OAR 150-316-0489: Estimated Tax: Underpayment Interest Not Imposed If There Is Reasonable Cause

(1) No interest for underpayment of estimated tax will be imposed on any portion of the underpayment if in or prior to the tax year the estimated tax payment was required to be made, the taxpayer retired after attaining age 62 or became disabled, and the underpayment was due to reasonable cause and not to willful neglect. The determination of whether the taxpayer’s actions were due to reasonable cause and not willful neglect is made on a case-by-case basis, taking into account all pertinent facts and circumstances. The most important factor is the extent of the effort required by the taxpayer to assess the taxpayer’s proper liability. (2) The following are examples of situations that will be accepted by the department as reasonable cause for not imposing interest. (a) Where the failure to make the necessary estimated tax payment or failure to pay the correct amount of estimated tax was caused by the unavoidable and unforeseen absence of the taxpayer from the state immediately prior to the due date of the estimated tax payment. (b) Where the failure to make the necessary estimated tax payment or failure to pay the correct amount of estimated tax was caused by reliance on an information return or other facts, if under all the circumstances, such reliance was reasonable and the taxpayer acted in good faith. Reliance on information reported on a Form W-2, Form 1099 or other information is reasonable if the taxpayer did not know or have reason to know that the information was incorrect. Generally, a taxpayer knows or has reason to know that the information on an information return is incorrect if such information is inconsistent with other information reported or otherwise furnished to the taxpayer, or with the taxpayer’s knowledge of the transaction. (c) Where the failure to make the necessary estimated tax payment or failure to pay the correct amount of estimated tax was caused by incorrect professional advice and: (A) The taxpayer relied upon the advice of an individual who the taxpayer could reasonably assume was knowledgeable and experienced in the tax involved; (B) The taxpayer supplied the individual with complete information connected with the advice given; and (C) The taxpayer could not reasonably be expected to be knowledgeable in the tax matter connected with the erroneous advice. (d) Where the taxpayer exercised ordinary business care and prudence and nevertheless was unable to make the necessary estimated tax payment or to pay the correct amount of estimated tax. (e) Where the taxpayer is unable to obtain records necessary to determine the amount of estimated tax due, for reasons beyond the taxpayer’s control. (f) Where the taxpayer failed to pay the tax based on erroneous written information received from an employee of the Department of Revenue. (g) Examples: (A) Bob, age 65, retired from his job on March 30, 2003. Bob did not request that Oregon state tax be withheld from his retirement income and he didn’t know that he needed to make estimated tax payments. When Bob filed his 2003 tax return he found he owed $1,500 of tax. Since the underpayment was not due to reasonable cause, interest on underpayment of estimated tax will be imposed. (B) Grace, age 62, retired from her job on February 1, 2003. Before Grace retired she consulted her tax consultant for advice on when to retire and what payment elections to make. Grace turned all her paperwork over to her tax consultant to fill out. The tax consultant neglected to have Oregon state tax withheld from Grace’s retirement income. Because the underpayment was due to reasonable cause, interest on underpayment of estimated tax will not be imposed. [ED. NOTE: Forms referenced are available from the agency.]