If a Georgia taxpayer files his return late and buys film tax credits after the deadline to zero out his tax, does he avoid the late-filing and late-payment penalties?

Plain-English summary

A Georgia individual planned to file his 2015 resident return after his extended due date (October 17, 2016). He intended to buy transferable Georgia film (entertainment) tax credits (O.C.G.A. § 48-7-40.26(g)) only after that date, in an amount that -- combined with his estimated payments -- would leave no 2015 tax due on the return. He reasoned there would be no late-filing penalty, because O.C.G.A. § 48-7-57 computes the penalty as a percentage of "the amount of tax required to be shown on the return," reduced by "any credit against the tax which may be claimed on the return." If the purchased credits zeroed the tax, he argued, there would be nothing to penalize.

The Department ruled his analysis is flawed. The late-filing penalty is measured against the tax that should have been shown on the return that was due by the deadline (determined "with regard to any extension of time for filing"), without regard to credits purchased at some later date. There is no provision reducing the tax required to be shown on a timely return based on credits bought after the return was due. So failing to file by the extended deadline does incur the § 48-7-57 penalty (5% per month, up to 25%, absent reasonable cause). The Department noted this mirrors federal law under 26 U.S.C. § 6651 (citing Swafford and Olsen v. Commissioner: a later carryback that eliminates tax does not erase the deficiency for penalty purposes).

The Department went further: the taxpayer may also owe a late-payment penalty under O.C.G.A. § 48-7-86 and interest, because the obligation to timely pay (by the payment due date under § 48-7-80; an extension to file does not extend time to pay) is likewise not tied to when the return is filed or to future credit purchases.

What this means for you

Investors who buy Georgia film / entertainment tax credits

Transferable film credits can offset your Georgia tax, but they do not buy you extra time. If you file after your deadline, you can still be penalized for late filing and late payment even if credits later zero out the balance. Buy and apply the credits (and pay) by the statutory deadlines, not afterward.

Accountants and tax professionals

The penalty base under § 48-7-57 is the tax due on the return as of the deadline (including extensions), not the balance on a return actually filed later after acquiring credits. Remember that an extension of time to file is not an extension of time to pay (Ga. Comp. R. & Regs. r. 560-7-8-.09(1)), so § 48-7-86 late-payment exposure and § 48-7-81 interest run from the payment due date. The Department's reliance on 26 U.S.C. § 6651 and the NOL-carryback cases underscores that a later event zeroing the tax does not retroactively cure a missed filing or payment.

Common questions

Q: If credits zero out my tax, is there anything to penalize for late filing?
A: Yes. The penalty is computed on the tax that should have been shown on the return by its deadline, before any later credit purchase -- so filing late still triggers the penalty even if the final balance is zero.

Q: Does buying the credits after the deadline also affect the late-payment penalty?
A: Yes. The Department said the taxpayer may also owe a late-payment penalty under § 48-7-86, because the duty to timely pay is tied to the payment deadline, not to when the return is filed or credits are purchased.

Q: Does an extension to file give me more time to pay?
A: No. An extension of time to file does not extend the time to pay, so late-payment penalties and interest can accrue from the payment due date.

Q: Can another taxpayer rely on this ruling?
A: No. It binds the Department only as to the requesting taxpayer and its specific facts and has no precedential value for others.

Citations and references

Georgia statutes and regulations:

• O.C.G.A. § 48-7-57 -- late-filing penalty (5%/month up to 25%; measured at the deadline including extensions)
• O.C.G.A. § 48-7-86 -- late-payment penalty and computation
• O.C.G.A. § 48-7-56 -- time for filing individual returns
• O.C.G.A. § 48-2-36 -- extension of time to file
• O.C.G.A. § 48-7-80 -- individual income tax payment due date
• O.C.G.A. § 48-7-81 -- interest not reduced by a later NOL carryback
• O.C.G.A. § 48-7-40.26(g), (h) -- transfer and carry-forward of Georgia film/entertainment tax credits

Federal:

• 26 U.S.C. § 6651 -- federal late-filing/late-payment additions (Swafford; Olsen v. Commissioner)

Source

• Landing page: Georgia Income Tax Letter Rulings
• Original PDF: LR IT-2017-01

Original ruling text

Georgia Letter Ruling:
Topic:
Date Issued:

LR IT-2017-01
Film Tax Credit
May 12, 2017

This letter is in response to your letter dated October 7, 2016, requesting a ruling that if the taxpayer
purchases 2015 credits after October 17, 2016 and claims such credits on an original 2015 Georgia
individual income tax return filed after October 17, 2016, the taxpayer will not be subject to any
Georgia penalties for filing a late return.
Facts as Presented by the Taxpayer
Your letter to the Department states: “Taxpayer is an individual residing in Georgia. Taxpayer will
file a Georgia resident individual income tax return for 2015. Taxpayer filed a valid Georgia extension
for his 2015 Georgia income tax return. Because October 15 falls on a weekend in 2016, Taxpayer’s
extended due date for filing his Georgia income tax return is October 17, 2016.
Taxpayer will purchase Georgia entertainment tax credits (“Credits”) generated by a production
company with a tax year end in calendar year 2015 pursuant to O.C.G.A. § 48-7-40.26(g). Taxpayer
will use the Credits against its 2015 Georgia income tax liability.
Taxpayer will not be able to purchase 2015 Credits until after October 17, 2016. After that date,
Taxpayer will purchase sufficient 2015 Credits such that, when combined with 2015 estimated
payments and other 2015 Georgia income taxes paid by Taxpayer prior to April 15, 2016, Taxpayer
will have no Georgia income tax due on its original tax return for tax year 2015. Taxpayer will file
its original 2015 Georgia income tax return after October 17, 2016.”
Issue
If the taxpayer purchases 2015 credits after October 17, 2016 and claims such credits on a 2015
Georgia individual income tax return filed after October 17, 2016, will the taxpayer be subject to
any Georgia penalties for filing a late return?
Principal Authorities
O.C.G.A. § 48-7-57 provides that:
“(a) In case of failure to file an income tax return on the date prescribed for the
filing, such date to be determined with regard to any extension of time for filing,
there shall be added to the amount of tax required to be shown on the return 5
percent of the amount of the tax if the failure is for not more than one month with
an additional 5 percent for each additional month or fraction of a month during
which the failure to file continues. No penalty shall be assessed pursuant to this
Code section which exceeds in the aggregate 25 percent of the amount of the tax.
No penalty shall be assessed pursuant to this Code section when it is shown that
the failure is due to reasonable cause and not
due to willful neglect.

Georgia Letter Ruling: LR IT-2017-01
Topic: Film Tax Credit
Date Issued: May 12, 2017
Page Page 2 of 5

(b) For the purposes of this Code section, the amount of tax required to be shown
on the return shall be reduced by the amount of any part of the tax which is paid
on or before the date prescribed for payment of the tax and by the amount of any
credit against the tax which may be claimed on the return.
(c) With respect to any return, the amount of the addition under subsection (a) of
this Code section shall be reduced by the amount of the addition under paragraph
(1) of subsection (a) of Code Section 48-7-86 for any month to which an addition
to tax applies under both subsection (a) of this Code section and paragraph (1) of
subsection (a) of Code Section 48-7-86.
(d) No penalty due to late filing shall be incurred by a taxpayer if the taxpayer
attaches to his return a copy of an approved extension of time within which to file
his federal income tax return which has been granted by the Internal Revenue
Service and also files his state return within the period of time specified in the
extension. In such instances, the taxpayer need not apply to the commissioner for
an extension of time within which to file his state return.”
The pertinent part of O.C.G.A. § 48-7-86 provides that:
“(a)(1) In case of failure to pay:
(A) The amount shown as tax on a return on or before the date prescribed for
payment of the tax, such date to be determined with regard to any extension of time
for payment, there shall be added to the amount of tax required to be shown on the
return one-half of 1 percent of the amount of the tax if the failure is for not more
than one month and with an additional one-half of 1 percent for each additional
month or fraction of a month during which the failure continues. For the purposes
of this subparagraph, the amount of tax shown on the return shall be reduced, for
the purpose of computing the addition for any month, by the amount of any part of
the tax which is paid on or before the beginning of the month and by the amount
of any credit against the tax which is claimed on the return;
(B) Any amount in respect of any tax required to be shown on a return which
is not so shown within ten days of the date of the notice and demand for the
payment, the amount of tax stated in the notice and demand shall be increased by
one-half of 1 percent of the amount of the tax if the failure is for not more than one
month and by an additional one-half of 1 percent for each additional month or
fraction of a month during which the failure continues. For the purposes of this
subparagraph, the amount of tax stated in the notice and demand shall be reduced,
for the purpose of computing the addition for any month, by the amount of any part
of the tax which is paid before the beginning of the month.
(2) No penalty shall be assessed pursuant to this subsection which exceeds in the
aggregate 25 percent of the amount of the tax or when it is shown that the failure
is due to reasonable cause and not due to willful neglect.
(b) With respect to any return, the maximum amount of the addition permitted
under subparagraph (a)(1)(B) of this Code section shall be reduced by the amount
of the addition under subsection (a) of Code Section 48-7-57 which is attributable

