422.25 Computation of tax, interest, and penalties — limitation.
1. a. For purposes of this subsection:
(1)“Federal adjustment” means a change to an item or amount required to be determined
under the Internal Revenue Code and the regulations thereunder that is used by the
taxpayer to compute state tax owed whether such change results from action by the internal
revenue service, or the filing of a timely amended federal return or timely federal refund
claim. A federal adjustment is positive to the extent that it increases Iowa taxable income
as determined under this title and is negative to the extent that it decreases Iowa taxable
income as determined under this title.
(2)“Federal adjustments report” means the method or form required by the department
by rule to report final federal adju
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422.25 Computation of tax, interest, and penalties — limitation.
1. a. For purposes of this subsection:
(1) “Federal adjustment” means a change to an item or amount required to be determined
under the Internal Revenue Code and the regulations thereunder that is used by the
taxpayer to compute state tax owed whether such change results from action by the internal
revenue service, or the filing of a timely amended federal return or timely federal refund
claim. A federal adjustment is positive to the extent that it increases Iowa taxable income
as determined under this title and is negative to the extent that it decreases Iowa taxable
income as determined under this title.
(2) “Federal adjustments report” means the method or form required by the department
by rule to report final federal adjustments or final federal partnership adjustments as defined
in section 422.25A, and in the case of any entity taxed as a partnership or S corporation for
federal income tax purposes, identifies all owners that hold an interest directly in such entity
and provides the effect of the final federal adjustments on such owner’s Iowa income.
(3) “Final determination date” means the following:
(a) Except as provided in subparagraph divisions (b) and (c), for federal adjustments
arising from an internal revenue service audit or other action by the internal revenue service,
the final determination date is the first day on which no federal adjustments arising from
that audit or other action remain to be finally determined, whether by internal revenue
service decision with respect to which all rights of appeal have been waived or exhausted, by
agreement, or, if appealed or contested, by a final decision with respect to which all rights of
appeal have been waived or exhausted. For agreements required to be signed by the internal
revenue service and the taxpayer, the final determination date is the date on which the last
party signed the agreement.
(b) For federal adjustments arising from an internal revenue service audit or other action
by the internal revenue service, if the taxpayer filed as a member of a consolidated return
under section 422.37, the final determination date is the first day on which no related federal
adjustments arising from that audit or other action remain to be finally determined, as
described in subparagraph division (a), for the entire group.
(c) For federal adjustments arising from a timely filed amended federal return or a timely
filedfederalrefundclaim, orifitisafederaladjustmentreportedonatimelyamendedfederal
return or other similar report filed pursuant to section 6225(c) of the Internal Revenue Code,
the final determination date is the day on which the amended return, refund claim, or other
similar report was filed.
(4) “Final federal adjustment” means a federal adjustment after the final determination
date for that federal adjustment has passed.
b. Within three years after the return is filed or within three years after the return became
due, including any extensions of time for filing, whichever time is the later, the department
shall examine the return and determine the tax. However, if the taxpayer omits from income
an amount which will, under the Internal Revenue Code, extend the statute of limitations for
assessment of federal tax to six years under the federal law, the period for examination and
determination is six years.
c. (1) The period for examination and determination of the correct amount of tax is
unlimited in the case of a false or fraudulent return made with the intent to evade tax or in
the case of a failure to file a return.
(2) If a person required to file a return with the department fails to file the return with the
department, the department may, at any time, estimate the tax due based upon information
or knowledge the department is able to obtain.
(3) If the department estimates an amount of tax under subparagraph (2), the following
shall apply:
(a) The department shall issue a notice of assessment to the person for which the tax is
estimatedinaccordancewithsection421.60. Thenoticeofassessmentshallnotbeappealable
pursuant to section 422.28 or 422.29, except to appeal the determination that the person is
required to file a return.
(b) The department shall include a statement with the notice that if the person files a
return within three years from the date on the notice of assessment, the department may
replacetheassessmentwiththeamountshowndueontheperson’sreturn,plusanyapplicable
penalty and interest, and the department may examine that return and determine the tax,
penalty, and interest within the period provided in this section.
(c) If the person fails to file a return within three years from the date on the notice of
assessment, the person may pay the tax, penalty, and interest and file a refund claim within
the time period provided in section 422.73, or may request relief under section 421.5.
d. In lieu of the period of limitation for any prior year for which an overpayment of tax or
an elimination or reduction of an underpayment of tax due for that prior year results from the
carryback to that prior year of a net operating loss or net capital loss, the period is the period
of limitation for the taxable year of the net operating loss or net capital loss which results in
the carryback.
e. (1) In addition to the applicable period of limitation for examination and determination
in paragraph “b”, “c”, or “d”, the department may make an examination and determination at
any time within one year from the date of receipt by the department of a federal adjustments
report with respect to a final federal adjustment or final federal partnership adjustment as
defined in section 422.25A for a particular tax year. In order to begin the running of the
one-year period, the federal adjustments report related to the final federal adjustment or final
federal partnership adjustment shall be transmitted to the department by the taxpayer in the
form and manner specified by the department by rule.
