HAR §18-231-10. (Reserved

) §18-231-10.6-01 Administrative guidance applicable to certain penalties and fines; general intent in application of provisions.  (a) Section 231-10.6, HRS, requires the department to provide taxpayers and tax return preparers with guidance on the application of penalties or fines that may be imposed by the following provisions: (1) Understatement of tax liabilities by tax return preparers under section 231-36.5, HRS (Internal Revenue Code section 6694); (2) Substantial understatements or misstatements of tax under section 231-36.6 (Internal Revenue Code section 6662), HRS; (3) Promoting abusive tax shelters under section 231-36.7, HRS (Internal Revenue Code section 6700); (4) Erroneous claims for refund or credit under section 231-36.8, HRS (Internal Revenue Code section 6676). Each of the foregoing penalties references the federal statutory counterpart contained in the Internal Revenue Code and requires the construction of these penalties to be made in accordance with federal regulatory and judicial guidance. (b) Section 231-10.6, HRS, allows the department to utilize federal laws and administrative guidance in carrying out the purpose of that section. (c) In addition to the regulatory guidance requirement of section 231-10.6, HRS, section 235-2.5, HRS, authorizes the department to conform to any administrative provision of the Internal Revenue Code, title 26, United States Code (subtitle F, sections 6001 to 7873), not in conflict with or similar to provisions contained in chapters 231, 232, or 235, HRS. The department is authorized to adopt these provisions by reference or by setting them forth in full. (d) The purpose of this section and sections 18-231-36.5- 01 through 18-231-36.8-01, HAR, is to carry out the intent of sections 231-10.6 and 235-2.5, HRS, by providing relevant guidance in a manner that conforms to the greatest extent practicable under the circumstances to the administrative provisions of the Internal Revenue Code referenced in subsection (a). In order to ensure optimal conformance, the relevant similar provisions of the Internal Revenue Code will be interpreted and administered as provided by adopting the rules and regulations promulgated by the United States Secretary of Treasury, or a delegate of the Secretary, by reference. (e) For purposes of this section and sections 18-231-36.5- 01 through 18-231-36.8-01, HAR, the provisions of the rules and regulations promulgated by the United States Secretary of Treasury implementing provisions of the Internal Revenue Code, which are adopted by reference, shall be made operative as set forth in this chapter and be incorporated by reference, except where expressly inconsistent with the statutory provisions of title 14, HRS, in which case the statutory provision of the HRS shall control. The treasury rules and regulations shall be applied using changes in nomenclature and other language, including the omission of inapplicable or irrelevant language, where necessary to effectuate the intent of this section. (f) Where treasury regulations include references to temporary or proposed treasury regulations that are inconsistent with final treasury regulations, the treasury regulations most consistent with the statutory provisions of the relevant sections of the HRS set forth in subsection (a), whether proposed, temporary, or final treasury regulations, shall control. For example, the penalty set forth under section 231-36.5, HRS, which provides a penalty for understatements of tax liability by tax return preparers similar to section 6694 of the Internal Revenue Code, assesses a penalty for taking “unreasonable positions” that were not disclosed on a tax return. Prior to enactment of section 231-36.5, HRS, the federal counterpart (section 6694 of the Internal Revenue Code) assessed a penalty for taking “unrealistic positions” and also included treasury regulations interpreting this phrase. Congress subsequently amended this section to increase the standard required in taking an undisclosed position on a tax return. The Secretary of Treasury provided guidance on the increased standard through issuance of proposed regulations. Soon thereafter, Congress amended the standard again to which section 231-36.5, HRS, now conforms. As a result of repeated statutory changes by Congress, there are conflicting treasury regulations discussing the current standard. In application of the conflicting regulation standards, the final regulations will control to the extent not in conflict HRS §231-9.9 HRS §231-9.9 ADMINISTRATION OF TAXES §18-231-19.5-01 231- 17 (Unofficial Compilation as of 12/31/2025) with section 231-36.5, HRS. Furthermore, proposed regulations will control to the extent the proposed regulations expand upon principles not discussed in the final regulations and which are not in conflict with section 231-36.5, HRS. (g) The director may clarify specific provisions of treasury regulations adopted by reference under sections 18-231-36.5-01 through 18-231-36.8-01, HAR, by Tax Information Release or other formal pronouncement. (h) With regard to the penalties set forth in subsection (a), the director shall approve assessed penalties prior to assessment, as required by section 231-10.6, HRS. (i) The purpose and intent of this section is applicable to sections 18-231-36.5-01 through 18-231-36.8- 01, HAR. (j) Nothing contained in this section shall limit the department’s ability to provide guidance, examples, and safe harbors in addition to those provided by treasury regulations. [Eff 11/18/2010] (Auth: HRS §§ 231-3(9), 235- 2.5(b), 231-10.6, 235-118) (Imp: HRS §§ 231-10.6) §18-231-11 to §18-231-19 (Reserved) §18-231-19.5-01 