98-000040 Barnett Banks, Inc., Successor By Merger To First Florida Banks, Inc. vs. Department Of Revenue Status: Closed Recommended Order on Wednesday, June 10, 1998.

Summary: Interest on delinquent taxes, resulting from filing amended reports on basis of federal audit changes, does not accrue until time for tax payment -60 days from filing amended return- is past.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

BARNETT BANKS, INC., )

as successor by merger to )

First Florida Banks, Inc., )

)

Petitioner, )

)

vs. ) Case No. 98-0040

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

BARNETT BANKS, INC., )

)

Petitioner, )

)

vs. ) Case No. 98-0212

)

DEPARTMENT OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, Don W. Davis, an Administrative Law

Judge of the Division of Administrative Hearings, held a formal

hearing in the above-styled case on April 16, 1998, in

Jacksonville, Florida.

APPEARANCES

For Petitioner: David M. Wells, Esquire

Eric Bilik, Esquire

McGuire, Woods, & Criser

50 North Laura Street, Suite 3300

Jacksonv ille, Florida 32202

For Respondent: Jeffrey M. Dikman, Esquire

Department of Legal Affairs

The Capitol, Plaza Level 01

Tallahassee, Florida 32399-1050

STATEMENT OF THE ISSUE

The issue for determination is whether interest is due upon

additional tax paid by Petitioners from the date of amended

returns or whether interest should accrue from the date of

Petitioners’ original returns.

PRELIMINARY STATEMENT

A federal audit concluded that Petitioner Barnett Banks,

Inc., as successor to First Florida Banks, Inc. (First Florida)

had not fully reported “federal taxable income” on federal and

Florida corporate income tax returns for tax years 1986 through

1990. Additionally, it was determined that Petitioner Barnett

Banks, Inc., (Barnett) had not fully reported federal taxable

income for tax years 1988 through 1991.

Petitioners paid the additional taxes due to the state and

federal governments, but maintain they are entitled to a refund

of assessed interest, paid under protest, to the state because

the additional tax amount due was timely remitted within 60 days

after the federal audit was concluded in 1995.

Petitioners requested formal administrative proceedings to

resolve the issue of when the applicable tax payment “due date”

occurred, a determination that governs the accrual of interest.

Subsequently, both cases were transferred to the Division of

Administrative Hearings for conduct of a formal hearing pursuant

to Section 120.57(1), Florida Statutes. The cases were

consolidated by order dated March 4, 1998.

At the final hearing, Petitioners presented the testimony of

two witnesses and offered three exhibits. Respondent presented

the testimony of two witnesses and five exhibits.

The transcript of the final hearing was filed with the

Division Of Administrative Hearings on April 28, 1998. At the

conclusion of the hearing, the parties were granted leave to file

proposed recommended orders more than 10 days from the filing of

the transcript. Those post-hearing submissions have been

reviewed in the course of preparation of this recommended order.

FINDINGS OF FACT

1. First Florida timely filed consolidated federal

corporate income tax returns and consolidated Florida Chapter 220

tax returns for the tax years ending 12/31/86, 12/31/87,

12/31/88, 12/31/89, and 12/31/90.

2. Barnett timely filed consolidated federal corporate

income tax returns and consolidated Florida Chapter 220 tax

returns for 12/31/88, 12/31/89, 12/31/90, and 12/31/91.

3. Barnett acquired First Florida on December 7, 1992. At

the time of the merger, First Florida was being audited by the

Internal Revenue Service (IRS) for the tax years 1986, 1987,

1988, 1989, and 1990. Barnett subsequently agreed with the IRS

to federal tax adjustments for each of the respective tax years

with regard to First Florida and itself.

4. Alternatively, it may be stated that Petitioners under-

reported “federal taxable income,” on line 30 of their original

federal corporate income tax returns (“original federal

returns”), and correspondingly, on line 1 of their original

Florida corporate income tax returns (“original Florida

returns”), for the tax years at issue.

5. As a result of an audit by the Internal Revenue Service,

various adjustments were made to “federal taxable income.” These

adjustments became final and were agreed upon by the Petitioners

and the Internal Revenue Service. The effect of these

adjustments was to increase “federal taxable income” beyond that

which had been previously reported by Petitioners on line 30 of

their original federal returns, and, therefore, to increase

Petitioners’ federal and Florida tax liability.

6. After the federal audit adjustments became final in

1995, Petitioners paid to the federal government the additional

amount of tax determined by the Internal Revenue Service to be

due.

