Administrative:
Tennessee: New Law Provides Some Taxpayer Protections for Reasonable Reliance on DOR Policy

H.B. 38, signed by gov. 4/22/21. New law provides that if the Tennessee Department of Revenue (Department) changes its policy regarding application of a certain Tennessee rule, law or tax, a taxpayer who relied on such policy before it was changed generally would not be liable for any assessment of additional tax or penalty that accrued before the policy was changed and was unpaid because of the taxpayer’s reasonable reliance upon it. Specifically, the new law provides that a taxpayer may rely on guidance published by the Department concerning the Tennessee taxability of a privilege and that if the Department changes the guidance, a taxpayer who relied on the prior guidance is not liable for any additional tax, penalty or interest accrued before the guidance was changed and was unpaid because of the taxpayer’s reasonable reliance on the prior guidance. Additionally, the new law specifies that if a taxpayer is audited by or requests specific advice from the Department and receives erroneous audit findings or advice, then the taxpayer is not liable for any assessment of additional tax, interest or penalty attributable to the erroneous finding or advice, to the extent that:

1. The taxpayer reasonably relied on the finding or advice,
2. The additional assessment did not result from the taxpayer failing to provide adequate or accurate information, and
3. The Department provided the finding or advice in writing, or the Department’s records establish that the taxpayer received erroneous verbal advice.

The legislation includes related underlying definitions for terms associated with Department audits and published guidance. Please contact us with any questions.