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In all cases in which any officer, charged by law with the authority to assess taxes that are collected or administered by the commissioner of revenue, shall finally assess a tax alleged or claimed to be due, if the taxpayer against whom the final assessment is made believes the final assessment to be unjust, illegal or incorrect, the taxpayer's remedies shall be as follows:
The taxpayer may pay the tax and file a claim for refund of the tax and proceed as provided in this part; or
The taxpayer may file suit against the commissioner in chancery court in the appropriate county in this state, challenging all or any portion of the final assessment of such tax, including any interest and penalty associated with the tax. Until the earlier of the expiration of ninety (90) days after an assessment becomes final, or the filing of a suit by the taxpayer as provided in subsection (b), no levy as defined in § 67-1-1404 shall be made, begun or prosecuted by the commissioner. The commissioner may, however, initiate and pursue any other action to collect an assessed deficiency under part 14 of this chapter or otherwise, including, but not limited to, the filing of a notice of lien as provided in § 67-1-1403 and the collection of a jeopardy assessment.
Subdivision (a)(1)(B) shall not apply to those cases where the final assessment is based on:
Bad checks;
Debit memos based on mathematical errors caused by the taxpayer's own figures; and
Delinquent partial payment agreements.
A suit challenging the final assessment of a tax or seeking a stay of collection of an inheritance or gift tax deficiency pending a final determination of a timely proceeding for review of an appraisal filed by the taxpayer before the appropriate board must be:
Filed within ninety (90) days from the date the assessment becomes final, with a copy of the notice of proposed assessment issued pursuant to § 67-1-1438 attached to the notice as an exhibit; and
Signed by the taxpayer under the penalties of perjury, affirming that the taxpayer or affiant believes that the final assessment, or the portion of the final assessment being challenged, is unjust, illegal or incorrect and that the suit is brought in good faith and not solely for the purpose of delay.
A suit filed by a taxpayer under subsection (b) shall operate to continue the stay of collection of the tax, or portion of the tax challenged, as provided in subdivision (a)(1)(B), except as otherwise provided in subsection (d), until dismissal or final determination of the tax, if the taxpayer also files with the taxpayer's suit one (1) of the following:
A corporate surety bond or an irrevocable letter of credit, in the form prescribed by regulations issued by the commissioner, issued by a qualified surety company or bank, in a principal amount equal to one hundred fifty percent (150%) of the amount of the final assessment or portion of the final assessment that is challenged by the suit;
A pledge or collateral assignment of assets in an amount and form satisfactory to the commissioner as evidenced by the commissioner's written consent to the pledge or collateral assignment; or
An affidavit executed by or on behalf of the taxpayer, which lists and describes with particularity:
All of the taxpayer's assets, the respective fair market values and present location of those assets, all of the liabilities and the amount of the liabilities, and the person's or persons' address to whom such liability is owing, that are an encumbrance or lien against such assets; and
All transfers and assignments of the taxpayer's assets, whether such transfer was by gift, as collateral security, or otherwise, within the one-year period preceding the date of the final assessment, together with a description of the asset, its value, and the name and address of the transferee or assignee of the asset, except those transfers or assignments that were bona fide, arm's length sales or pledges of noninventory assets of a value of less than one thousand dollars ($1,000), or sales from inventory occurring in the ordinary course of a taxpayer's trade or business, and for which the taxpayer received full and adequate consideration in money or money's worth; and
A certified copy of each notice of lien, in the form prescribed by regulations issued by the commissioner, required to be filed herein. A notice of lien in favor of the commissioner on all of the taxpayer's real property, wherever situated, shall be filed in the office of the secretary of state and in the office of the register of deeds in the county of the taxpayer's domicile or principal place of business in this state. A notice of lien in favor of the commissioner shall also be filed in other states, in the county in which the taxpayer's real estate is situated.