7. Also in 1995, Petitioners timely reported the federal

audit adjustments to the State of Florida, within sixty days

after the federal audit changes became final, pursuant to Section

220.23, Florida Statutes. This was done by filing Form F-1120X

notifications, in order to “amend” their original Florida return

filings, for each of the pertinent tax years (hereinafter,

“amendatory notifications”).

8. The amendatory notifications filed by Petitioners

increased and revised the amounts which were previously reported

on line 1 of the original Florida returns, for each of the

pertinent tax years. The purpose of filing amendatory

notifications was to remit additional taxes determined to be due

to the State of Florida, as a result of the federal audit

adjustments. However, Petitioners did not remit any interest to

the State of Florida at the time of filing the amendatory

notifications.

9. After receipt of the amendatory notifications,

Respondent issued Notices of Tax Action to Petitioner Barnett

Banks, Inc., as successor in interest to First Florida Banks,

Inc., informing Petitioner that additional interest was due in

the following amounts: $86,234.80 for 1986, $70,901.18 for 1987,

$55,883.73 for 1988, $27,620.11 for 1989, and $15,115.37 for

1990.

10. Respondent also issued Notices of Tax Action to

Petitioner Barnett Banks, Inc., and/or its subsidiaries informing

Petitioner and/or its subsidiaries that additional interest was

due in the following amounts: $74,658.99 for 1988, $21,463.16 for

1989, $34,930.18 for 1990, and $6,850.31 for 1991.

11. Respondent did not assess any penalties against

Petitioners, because both the original returns and the subsequent

amendatory notifications were timely filed and because no finding

of willful or negligent under-reporting was made by Respondent.

12. Petitioners paid under protest the amounts of interest

claimed to be due by Respondent and timely sought a refund, which

was denied.

13. This action for formal administrative review challenges

Respondent’s assessment of liability for interest and related

refund denial. No dispute exists concerning the mathematical

computation of the assessed amount.

14. Prior to 1993, Respondent’s policy, with regard to

payment of interest under circumstances similar to those

presented in these proceedings, did not require the payment of

interest if the amendatory notifications were timely filed and

additional tax timely paid. This finding is established by the

testimony of Joan Eckert, formerly employed by Respondent during

the years 1987-93 as a technical assistant and as a tax law

specialist. In addition to routinely advising that interest was

not payable where additional taxes were timely paid, Eckert

participated in the drafting of a proposed rule that was

subsequently published in 1993, further documenting and

describing Respondent’s policy at that time in such situations.

15. Published in Volume 19, No. 24, June 18, 1993, of the

Florida Administrative Weekly, the proposed rule provided in

pertinent part as follows:

If the amended return concedes the accuracy

of a federal change or correction, any

deficiency in Florida corporate income,

franchise, or emergency excise tax is deemed

assessed on the date of filing the amended

return. Therefore, no penalty or interest

will be assessed if the amended return is

filed not later than 60 days after the date

notification is required by s.

220.23(2)(a)2., F.S.

16. However, the proposed rule was never formerly adopted

in the form and content as originally published. By May 17,

1994, Respondent’s policy solidified in another direction and

Florida Administrative Code Rule 12C-1.023(6), was enacted, which

provides:

If the amended return concedes the accuracy

of a federal change or correction, any

deficiency in Florida corporate income,

franchise, or emergency excise tax is deemed

assessed on the date of filing the amended

return. No penalty will be assessed if the

amended return is filed not later than 60

days after the date notification is required

by Section 220.23(2)(a)3., F.S. and

subsection (5) of this rule. However,

interest will be due on any deficiency from

the original due date of the return through

the date of payment.

17. In this proceeding, Respondent’s representatives have

deliberately elected to rely upon Respondent’s statutory

authority for the instant assessment, as opposed to a duly

enacted rule on the basis that the formal rule was not in effect

until 1994, and the assessment was for interest on taxes that

predated the rule.

CONCLUSIONS OF LAW

18. The Division of Administrative Hearings has

jurisdiction over the parties and the subject matter. Section

120.57(1), Florida Statutes.

19. Section 214.43, Florida Statutes (1985), which has now

been renumbered as Section 220.809, Florida Statutes (1997),

provides when interest shall accrue as follows:

(1) If any amount of tax imposed by this

chapter is not paid on or before the date ,

determined without regard to any extensions,

prescribed for payment of such tax, interest

shall be paid in accordance with the

provisions of s. 220.807 on the unpaid amount

from such date to the date of payment.

(emphasis supplied.)