Disclosure of written opinions by the department; definitions. As used in sections 18-231-19.5-01 to 18-231-19.5-14: “Audit or examination of a tax return” means all activities undertaken by the department in order to determine either (1) the correctness of the tax liability shown in any person’s tax return, or (2) whether any person failed to file any tax return. “Collection activities” mean all activities undertaken by the department, or by any collection agency described in section 231-13, HRS, to enforce the payment of any person’s tax liability. “Communication in connection with collection activities” means all communication undertaken by the department of this nature, including any inquiry into the financial resources of any person liable for tax; any levy, lien, garnishment, or seizure of any taxpayer’s property; any certificate of discharge of a levy, lien, garnishment, or seizure of any taxpayer’s property; and any certification of the absence of delinquent tax liability, including a tax clearance or a bulk sale certificate. A communication in connection with collection activities may be to any person and need not relate to the tax return of the person to whom the communication is addressed. A communication in connection with collection activities does not constitute a written opinion for purposes of section 231-19.5, HRS. Example: T purchased all of the assets of B, a corporation. The department sends a letter to T proposing to collect B’s delinquent tax liability from T because the general lien in favor of the State under section 231-33, HRS, attached to the assets. The letter is a communication in connection with collection activities. “Communication in connection with the audit or examination of a tax return” means all communication undertaken by the department of this nature, including any subpoena or request for production of books and records under section 231-7, HRS; any assessment of any tax; any notice of proposed assessment of any tax; and any determination of jeopardy under section 231-24(a), HRS. A communication in connection with the audit or examination of a tax return may be to any person and need not relate to the tax return of the person to whom the communication is addressed. A communication in connection with the audit or examination of a tax return does not constitute a written opinion for purposes of section 231-19.5, HRS. Example: H and W divorced in 1989. H filed a separate tax return for the calendar year 1989. The department sends a letter to H asking about a tax return W filed for calendar year 1989 because W claims that it is a joint tax return. Although the letter does not propose or suggest any adjustment to H’s tax liability, the letter is a communication in connection with the audit or examination of a tax return. “Department” means the department of taxation. “Determination letter” means a written statement issued by the department that applies a well- established interpretation or principle of tax law to a specific set of facts. A determination letter includes the grant or denial of consent, permission, exemption, or registration; or routine correspondence in response to taxpayer inquiries. A determination letter does not constitute a written opinion for purposes of section 231-19.5, HRS. “Information letter” means a written statement issued by the department that provides general information by calling attention to a well-established interpretation or principle of tax law, whether or not it applies to a specific set of facts. An information letter does not constitute a written opinion for purposes of section 231-19.5, HRS. HRS §231-19.5 §18-231-19.5-02 ADMINISTRATION OF TAXES 231- 18 (Unofficial Compilation as of 12/31/2025) “Person” includes every individual, partnership, society, unincorporated association, joint adventure, group, hui, joint stock company, corporation, trustee, personal representative, trust estate, decedent’s estate, trust, trustee in bankruptcy, or other entity, whether such persons are acting for themselves or in a fiduciary capacity, and whether the individuals are residents or nonresidents of the State, and whether the corporation or other association is created or organized under the laws of the State or of another jurisdiction. “Person to whom the written opinion pertains” means: (1) A taxpayer who requests the written opinion; (2) Any successor or assign of the taxpayer with respect to the transaction that is the subject of the written opinion, if the department is informed of the successor or assign in the request for the written opinion, or in subsequent correspondence to the department’s technical review office; or (3) Another person authorized by law to act for or on behalf of the taxpayer, but only in that person’s representative capacity. “Person who has a material interest in maintaining the confidentiality of a written opinion or portion thereof” means a person who would be specially, personally, and adversely affected by the disclosure of a written opinion or a portion of it, as the case may be. “Successor or assign of a taxpayer” means a person who acquires the rights and assumes the liabilities of a taxpayer. “Taxpayer” means any person subject to any tax administered by the department under title 14, HRS, or any person seeking advice about whether that person is subject to any tax administered by the department under title 14, HRS. “Well-established interpretation or principle of tax law” means an interpretation or principle of tax law stated in: (1) The United States Constitution; (2) The Hawaii Constitution; (3) The Hawaii Revised Statutes; (4) The Hawaii Administrative Rules; (5) The Internal