Stites & Harbison, PLLC

Thomas B. Miller, Commissioner of the Kentucky Department of Revenue, announced that Kentucky will begin assessing tax penalties, as provided by KRS § 131.180, on any underpayment of individual, corporation or limited liability pass-through entity estimated payments and on any payments not made timely.  While the Department always has had the statutory authority to assess such penalties, it has not had the technology to do so.  Due to advances in technology, penalties will be assessed for tax years beginning on or after January 1, 2009.  The awareness that Kentucky did not impose penalties for underpayment or late payment of estimates had led many Kentucky taxpayers to make one annual payment of estimated taxes; a practice which now must change to avoid penalties.

Pursuant to KRS § 131.180(3), any taxpayer who fails to pay any installment of estimated tax by the time prescribed or who is determined to have a declaration underpayment shall, "unless it is shown to the satisfaction of the department that the failure or underpayment is due to reasonable cause," pay a penalty equal to ten percent (10%) of the amount of the underpayment or late payment; however, the penalty shall not be less than twenty-five dollars ($25).  A safe harbor does exist as no underpayment will be deemed to exist if estimated payments of 70% of current year liability or 100% of prior year liability are made during the tax year.  See KRS § 141.990(2) and (3).