Seattle Rule 5-007

Penalties.

Seattle Rule 5-007

Penalty Type -

Description

Penalty

Rate

Unregistered taxpayer -

tax when the Director discovers a

taxpayer who has taxable activity

but is not registered.

5%

(1)(b)

Substantially Underpaid

Deficiency Assessment -

Thousand Dollars. This penalty also

increases ifthe tax due remains

unpaid.

5/15/25%

(1)(c)

Issuance of a Notice of Violation

or Criminal Complaint -

Ten percent added when a notice of

violation or criminal complaint is

issued to collect unpaid tax.

10%

(1)(d)

Nonassessable and assessable penalties.

Nonassessable penalties are penalties that the law imposes automatically when the

facts giving rise to them occur. There is no right to contest the imposition of a

nonassessable penalty. By contrast, assessable penalties must be assessed by the

Director within the statute of limitations for assessments and taxpayers have the

right to contest the assessment in the same manner as any other assessment, such

is still not paid on or before the last day of the second month following the due

date. The minimum penalty for late payment is five dollars.

Various sets of circumstances can affect how the late payment of a return penalty is

applied. See (a)(i) and (ii) of this subsection for some of the most common

circumstances.

(i) Will I avoid the penalty if I file my return without the payment? The Director may

refuse to accept any return which is not accompanied by payment of the tax shown

to be due on the return. If the return is not accepted, the taxpayer is considered to

have failed or refused to file the return. Failure to file the return can result in the

issuance of a notice of underpayment (NOU) or an assessment for the actual, or an

do? You should fill out and send in a business license tax certificate application to

get your business license tax certificate. It is important for you to apply for and

receive business license tax certificate before the department identifies you as an

unregistered taxpayer without a business license tax certificate and contacts you

about your business activities. Except as noted below, if a person engages in

taxable activities without a business license tax certificate, but then applies for and

receives a business license tax certificate prior to being contacted by the

department, the business license tax certificate registration is considered voluntary.

When a person voluntarily applies for and receives a business license tax certificate,

(1) Engaged in evasion or misrepresentation with respect to reporting tax liabilities

or other tax requirements; or

(2) Engaged in taxable business activities during a period of time in which the

persons previously open tax reporting account had been closed.

(B) Even though circumstances, such as those listed in (5)(a)(iii)(A) above, may

warrant retention of the late payment of return penalty, a person who has

voluntarily applied for and received a business license tax certificate will not be

subject to the unregistered taxpayer penalty (see subsection (b) below).

(b)Engaging in business without a business license tax certificate. SMC 5.55.110 D

imposes a five percent penalty on the tax due for any period of time where a

percent deficiency penalty to an assessment if the Director determines that any tax

has been "substantially underpaid," as defined below.

As used in this section, "substantially underpaid" means that the taxpayer has paid

less than eighty percent of the amount of tax determined by the Director to be due

for all taxes contained in SMC chapters 5.35, 5.37, 5.40, 5.45, 5.48, and 5.52,

included in, and for the entire period of time covered by, the Directors examination,

and the amount of underpayment is at least one thousand dollars.

If payment of the tax amount due and the five percent deficiency penalty due is not

received by the due date specified in the notice, or any extension thereof, the

deficiency penalty shall be increased to fifteen percent of the amount of the tax

owing;and if payment of the tax amount due and the fifteen percent deficiency

collection of any fee, tax, increase, or penalty, an additional penalty will

immediatelybe added in the amount of ten percent of the amount of the tax due,

but not less than ten dollars.

(e) Disregard of specific written instructions. If the Director finds that all or any part

of a deficiency resulted from the disregard of specific written instructions as to

reporting of tax liabilities, an additional penalty of ten percent of the additional tax

found due will be imposed because of the failure to follow the instructions

pursuant to SMC 5.55.110(E).

(i) A taxpayer is considered to have received specific written instructions when the

Director has informed the taxpayer in writing of its tax obligations and specifically

advised the taxpayer that failure to act in accordance with those instructions may

result in the imposition of this penalty. The specific written instructions may be

given as a part of a NOU, tax assessment, audit, determination, or closing

agreement. The penalty applies when a taxpayer does not follow the specific

written instructions, resulting in underpayment of the tax due. The penalty may be

(f) Evasion. If the Director finds that all or any part of the deficiency resulted from

an intent to evade the tax due, a penalty of fifty percent of the additional tax

determined by the Director to be due will be added. The evasion penalty is imposed

when a taxpayer knows a tax liability is due but attempts to escape detection or

payment of the tax liability through deceit, fraud, or other intentional wrongdoing.

An intent to evade does not exist where a deficiency is the result of an honest

mistake, miscommunication, or the lack of knowledge regarding proper accounting

methods. The Director has the burden of showing the existence of an intent to

evade a tax liability through clear, cogent and convincing evidence. The evasion

penalty only applies to the specific taxes that a taxpayer intended to evade. To the

extent that the evasion involved only specific taxes, the evasion penalty will be

(2) Statutory restrictions on imposing penalties.

penalty on the same tax liability. However, those penalties are subject to the

following restrictions:

(a) The penalties imposed for the late payment of a return, unregistered taxpayer

without a business license tax certificate, substantial underpayment assessment,

and issuance of a notice of violation or criminal complaint (see subsection (1)(a)

through (d) of this rule) may be applied against the same tax concurrently, each

unaffected by the others, up to their combined maximum rates. Application of one

or any combination of these penalties does not prohibit or restrict full application

of other penalties authorized by law, even when they are applied against the same

tax.

(b) The Director may impose either the evasion penalty (subsection (1)(f) of this

rule) or the penalty for disregarding specific written instructions (subsection (1)(e)

of this rule), but may not impose both penalties on the same tax.

SMC 5.55.120 authorizes the Director to waive or cancel penalties under limited

circumstances.

The circumstances beyond the control of the taxpayer must actually cause the late

payment. Circumstances beyond the control of the taxpayer are generally those

which are immediate, unexpected, or in the nature of an emergency. Such

circumstances resultin the taxpayer not having reasonable time or opportunity to

timely file and pay. Circumstances beyond the control of the taxpayer include, but

are not necessarily limited to, the following.

taxpayer fully understood the information given. Reliance by the taxpayer on

incorrect advice received from the taxpayers legal or accounting representative is

not a basis for cancellation of a penalty.

(ii) The delinquency was directly caused by death or serious illness of the taxpayer,

or a member of the taxpayers immediate family. The same circumstances apply to

the taxpayers accountant or other tax preparer, or their immediate family. This

situation is not intended to have an indefinite application. A death or serious illness

which denies a taxpayer reasonable time or opportunity to obtain an extension or

to otherwise arrange timely filing and payment is a circumstance eligible for penalty

waiver.

(iii) The delinquency was caused by the destruction by fire or other casualty of the

taxpayers place of business or business records.

may be waived either as a result of circumstances beyond the control of the

taxpayer or after a twenty-four month review of the taxpayers reporting history, as

days late after the due date will not be waived under the twenty-four month review.

(i) If the late payment of return penalty is assessed on a return but is not the result

or canceled if the taxpayer has timely filed and paid all tax returns and business

license tax certificate renewals (regardless of type of tax or license) due for a period

of twenty-four months immediately preceding the period covered by the return for

which the waiver is being requested.

A taxpayer who applies for and receives a business license tax certificate to engage

in business with the department, and engages in business activities for a period

payments made within the thirty day period after the due date. The twenty-four

month reviewprocess cannot be used as justification for a waiver of interest,

assessment penalty, or any penalty other than the late payment of return penalty

described above.

DIRECTOR'S CERTIFICATION