§1605.  Examination and hearing costs

A.  If any taxpayer fails to make any return required by this Subtitle, or makes a grossly incorrect report, or a false or fraudulent report, and the  secretary, in performance of his duty to ascertain the amount of tax due, makes an examination of books, records, or documents, or an audit thereof, or conducts a hearing, or subpoenas witnesses, then there may be added to the amount of tax found to be due, a specific penalty, in addition to any other penalty provided, in an amount as itemized by the secretary to compensate for all costs incurred in making such examination or audit, or in holding such hearing, or in subpoenaing and compensating witnesses.  This specific penalty shall be an obligation to be collected and accounted for in the same manner as if it were part of the tax due and can be enforced either in a separate action or in the same action for the collection of the tax.

B.  For the purposes of this Section, the following terms shall have the following meanings:

(1)  "Grossly incorrect report" means any report filed where there is a substantial understatement of tax for any taxable period.  The understatement is substantial if it exceeds the greater of:

(a)  Ten percent of the tax required to be shown on the return for the taxable period.

(b)  Ten thousand dollars.

(2)  "False or fraudulent report" means any report filed with the intent to evade taxes, or a willful attempt to defraud or evade taxes that are due.

C.  Notwithstanding any other provision of law to the contrary, no penalty shall be imposed under this Section with respect to any portion of an underpayment when a taxpayer has made a grossly incorrect report if the taxpayer shows that there was a reasonable cause for the underpayment of such portion and that the taxpayer acted in good faith with respect to such portion.

Acts 1997, No. 687, §1; Acts 1999, No. 1032, §1.