THE SENATE

S.B. NO.

2238

TWENTY-SIXTH LEGISLATURE, 2012

S.D. 1

STATE OF HAWAII

H.D. 1

 

 

 

 

 

A BILL FOR AN ACT

 

 

RELATING TO TAXATION.

 

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 


SECTION 1. Chapter 231, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:

"231- Whistleblower awards. (a) Except as provided in subsections (b) and (c), if the director of taxation proceeds with an administrative or judicial action for any violation of title 14 by a taxpayer based on information received from an individual, the individual shall receive as an award at least fifteen per cent but not more than thirty per cent of the collected proceeds, including penalties, interest, additions to tax, and additional amounts, resulting from the action, any related actions, or any settlement in response to the action; provided that no award shall be made under this section unless:

(1) In the case of any action brought against an individual taxpayer, the taxpayer's gross income exceeds $200,000 for any taxable year subject to the action;

(2) The tax, penalties, interest, additions to tax, and additional amounts in dispute exceed $500,000; and

(3) The information that the individual provides the director of taxation is submitted under penalty of perjury.

The determination of the amount of any award under this subsection shall depend upon the extent to which the individual substantially contributed to the action, as determined by the director of taxation.

(b) In the event the action described in subsection (a) is one which the director of taxation determines to be based principally on disclosures of specific allegations, rather than information provided by the individual described in subsection (a), resulting from a judicial or administrative hearing, or from a governmental report, hearing, audit, or investigation, or from the news media, the director of taxation may award such sums as the director of taxation determines to be appropriate, but in no case more than ten per cent of the collected proceeds, including penalties, interest, additions to tax and additional amounts, resulting from the action, any related actions, or any settlement in response to the action, taking into account the significance of the individual's information and the role of the individual and any legal representative of the individual in contributing to the action.

This subsection shall not apply if the information resulting in the initiation of an action described in subsection (a) was originally provided by the individual described in that subsection.

(c) If the director of taxation determines that the claim for an award under this section is brought by an individual who planned and initiated the activities that led to the violation for which the director of taxation proceeded with an administrative or judicial action, the director of taxation may reduce the award accordingly; provided that if the individual is convicted of criminal conduct arising from those activities, the director of taxation shall deny any award.

(d) Within thirty days of any determination regarding an award under this section, the determination may be appealed to the tax appeal court, which shall have jurisdiction over the matter.

(e) No contract with the department shall be necessary for any individual to receive an award under this section.

(f) Any individual described in subsection (a) or (b) may be represented by counsel."

SECTION 2. Section 231-36.4, Hawaii Revised Statutes, is amended to read as follows:

"[[]231-36.4[]] Wilful failure to collect and pay over tax. (a) Any person required to collect, account for, and pay over any tax imposed by title 14, who wilfully fails to collect or truthfully account for and pay over such tax shall be guilty of a class C felony, in addition to other penalties provided by law and, upon conviction, shall be subject to one or any combination of the following:

(1) A fine of not more than $100,000;

(2) Imprisonment of not more than five years; or

(3) Probation;

provided that a corporation shall be fined not more than $500,000.

(b) This section shall not apply to any portion of an underpayment on which a penalty is imposed under section 231-36, 231-36.6, or 231-36.8."

SECTION 3. Section 231-36.6, Hawaii Revised Statutes, is amended to read as follows:

"[[]231-36.6[]] Substantial understatements or misstatements of amounts; penalty. (a) There shall be added to the tax an amount equal to twenty per cent of the portion of any underpayment that is attributable to any substantial understatement of any tax in a taxable year. The penalty under this section shall be in addition to any other penalty assessable by law.

(b) Except as provided under subsection (c), there is a substantial understatement of tax for any taxable year if the amount of the understatement for the taxable year exceeds the greater of:

(1) Ten per cent of the tax required to be shown on the return for the taxable year; or

(2) $1,500.

(c) In the case of a corporation other than a corporation taxable under subchapter S of the Internal Revenue Code, there is a substantial understatement of tax for any taxable year if the amount of the understatement for the taxable year exceeds the greater of:

(1) Ten per cent of the tax required to be shown on the return for the taxable year; or

(2) $30,000.

(d) The amount of any understatement shall be reduced by that portion of the understatement that is attributable to:

(1) The tax treatment of any item by the taxpayer if there is or was substantial authority for such treatment; or

(2) Any item if the relevant facts affecting the item's tax treatment are adequately disclosed in the return or in a statement attached to the return and there is a reasonable basis, as defined under section 231‑36.8, for the tax treatment by the taxpayer.

The reduction in this subsection shall not apply to any item attributable to a tax shelter as described in section 231‑36.7.

(e) This section shall be construed in accordance with regulations and judicial interpretations given to section 6662 of the Internal Revenue Code.

(f) For purposes of this section, "understatement" means the excess of:

(1) The amount of tax required to be shown on the return for the taxable year; over

(2) The amount of tax imposed that is shown on the return, reduced by any rebate as that term is defined by section 6211(b)(2) of the Internal Revenue Code.

(g) This section shall not apply to any portion of an underpayment on which a penalty is imposed under section 231-36, 231-36.4, or 231-36.8."