(2) The department in its discretion may adopt rules to establish a de minimis amount for
which subparagraph (1) shall not apply and the taxpayer shall not be required to file a federal
adjustments report.
(3) The department may in its discretion and when administratively feasible adopt a
process through rule by which a taxpayer may make estimated payments of tax expected
to result from a pending internal revenue service audit prior to the filing of a federal
adjustments report with the department. The process shall provide that the estimated tax
payments shall be credited against any tax liability ultimately found to be due to the state
from the internal revenue service audit and will limit the accrual of further statutory interest
on that liability. The process shall also provide that if the estimated tax payments exceed
the final tax liability and statutory interest ultimately determined to be due, the taxpayer is
entitled to a refund or credit for the excess, without interest, provided the taxpayer files a
federal adjustments report, or a claim for refund or credit of tax under section 422.73, no
later than one year following the final determination date.
f. The period of examination and determination is unlimited under this title in the case of
any action by the department to recover or rescind any tax expenditure as defined by section
2.48, subsection 1, or any other incentive or assistance, due to a failure to meet or maintain
the requirements of a program administered by the economic development authority.
2. a. If the tax found due under subsection 1 is greater than the amount paid, the
department shall compute the amount due, together with interest and penalties as provided
in paragraph “b”, and shall mail a notice of assessment to the taxpayer and, if applicable,
to the taxpayer’s authorized representative of the total, which shall be computed as a sum
certain, with interest computed to the last day of the month in which the notice is dated.
b. In addition to the tax or additional tax determined by the department under subsection
1, the taxpayer shall pay interest on the tax or additional tax at the rate in effect under section
421.7 for each month counting each fraction of a month as an entire month, computed from
the date the return was required to be filed. In addition to the tax or additional tax, the
taxpayer shall pay a penalty as provided in section 421.27.
3. a. If the amount of the tax as determined by the department is less than the amount
paid, the excess shall be refunded with interest in accordance with section 421.60, subsection
2, paragraph “e”.
b. Notwithstanding section 421.60, subsection 2, paragraph “e”, and paragraph “a” of
this subsection, when the net operating loss or net capital loss carryback to a prior year
eliminates or reduces an underpayment of tax due for an earlier year, the full amount of the
underpayment of tax shall bear interest at the rate in effect under section 421.7 for each
month counting each fraction of a month as an entire month from the due date of the tax for
the earlier year to the last day of the taxable year in which the net operating loss or net capital
loss occurred.
4. a. All payments received must be credited first to the penalty and interest accrued and
thentothetaxdue. Ifpaymentsinmultipletaxperiodsareunpaid,paymentsreceivedshallbe
credited first to the penalty and interest accrued and then tax due for the earliest period, and
then credited to each following tax period in chronological order from the earliest tax period
to the latest tax period. Payments required to be made within a tax period must be credited
first to the earliest deposit period within the tax period. For purposes of this subsection, the
department shall not reapply prior payments made on or before the due date of the original
return by the taxpayer to penalty or interest determined to be due after the date of those
prior payments, except that the taxpayer and the department may agree to apply payments
in accordance with rules adopted by the director when there are both agreed and unagreed
to items as a result of an examination.
b. As used in this subsection, “tax period” means a period of time for which a return is
required.
5. A person or withholding agent required to supply information, to pay tax, or to make,
sign, or file a deposit form or return required by this subchapter, who willfully makes a false
or fraudulent deposit form or return, or willfully fails to pay the tax, supply the information,
or make, sign, or file the deposit form or return, at the time or times required by law, is guilty
of a fraudulent practice.
6. The certificate of the director to the effect that a tax has not been paid, that a return has
not been filed, or that information has not been supplied, as required under the provisions
of this subchapter shall be prima facie evidence thereof except as otherwise provided in this
section.
7. The periods of limitation provided by this section may be extended by the taxpayer by
signing a waiver agreement to be provided by the department. The agreement shall stipulate
65 INDIVIDUAL INCOME, CORPORATE, AND FRANCHISE TAXES, §422.25A
the period of extension and the year or years to which the extension applies. It shall provide
thataclaimforrefundmaybefiledbythetaxpayeratanytimeduringtheperiodofextension.
8. A person or withholding agent who willfully attempts in any manner to defeat or evade
a tax imposed by this subchapter or the payment of the tax, upon conviction for each offense
is guilty of a class “D” felony.
9. A prosecution for any offense defined in this section must be commenced within six
years after the commission thereof, and not after.
10. If a taxpayer files an amended return within sixty days prior to the expiration of the
applicable period of limitations described in subsection 1, the department has sixty days
from the date of receipt of the amended return to issue an assessment for any applicable tax,
interest, or penalty.