IRC Section 542), paragraph (1) must be applied by substituting 'ten thousand dollars' for 'five thousand dollars'.
(2)(A) For purposes of paragraph (1), 'Understatement' means the excess of the amount of the tax required to be shown on the return for the taxable period over the amount of the tax imposed which is shown on the return.
(B) The amount of the understatement under subparagraph (A) must be reduced by that portion of the understatement which is attributable to (i) the tax treatment of any item by the taxpayer if there is or was substantial authority for such treatment or (ii) any item with respect to which the relevant facts affecting the item's tax treatment are adequately disclosed in the return or in a statement attached to the return.
(C) (i) In case of any item attributable to a tax shelter:
(I) subparagraph (B)(ii) does not apply; and
(II) subparagraph (B)(i) does not apply unless (in addition to meeting the requirements of the subparagraph) the taxpayer reasonably believed that the tax treatment of the item by the taxpayer was more likely than not the proper treatment.
(ii) For purposes of clause (i), 'tax shelter' means:
(I) a partnership or other entity;
(II) and investment plan or arrangement, or
(III) any other plan or arrangement if the principal purpose of the partnership, entity, plan, or arrangement is the avoidance or evasion of income tax."
SECTION 5. Section 12-54-150 of the 1976 Code is repealed.
Commission; agreements, exchange of information, other states
SECTION 6. (A) Chapter 54 of Title 12 of the 1976 Code is amended by adding:
"Section 12-54-225. The commission may enter into agreements with other states of the United States or their authorized representatives for the mutual exchange of tax returns, information thereon, and related information. The commission may, if it chooses, designate a third person to act as its agent for the receipt and exchange of the returns and information, including the assimilation of the material for proper use. The exchange may be in any form suitable to the parties, including, but not limited to, cards, tapes, and other electronic means. The returns and information exchanged may be used for the exclusive purpose of administering the tax laws of the exchanging jurisdictions, including any administrative or judicial proceeding that involves the administration, collection, or recovery of any tax. The agreements may be on such terms and conditions as the commission and the other states may agree and designate. However, any such agreement entered into by the commission must include a provision that the agreement may be canceled upon notice and that any use of the returns or information except as specifically provided in this section must immediately terminate the agreement.
(B) This section takes effect upon approval by the Governor."
SECTION 7. This act, upon approval by the Governor, is effective for all assessments issued after January 1, 1989.