Updated: 10/23/2008 11:21:35 AM
By Theo Emery, the Tennessean
A clerical mix-up in late 2005 cost Tennessee taxpayers more than a half-million dollars in federal penalties, which the state is now demanding that the U.S. government return.
And, in reply, the feds are saying tough luck, Tennessee.
Over the summer, the state filed suit in U.S. District Court over the $544,000 in penalties it paid to the Internal Revenue Service, a result of filing withholding taxes four days late.
In its response filed on Oct. 7, U.S. Department of Justice tax attorney Michael Martineau wrote that the state didn't prove its case, and that Tennessee is not entitled to a refund.
Department of Finance and Administration spokeswoman Lola Potter declined to comment because the litigation is pending. Charles Miller, a spokesman for the Department of Justice, also declined to comment.
The Department of Finance and Administration claims that it made a simple clerical error when it assumed that a state bank holiday on Dec. 29, 2005, was also a federal bank holiday, and then filed withholding taxes on the next business day, Jan. 3, 2006, which was four days after the taxes were due.
The department called the mistake "an accidental oversight" that was compounded when the IRS notification failed to reject the deposits as late and instead accepted the deposits and issued confirmations.
The state paid the penalties, but then sued in August, saying the late deposit was a "good faith error" and that the federal government should refund the money.
The state has asked for a jury trial, which has not been scheduled.
Magistrate Judge Juliet Griffin wrote in an order that the case could be ruled on before it goes to trial.