Revenue Code of 1986, as amended, to the extent incorporated in the Hawaii Revised Statutes or in the Hawaii Administrative Rules; (6) The Treasury Regulations (title 26, Code of Federal Regulations), as amended, to the extent incorporated in the Hawaii Revised Statutes or in the Hawaii Administrative Rules; (7) Federal legislation or treaties that are binding upon this State; (8) Published opinions in final decisions of the Hawaii appellate courts, or of federal appellate courts applying Hawaii law; (9) Final decisions of the Hawaii tax appeal court; (10) Opinions of the Supreme Court of the United States interpreting any provision described in paragraphs (1) to (7); (11) Opinions of the department of attorney general that are filed under section 28-3, HRS; (12) Published determinations of the department such as tax information releases and tax memoranda (but not including tax forms, instructions, and informational pamphlets); or (13) Written opinions that have been disclosed to the public. “Written opinion” means a written statement issued by the department to a taxpayer, or to the taxpayer’s authorized representative on behalf of the taxpayer, that interprets and applies any provision in title 14 administered by the department to a specific set of facts. A written opinion provides guidance to taxpayers in areas where the interpretation of the tax law is unclear, in order to enhance correct reporting, as where the written opinion: (1) Establishes, alters, modifies, or clarifies an interpretation or principle of tax law; (2) Calls attention to an interpretation or principle of tax law, whether or not it is a well- established interpretation or principle of tax law, that appears to have been generally overlooked; or (3) Addresses a legal or factual issue of unique public interest or substantial public importance. A written opinion shall not include a communication in connection with the examination or audit of a tax return, a communication in connection with collection activities, an information letter, or a determination letter. [Eff 11/25/94] (Auth: HRS §§231-3(9), 231-19.5) (Imp: HRS §231-19.5) §18-231-19.5-02 Determination letters.  (a) The following communications are determination letters: (1) A communication from the department to any person granting or denying permission to change that person’s method of accounting, taxable year, or annual accounting period, under section 442 or 446 of the Internal Revenue Code of 1986, as amended, as operative under chapter 235, 239, or 241, HRS; HRS §231-19.5 ADMINISTRATION OF TAXES §18-231-19.5-04 231- 19 (Unofficial Compilation as of 12/31/2025) (2) An approval or denial of a withholding certificate under section 235-68, HRS; (3) An approval or denial of an application for exemption from general excise tax under section 237-23(b), HRS; (4) An approval or denial of an exemption from conveyance tax under section 247-3, HRS; and (5) An approval or denial of an extension of the time to file any tax return, under section 235- 62, 235-98, 237-33, 237D-7, or 251-6, HRS. (b) Determination letters also include any class of communication that is: (1) A grant or denial of consent, permission, exemption, or registration, or other routine communication; and (2) Designated as a determination letter in a published tax information release that sets forth the well-established interpretation or principle of tax law governing the class of communication. (c) In any determination letter other than one described in subsection (a) or (b), the department shall: (1) State that the letter is a determination letter; and (2) Set forth the well-established interpretations or principles of tax law that are being applied, including citations to the sources of the interpretations or principles that are being applied. [Eff 11/25/94] (Auth: HRS §§231-3(9), 231-19.5) (Imp: HRS §231-19.5) §18-231-19.5-03 Written opinions.  (a) The department’s decision as to what constitutes a written opinion shall be final and shall not be reviewable. (b) In each written opinion, the department shall: (1) State the relevant facts (as understood by the department), state the applicable provisions of law, and apply the law to the facts; (2) Segregate information as provided in section 18-231-19.5-04; (3) Prepare a notice of intention to disclose pursuant to section 18-231-19.5-05; and (4) Separately set forth the information to be indexed under section 18-231-19.5-11. (c) Written opinions may be incorporated into tax information releases or other guidance published by the department. (d) A written opinion may be modified or revoked by the department. [Eff 11/25/94] (Auth: HRS §§231- 3(9), 231-19.5) (Imp: HRS §231-19.5) §18-231-19.5-04 Written opinions; segregation of information not to be disclosed.   (a) The department shall segregate the following information from the text of any written opinion open to public inspection: (1) Confidential, commercial, or financial information, as defined in subsection (b); (2) Identifying details, as defined in subsection (c); (3) Personal privacy information, as defined in subsection (d); and (4) Trade secrets, as defined in subsection (e). (b) “Confidential, commercial, or financial information” means: (1) Any information that is made confidential under applicable law, other than a law making tax return information confidential; (2) Any information that would be privileged from disclosure under article V of the Hawaii Rules of Evidence (with respect to privileges), section 626-1, HRS; and (3) Any information the disclosure of which, considering that identifying numbers and identifying details are segregated, would nevertheless cause substantial harm to