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Topic: Film Tax Credit
Date Issued: May 12, 2017
Page Page 3 of 5

to the tax for which the notice and demand are made and which is not paid within
ten days of such notice and demand.
(c) If the amount required to be shown as tax on a return is less than the amount
shown as tax on the return, subparagraph (a)(1)(A) of this Code section shall be
applied by substituting the lower amount.
(d) For purposes of subsections (e) and (f) of this Code section, the term
“underpayment” means a deficiency as defined in Code Section 48-7-1.”
Ruling
The premise of the taxpayer’s inquiry is the anticipation that once the taxpayer files his return
(which he has stated will be after any filing extension deadline he may have), there will be a net
zero tax liability for the prior tax year due to his purchase of one or more entertainment tax credits.
See generally O.C.G.A. § 48-7-40.26(g) and (h) (permitting the transfer of the tax credits and
providing for the tax periods for which the credits may begin to be taken as well as the carryforward periods). The taxpayer reasons that because O.C.G.A. § 48-7-57 provides for calculation
of the late filing penalty as a percentage of “the amount of tax required to be shown on the return,”
and, “the amount of tax required to be shown on the return” is allowed to be reduced “by the
amount of any credit against the tax which may be claimed on the return,” the tax credit(s) will
offset any tax liability that would have been due had the return been timely filed. See O.C.G.A. §
48-7-57(a) and (b).
However, the taxpayer’s analysis is flawed under the foregoing example because it incorrectly
presumes that “the amount of tax required to be shown on “the return” refers to the return that the
taxpayer files after the statutorily prescribed time for filing, pursuant to O.C.G.A. § 48-7-56
(setting forth the time for filing returns).1 On the contrary, O.C.G.A. § 48-7-57(a) plainly states
that the “date prescribed for filing” is “to be determined with regard to any extension of time for
filing.” Thus, any failure to file the return by the extension deadline would cause the taxpayer to
incur a penalty for late filing, calculated as a percentage of the tax that should have been shown on
“the return” that should have been filed on the deadline, i.e., without regard to any future tax credit
purchase. O.C.G.A. § 48-7-57(a). There is no provision in the statute for reducing the amount of
tax required to be shown on a timely-filed return based upon the potential tax consequences of
entertainment tax credits that will be purchased after the taxpayer’s return is due, at some future
date, and for which the taxpayer delays the timely filing of his return.
This interpretation of Georgia law is consistent with interpretations under the Internal Revenue
Code with respect to penalties for late filing pursuant to 26 U.S.C. § 6651. See, e.g., Swafford v.
Commissioner, 1973 Tax Ct. Memo LEXIS 165, 1, 21, 32 T.C.M. (CCH) 528 (1973) (“[T]he
1 Code Section 48-7-56(a) provides that individual income tax returns “shall be filed with the

commissioner on or before April 15 . . . the commissioner may allow further time for filing returns
in the case of sickness or other disability.” O.C.G.A. § 48-7-56(a). Hence, individual income tax
returns are due on April 15th of each year or as allowed by O.C.G.A. § 48-2-36 six months later
on the extended due date of October 15th of each year.

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Topic: Film Tax Credit
Date Issued: May 12, 2017
Page Page 4 of 5