For purposes of this subsection (c):
In the case of a corporate taxpayer, no distribution to a shareholder of the corporation by way of a dividend, redemption, liquidation or partial liquidation, nor principal repayment of a debt by the corporate taxpayer to the shareholder shall be deemed as having been made for full and adequate consideration;
A corporate surety company shall be qualified to issue a surety bond, if it is authorized by the commissioner of commerce and insurance to engage in the surety insurance business in this state, and a bank shall be qualified to issue its irrevocable letter of credit if it has been designated by the state treasurer as an authorized depository bank for the deposit of state funds, unless it has been determined by the commissioner to be not qualified for this purpose, based on reasonable standards uniformly applied;
An asset of a taxpayer may include property assigned to the taxpayer for the limited purpose of having such asset pledged, collaterally assigned, or subjected to the lien in favor of the commissioner;
A notice of lien filed as provided in subsection (b) constitutes a lien against taxpayer's property, including after-acquired property and replacement property, to the extent of the amount of the final assessment or portion of the final assessment challenged by the taxpayer's suit, including all penalties and interest associated with the final assessment or imposed by the court, and shall have priority over all subsequent liens filed and perfected against the taxpayer's property, and may be collected and enforced by the commissioner in the same manner as a judicial lien or judgment, or in accordance with part 14 of this chapter; and
A notice of lien, whether filed by the commissioner under § 67-1-1403 or filed by the taxpayer under this subsection (c), against any inventory, stock in trade, or trade receivables of the taxpayer shall not operate to or be construed so as to preclude the sale of such inventory or stock in trade by the taxpayer to customers in the ordinary course of the taxpayer's trade or business, nor to prevent the taxpayer from using the proceeds from the sale of inventory or stock in trade to customers in the ordinary course of the taxpayer's trade or business, and the proceeds from collection of trade receivables for the ordinary and necessary conduct and continuation of the taxpayer's trade or business.
[Deleted by 2014 amendment, effective January 1, 2015.]
If the taxpayer has filed a qualified corporate surety bond or bank irrevocable letter of credit in the amount equal to one hundred fifty percent (150%) of the amount of the final assessment or portion of the final assessment that is challenged by the suit, or has entered into a pledge or collateral assignment of assets in an amount and form satisfactory with the commissioner as evidenced by the commissioner's written consent to the pledge or collateral assignment, or has filed certified copies of notices of liens on all of the taxpayer's property, or on unencumbered property of the taxpayer located in this state equal in value to at least one hundred fifty percent (150%) of the amount of the final assessment, or the portion of the final assessment challenged by the suit, proceedings or actions for the collection of the assessed tax or challenged portion of the assessed tax, including an action to enforce the lien in favor of the commissioner under part 14 of this chapter, shall be stayed pending final determination of the suit; provided, that, unless the taxpayer has filed a qualified corporate surety bond or bank irrevocable letter of credit in the amount provided in this subsection (d), the commissioner shall not be prohibited or stayed from taking action to enforce or collect a jeopardy assessment as provided in §§ 67-1-1406 and 67-1-1431. In the event the suit is withdrawn or dismissed, or final judgment on the suit is rendered in favor of the commissioner as to all or any portion of the challenged assessment, the commissioner shall be entitled to collect the amount of the final assessment, interest accrued on the final assessment, and any penalty assessed against the taxpayer, by enforcement of the bond, the letter of credit, the pledge or collateral assignment of assets, or the lien.
In the event the commissioner commences a jeopardy proceeding under §§ 67-1-1406 and 67-1-1431, a taxpayer who has filed suit under this section and who has filed a pledge or collateral assignment of assets in an amount and form acceptable and consented to by the commissioner, or has filed notices of lien on all of such taxpayer's property or on unencumbered property of the taxpayer located in this state, equal in value to at least one hundred fifty percent (150%) of the assessment or portion of the assessment challenged by the suit, shall have the right to seek a stay by the court of such jeopardy proceeding. The court shall not have jurisdiction to issue an ex parte stay or temporary restraining order. A stay or temporary order restraining such jeopardy proceeding may be issued by the court only after a hearing held upon not less than fifteen (15) nor more than thirty (30) days prior notice to the commissioner. At a hearing for stay or temporary order restraining jeopardy proceedings, the commissioner's basis for such proceeding shall be presumed to be correct, and the burden of proof shall be on the taxpayer to establish by clear and convincing evidence that the commissioner does not have a reasonable basis in fact for finding that collection of the tax is in jeopardy.