SECTION 4. Section 231-36.8, Hawaii Revised Statutes, is amended to read as follows:

"[[]231-36.8[]] Erroneous claim for refund or credit. (a) If a claim for refund or credit with respect to tax is made for an excessive amount, the person making the claim shall be liable for a penalty in an amount equal to twenty per cent of the excessive amount; provided that there shall be no penalty assessed where the penalty calculation under this section results in an amount of less than $400.

(b) It shall be a defense to the penalty under this section that the claim for refund or credit had a reasonable basis. A person claiming the reasonable basis defense shall have the burden of proof to demonstrate the reasonableness of the claim.

(c) This section shall be construed in accordance with regulations and judicial interpretations given to section 6676 of the Internal Revenue Code.

(d) For purposes of this section:

"Excessive amount" means the amount by which the amount of the claim for refund or credit for any taxable year exceeds the amount of the claim allowable for such taxable year.

"Reasonable basis" means a standard of care used in tax reporting that is significantly higher than not frivolous or not patently improper. A reasonable basis position will be more than arguable and based on at least one or more authorities of either state or federal tax administration. A position is considered to have a reasonable basis if a reasonable and well-informed analysis by a person knowledgeable in tax law would lead that person to conclude that the position has approximately a one-in-four, or greater, likelihood of being sustained on the merits. A reasonable basis includes innocent mistakes where the excessive amount is the result of inadvertence, mathematical error, or where otherwise defined as innocent by the director pursuant to a formal pronouncement issued without regard to chapter 91.

(e) This section shall not apply to any portion of an underpayment on which a penalty is imposed under section 231-36, 231-36.4, or 231-36.6."

SECTION 5. Section 237-9.3, Hawaii Revised Statutes, is amended to read as follows:

"[[]237-9.3[]] General excise tax benefits; denial of tax benefits for failure to properly claim. (a) Notwithstanding any other law to the contrary, a person shall not be entitled to any general excise tax benefit under this chapter unless the person claiming the general excise tax benefit:

(1) Obtains a license to engage in and conduct business as required under section 237-9; and

(2) Files the annual general excise tax reconciliation tax return as provided under this chapter or chapter 231 not later than twelve months from the due date prescribed for the return.

(b) The director may require any taxpayer to furnish information to determine the validity of any general excise tax benefit and may adopt rules pursuant to chapter 91 necessary to effectuate the purposes of this section.

(c) The director may waive the denial of the general excise tax benefit under subsection (a) if the failure to comply is due to reasonable cause and not to the wilful neglect of the taxpayer.

(d) The director shall first give written notice to a nonprofit organization to comply with the requirements of this section before imposing a denial of any general excise tax benefit under this chapter, and the organization shall have ninety days from the date of the receipt of the notice to comply with the requirements.

[(d)] (e) For purposes of this section[, "general]:

"General excise tax benefit" means any tax exemption, exclusion of a taxable amount, a reduction from the measure of a tax imposed, a tax deduction, a tax credit, a lower rate of tax, a segregation or division of taxable amounts between multiple taxpayers involved in the same transaction, or any income splitting allowed under this chapter.

"Nonprofit organization" shall have the same meaning ascribed to it under section 201H-1."

SECTION 6. Section 237-41.5, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:

"(b) The personal liability under this section applies to any officer, member, manager, or other person having control or supervision over amounts of gross proceeds or gross income collected to pay the general excise tax and held in trust under subsection (a), or who is charged with the responsibility for the filing of returns or the payment of general excise tax on gross income or gross proceeds collected and held in trust under subsection (a). The person shall be personally liable for any unpaid taxes and interest and penalties on those taxes, if such officer or other person wilfully fails to pay or to cause to be paid any taxes due from the taxpayer pursuant to this chapter.

This subsection shall not apply to any officer, manager, or other person having control or supervision over amounts of gross proceeds or gross income collected to pay the general excise tax and held in trust under subsection (a), or who is charged with the responsibility for the filing of returns or the payment of general excise tax on gross income or gross proceeds collected and held in trust under subsection (a) for a nonprofit organization.

For purposes of this subsection[, "wilfully fails to pay or to cause to be paid" shall be construed in accordance with judicial interpretations given to similar provisions of the Internal Revenue Code; consistent therewith, the term "wilfully" shall mean a voluntary, intentional violation of a known legal duty.]:

"Nonprofit organization" shall have the same meaning ascribed to it under section 201H-1.

"Wilfully fails to pay or to cause to be paid" shall be construed in accordance with judicial interpretations given to similar provisions of the Internal Revenue Code; consistent therewith, the term "wilfully" shall mean a voluntary, intentional violation of a known legal duty."

SECTION 7. This Act does not affect rights and duties that matured, penalties that were incurred, and proceedings that were begun before its effective date.

SECTION 8. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 9. This Act shall take effect on July 1, 2112, provided that sections 2, 3, and 4 of this Act shall apply to taxable years beginning after December 31, 2011.


 


 

Report Title:

Taxation; General Excise Tax; Repeal; Tax Penalties

 

Description:

Prohibits penalties from being added to tax underpayments on which certain other penalties are already imposed. Establishes monetary awards for whistleblowers for a Department of Taxation action for violations of tax laws. Mandates that nonprofit organizations receive notice before denial of general excise tax benefit. Limits liability of persons having control of certain amounts held in trust for nonprofit organizations. Effective July 1, 2112. (SB2238 HD1)

 

 

 

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