fact that there may be loss carrybacks which may eliminate any tax for a particular year does not
wipe out the existence of a deficiency for the purpose of computing any additions to tax [under §
6651]. Petitioners are liable for such additions to tax on the basis of the existence of a deficiency
computed without regard to such carryback.”); see also Olsen v. Commissioner, 1993 Tax Ct.
Memo LEXIS 443, 1, 8, 66 T.C.M (CCH) 767 (1993) (court rejected taxpayer’s argument that
he was not required to timely file his return due to the anticipated carryback of net operating losses,
stating that “[t]he question is not whether petitioner thought he owed tax, but whether he knew he
needed to file a return.”) (emphasis added).
Not only may the taxpayer incur a late filing penalty for failure to timely file his return in the above
circumstances, the taxpayer may also incur a late payment penalty under O.C.G.A. § 48-7-86 for
failure to timely pay the taxes owed when they are due. The amount of taxes which are considered
owed and due on the payment due date are “the amount shown as tax on a return on or before the
date prescribed for payment of the tax, [reduced by] the amount of any credit against the tax which
is claimed on the return.” O.C.G.A. § 48-7-86(a)(1)(A) (emphasis added). As such, the amount
of taxes due are determined by reference to the filing deadline (considering any extension), as set
forth above, but must be paid by the payment deadline. See O.C.G.A. § 48-7-80 (providing that
individual income taxes are due to be paid on or before April 15 following the close of the calendar
year); see also GA. COMP. R. & REGS. r. 560-7-8-.09(1) (“An extension of time to file a return does
not extend the time for payment of tax”); Department of Revenue Forms IT-303 and IT-560
(application for extension of time to file return, and payment voucher to pay taxes due at time of
filing application for extension). Additional support for this interpretation is found in the treatment
of untimely tax payments for which interest is charged, where the tax owed is later reduced due to
a net operating loss carry back. See O.C.G.A. § 48-7-81 (interest charged on taxes not timely paid
will not be reduced, even when the amount of tax is later reduced by reason of a net operating loss
carry-back); GA. COMP. R. & REGS r. 560-7-8-.15(3) (providing that penalty and interest shall be
computed on the tax deficiency, without consideration of a carry-back, “from the date such
payment of tax was due [to the last day of year in which net operating loss occurs].”) (emphasis
added).
Therefore, just like the obligation to timely file a return, the taxpayer’s obligation to timely pay
the taxes owed for the prior year’s tax liability is not tied to the date the return is actually filed by
the taxpayer. Thus, the taxpayer may not delay payment of the taxes beyond the statutorily
prescribed time for payment in anticipation that future events, such as yet-to-be-purchased
entertainment tax credits will result in a net zero income tax by the time the taxpayer actually files
his late return. The taxpayer may only take into account any credits on hand at that time the
return is due to be filed, so if the taxpayer has not pre-paid sufficient taxes on the payment due
date such that a tax deficiency exists on the filing due date, the taxpayer is subject to a late payment
penalty under O.C.G.A. § 48-7-86. Such penalty could be assessed immediately upon the
determination of the tax deficiency on the return filing deadline.
Again, this interpretation of Georgia law is consistent with cases decided under the Internal
Revenue Code, for late payment penalties pursuant to 26 U.S.C. § 6651. See Shafmaster v. United
States, 2012 U.S. Dist. LEXIS 63663, 1, 14, 2012-1 U.S. Tax Cas. (CCH) P50, 341 (2012)

Georgia Letter Ruling: LR IT-2017-01
Topic: Film Tax Credit
Date Issued: May 12, 2017
Page Page 5 of 5

(rejecting taxpayer’s argument that a late payment penalty should not be assessed “because the
final calculation of [taxpayers’] taxes for intervening years might eventually reduce the amount
owed for that [previous] year.” (emphasis added) (citing Simon v. Commissioner, 248 F.2d 869,
877 (8th Cir. 1957) (“The carryback provision does not relieve the taxpayer of the obligation to
pay the tax in full when it falls due, and cannot be interpreted as deferring taxpayer's duty to pay
the tax promptly.”)); see also Olsen v. Commissioner, 1993 Tax Ct. Memo LEXIS 443 at * 9-10
(holding that because “carrybacks reflect future events that are unforeseeable at the time when tax
liability is initially determined, they may not be used to reduce the net amount due. Consequently,
‘[t]he fortuitous circumstances that permit the carryback of net operating losses of later years
cannot serve to excuse the earlier delinquency.’” (citation omitted) (emphasis added)); Swafford
v. Commissioner, supra.
In short, timeliness of filing and timeliness of payment are mandatory. O.C.G.A. §§ 48-7-57, 487-86. Thus, while entertainment tax credits purchased beyond the foregoing prescribed deadlines
may ultimately reduce the taxpayer’s tax liability for any given year, the failure to timely file the
return and/or timely pay the taxes owed in accordance with the deadlines as set forth above could
subject the taxpayer to either or both penalties.2 Therefore, the appropriate procedure for the
taxpayer to follow in that instance is to pay any taxes owed by the payment deadline, considering
any credits then on hand, or that will be on hand by the extension return filing deadline, and to file
the return no later than the extension deadline. If the taxpayer subsequently purchases tax credits
that result in an overpayment of taxes for the year in question, he may then seek a refund pursuant
to O.C.G.A. § 48-2-35; provided, however, no penalties or interest previously paid shall be
refunded.
The opinions expressed in this ruling are based upon the information contained in your request and
are limited to the specific transactions and taxpayer in question. A ruling has no precedential value
except to the person to whom the ruling was issued and then only for the specific transaction
addressed in the ruling. Should the circumstances regarding this transaction change, or differ
materially from those represented, then this ruling may become invalid. In addition, please be
advised that subsequent statutory or administrative rule changes or judicial interpretations of the
statutes and rules upon which this advice is based may subject similar future transactions to a
different tax treatment than those expressed in this response.

2 Both Code Sections 48-7-57 and 48-7-86 provide for a reduction in the penalty of one where a

penalty has been assessed under the other, and cap the penalties at twenty-five percent of the
amount of the tax. See O.C.G.A. §§ 48-7-57(a), (c); 48-7-86(a)(2), (b).