If the taxpayer files an amendment to the taxpayer's complaint challenging the final assessment of additional taxes, for purposes of staying action for collection under subsection (d), such amended complaint shall be treated as an original complaint, and no stay of collection shall apply, unless or until an additional qualified corporate surety bond, bank letter of credit, pledge or collateral assignment of assets consented to by the commissioner is filed, or notices of lien are filed on all taxpayer's property or on additional property of the taxpayer located in the United States, to the extent required to equal or exceed one hundred fifty percent (150%) of the amount of additional assessment challenged. The filing of an amendment to a complaint in a pending suit challenging the final assessment of additional taxes shall be deemed to be the filing of a suit as provided in subsection (b).
The commissioner may at any time file a motion with the court challenging the qualification, sufficiency, or validity and accuracy of any bond, letter of credit, affidavit, or notice of lien filed by a taxpayer. Such motion may also seek to increase the amount of any bond, letter of credit, pledge or collateral assignment of assets, or notice of lien, which shall be granted, if it reasonably appears to the court that the amount is not sufficient to protect the state adequately. The commissioner shall be entitled to discover any and all matters, not privileged, pursuant to the Rules of Civil Procedure. If a bond, letter of credit, or notice of lien is determined, after hearing, to be disqualified or insufficient to stay a levy or action to collect the final assessment, or portion of the final assessment challenged, such stay shall be lifted, unless made qualified or sufficient within the time, not to exceed ten (10) days, prescribed by the court. If the court, after hearing, determines that an affidavit filed by the taxpayer contains material omissions, misrepresentations, overvaluation of assets or understatement of liabilities, the court shall dismiss the taxpayer's suit with prejudice, unless the court also finds, from the preponderance of the evidence, that such omission, misrepresentation, overvaluation or understatement was not intentional and was not made for the purpose of misleading the commissioner or the court, or of concealing or disguising assets, transfer of assets, or the value of those assets.
The commissioner shall be entitled, upon motion with notice to the transferee or assignee of a taxpayer's assets, to have the court set aside and order restored to the taxpayer for the benefit of the commissioner all transfers and assignments of the taxpayer's assets occurring subsequent to or within one (1) year preceding the filing of suit by the taxpayer challenging an assessment by the commissioner, except those transfers or assignments that were bona fide, arm's length sales or pledges of noninventory assets of a value of less than one thousand dollars ($1,000), or sales from inventory occurring in the ordinary course of the taxpayer's trade or business, and for which the taxpayer received full and adequate consideration in money or money's worth. The commissioner shall be entitled to discover any and all matters, not privileged, pursuant to the Rules of Civil Procedure. The court may order the restored assets sold and liquidated under the procedures established in part 14 of this chapter, and shall apply the net proceeds of the sale to the payment of all amounts assessed by the commissioner against the taxpayer, and shall return the balance of the proceeds, pro rata, to the person or persons from whom the assignment or transfer of such assets was set aside.
To the extent of any amounts collected by or paid to the commissioner with respect to an assessment, or any portion of the assessment, challenged by suit by the taxpayer, whether such collection was pursuant to a jeopardy proceeding, by application of assets restored to the taxpayer pursuant to subsection (h), or otherwise, the suit shall proceed as a timely suit for refund of taxes paid, as if a timely claim for refund had been filed by the taxpayer and denied by the commissioner.
Any notice of a proposed or final assessment issued by the department shall include notice that the taxpayer has the right to file suit in the appropriate chancery court of this state in accordance with this section to challenge the final assessment and collection of the tax within ninety (90) days from the date such assessment becomes final.