20. The date “prescribed for payment” is determined, as a

result of Respondent’s election to rely upon its statutory

authority rather than policy codification in its rules, through

analysis of Section 220.23, Florida Statutes, which reads as

follows:

220.23 Federal returns.–

(1) Any taxpayer required to make a return

for a taxable year under this code may, at

any time that a deficiency could be assessed

or a refund claimed under this code in

respect of any item reported or properly

reportable on such return or any amendment

thereof, be required to furnish to the

department a true and correct copy of any

return which may pertain to such item and

which was filed by such taxpayer under the

provisions of the Internal Revenue Code.

(2) In the event the taxable income, any item

of income or deduction, or the income tax

liability reported in a federal income tax

return of any taxpayer for any taxable year

is adjusted by amendment of such return or as

a result of any other recomputation or

redetermination of federal taxable income or

loss, if such adjustment would affect any

item or items entering into the computation

of such taxpayer's net income subject to tax

for any taxable year under this code , the

following special rules shall apply :

(a) The taxpayer shall notify the department

of such adjustment by filing either an

amended return or such other report as the

department may by regulation prescribe , which

return or report:

1. Shall show the taxpayer's name, address,

and employer identification number; the

adjustments; the taxpayer's revised net

income subject to tax and revised tax

liability under this code; and such other

information as the department may by

regulation prescribe;

2. Shall be signed by a person required to

sign the original return or by a duly

authorized representative; and

3. Shall be filed not later than 60 days

after such adjustment has been agreed to or

finally determined for federal income tax

purposes , or after any federal income tax

deficiency or refund, abatement, or credit

resulting therefrom has been assessed, paid,

or collected, whichever shall first occur.

(b) If the amended return or other report

filed with the department concedes the

accuracy of a federal change or correction,

any deficiency in tax under this code

resulting therefrom shall be deemed assessed

on the date of filing such amended return or

report, and such assessment shall be timely,

notwithstanding any other provision contained

in part VIII of this chapter.

(c) In any case where notification of an

adjustment is required under paragraph (a),

then notwithstanding any other provision

contained in s. 95.091(3):

1. A notice of deficiency may be issued at

any time within 5 years after the date such

notification is given; or

2. If a taxpayer either fails to notify the

department or fails to report a change or

correction which is treated in the same

manner as if it were a deficiency for federal

income tax purposes, a notice of deficiency

may be issued at any time;

3. In either case, the amount of any proposed

assessment set forth in such notice shall be

limited to the amount of any deficiency

resulting under this code from recomputation

of the taxpayer's income for the taxable year

after giving effect only to the item or items

reflected in the adjustment.

(d) In any case when notification of an

adjustment is required by paragraph (a), a

claim for refund may be filed within 2 years

after the date on which such notification was

due, regardless of whether such notice was

given, notwithstanding any other provision

contained in s. 220.727. However, the amount

recoverable pursuant to such a claim shall be

limited to the amount of any overpayment

resulting under this code from recomputation

of the taxpayer's income for the taxable year

after giving effect only to the item or items

reflected in the adjustment required to be

reported. (emphasis supplied).

21. As set forth above in the foregoing statutory section,

“special rules” establish that additional taxes must be paid

within 60 days of the amended return or report, the equivalent of

Petitioners’ amendatory notifications. Absent payment of the

additional tax within that period, interest accrues from the

conclusion of that 60-day period. Petitioners were timely in

presentment of their amendatory notifications and payment of the

additional required tax to Respondent. Accordingly no

delinquency exists for which interest can be assessed.

RECOMMENDATION

Based on the foregoing, it is hereby RECOMMENDED that a

Final Order be entered directing refunds to Petitioners of

interest payments made to Respondent in these consolidated cases.

DONE AND ENTERED this 10th day of June , 1998, in

Tallahassee, Leon County, Florida.

___________________________________

DON W. DAVIS

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

[phone] SUNCOM 278-9675

Fax Filing [phone]

Filed with the Clerk of the

Division of Administrative Hearings

this 10th day of June, 1998.

COPIES FURNISHED:

Jeffrey M. Dikman, Esquire

Department of Legal Affairs

The Capitol, Tax Section

Tallahassee, Florida 32399-1050

David M. Wells, Esquire

Eric Bilik, Esquire

McGuire, Woods, and Criser

50 North Laura Street, Suite 3300

Jacksonville, Florida 32202

Linda Lettera, General Counsel

Department of Revenue

204 Carlton Building

Tallahassee, Florida 32399-0100

Larry Fuchs, Executive Director

Department of Revenue

104 Carlton Building

Tallahassee, Florida 32399-0100

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this Recommended Order. Any exceptions

to this Recommended Order should be filed with the agency that

will issue the Final Order in this case.