the competitive position of any person. Confidential, commercial, or financial information does not include information that has been previously disclosed to the public, such as financial information contained in the published annual reports of widely held public corporations. (c) “Identifying details” mean: (1) Names, addresses, and identifying numbers (including telephone, license, social security, employer identification, general excise/use identification, credit card, and selective service numbers) of any person mentioned in the written opinion; and (2) Any other information that would permit a person generally knowledgeable about the appropriate community to identify any person mentioned in the written opinion. (A) “Appropriate community”, as used in this paragraph, means that group of persons who would be able to associate a particular person with a category of transactions one of which is described in the written opinion. The appropriate community may vary according to the nature of the transaction that is the subject of the written opinion. Example: If a sugar mill proposes to enter a transaction involving the purchase and installation of boilers, the appropriate community may include all sugar millers and HRS §231-19.5 HRS §231-19.5 §18-231-19.5-05 ADMINISTRATION OF TAXES 231- 20 (Unofficial Compilation as of 12/31/2025) boiler manufacturers in Hawaii, but if the installation process is a unique process of which everyone in national industry is aware, the appropriate community also might include the national industrial community. On the other hand, if the sugar mill proposes to enter a transaction involving the purchase of land on which to construct a building to house the boilers, the appropriate community also may include those residing or doing business within the geographical locale of the land to be purchased. (B) In determining whether information would permit a person to identify any person mentioned in the written opinion, the department shall consider: (i) Information available to the public at the time the written opinion is made open or subject to inspection; and (ii) Information that will later become available; provided the department is made aware of that information and the potential that the information may identify any person. (d) “Personal privacy information” means any information the disclosure of which would constitute a clearly unwarranted invasion of personal privacy. (1) A clearly unwarranted invasion of personal privacy exists if from analysis of information submitted in support of the request for the written opinion it is determined that the public interest purpose for requiring disclosure is outweighed by the potential harm attributable to the invasion of personal privacy. (2) Personal privacy information includes embarrassing or sensitive information that a reasonable person would not reveal to the public under ordinary circumstances, details of a pending divorce, medical treatment for physical or mental disease or injury, adoption of a child, the amount of a gift, and political preferences. (3) Personal privacy information does not include any information that has been previously disclosed to the public. (e) “Trade secret” means any formula, pattern, device, or compilation of information that is used in a person’s business, and that gives the person an opportunity to obtain an advantage over competitors who do not know or use it. (1) “Formula, pattern, device, or compilation of information”, as used in this subsection, includes a formula for a chemical compound; a process of manufacturing, treating, or preserving materials; a pattern for a machine or other device; or a list of customers. (2) The subject of a trade secret must not be of public knowledge, or of general knowledge in the trade or business. (f) Whenever information is segregated from the text of a written opinion, non-identifying information shall be substituted in a manner the department deems appropriate. [Eff 11/25/94] (Auth: HRS §§231-3(9), 231-19.5) (Imp: HRS §§92F-13, 231-19.5) §18-231-19.5-05 Written opinions; notice of intention to disclose.  (a) At the time of issuing any written opinion, the department shall mail a notice of intention to disclose to any person to whom the written opinion pertains. The notice shall: (1) State that the department intends to make all or part of the written opinion available for public inspection and copying; (2) Notify the recipients of when the written opinion will become public, and of the administrative remedies that are available under section 18-231-19.5-07; and (3) Prominently indicate the date on which the notice was mailed. (b) Notwithstanding subsection (a), the department shall not be required to mail a notice of intention to disclose to: (1) All shareholders of a widely held corporation, all employees of a business entity that may be involved in a plan, individual members of an unincorporated association, or similar persons whose interests would be fairly and adequately represented by an entity; (2) Any person at an address other than that specified in the request for the written opinion, or in subsequent correspondence to the department’s technical review office; or (3) Any person not identified by name and address in the request for the written opinion. [Eff 11/25/94] (Auth: HRS §§231-3(9), 231-19.5) (Imp: HRS §231-19.5) §18-231-19.5-06 Written opinions; time for and manner of disclosure, inspection, and copying.   (a) A written opinion shall be made available for inspection and copying no earlier than seventy-five days, HRS §231-19.5 HRS §231-19.5 ADMINISTRATION OF TAXES §18-231-19.5-07 231- 21 (Unofficial Compilation as of 12/31/2025) and no later than ninety days, after the notice of intention to disclose described in section 18-231-19.5-05 is mailed, except as otherwise provided in this section. (b) A person to whom the written opinion pertains may request an extension of the period set forth in subsection (a) during which the written opinion shall not be disclosed. This request shall be made in writing, addressed to the department’s technical review office. The department may grant such extension as it may deem advisable for good cause shown, but in no event shall an extension be given in excess of one-hundred-eighty days from the date the notice of intention to disclose was mailed. The department shall notify the person requesting the extension of its grant or denial of the extension. An extension granted under this subsection does not affect the period within which to appeal any decision of the department. (c) If a person to whom the written opinion pertains has filed a petition for further segregation with the department under section 18-231-19.5-07, the department shall not disclose the written opinion until its decision on the petition has become final, which includes the expiration of any applicable appeal period. If one-hundred-eighty days have elapsed after the mailing of the notice of intention to disclose and no appeal from the department’s decision has been properly taken, the department shall disclose the written opinion. (d) If a person has filed a petition for further disclosure with the department under section 18-231- 19.5-08, the department shall not disclose the written opinion until its decision on the petition has become final, which includes the expiration of any applicable appeal period. If ninety days, plus any extension of the ninety-day period granted under subsection (b), have elapsed, the department shall disclose the written opinion. (e) If an appeal has been properly taken to the office of information practices or to a court as specified in section 231-19.5(f), HRS, the written opinion shall not be disclosed until the decision in the case has become final, which includes the expiration of any applicable appeal period. The department and all parties to whom the notice of intention to disclose was mailed shall be bound by any decision in the appeal that has become final. Example: A written opinion is issued on March 1, 1995, and a notice of intention to disclose is mailed on that date. The disclosure decision is properly appealed to the office of information practices, which issues a decision on August 1, 1995. No appeal is taken to the circuit court. The decision is considered to have become final on September 1, 1995, when the applicable appeal period of 30 days expired. On that date, the decision of the office of information practices shall be treated as binding upon the department and all persons to whom the notice of intention to disclose was mailed. (f) Written opinions of the department that are available for public inspection and copying shall be made available at the department’s technical review office, 830 Punchbowl Street, Honolulu, Hawaii, and may be made available at other places designated by the department. Inspection and copying shall be permitted in the presence of a department employee during regular business hours. Records shall not be removed from the technical review office by persons other than authorized employees of the department. Persons copying any written opinion or the annual index of written opinions shall pay the fees prescribed by section 231-19.5(i), HRS. [Eff 11/25/94] (Auth: HRS §§231-3(9), 231- 19.5) (Imp: HRS §231-19.5) §18-231-19.5-07 Written opinions; petition for further segregation.  (a) A person to whom a written opinion pertains may petition the department for further segregation of some or all of the information in the written opinion that the department proposes to disclose. The petition shall be submitted in writing to the department’s technical review office within thirty days after the notice of intention to disclose is mailed. (b) The petition shall contain: (1) Information identifying the written opinion for which additional segregation is sought; (2) An indication of the information the department did not segregate but the petitioner believes should be segregated; and (3) For each item of information described in paragraph (2), an explanation of why the petitioner believes that the item of information should be segregated. (c) No special form shall be required for the petition. A letter addressed to the technical review office, department of taxation, shall be a sufficient petition under this section if the letter complies with subsections (a) and (b). (d) The thirty-day period in subsection (a) may be extended by the department for good cause shown. The department may refuse to extend the thirty-day period if the extension would leave the department an unreasonably short time to consider the petition before the written opinion must be disclosed under section 18-231-19.5-06(b) (one- hundred-eighty days from the date the notice of intention to disclose was mailed). (e) Within thirty days after receiving the petition, but not more than one-hundred-eighty days from the date the notice of intention to disclose was mailed, the department shall mail its final determination to the petitioner. (f) A petition for further segregation shall be denied, in whole or in part, if the department determines that the petitioner does not have a material interest in maintaining the confidentiality of the disputed information. HRS §231-19.5 §18-231-19.5-08 ADMINISTRATION OF TAXES 231- 22 (Unofficial Compilation as of 12/31/2025) Example: Taxpayer Kimo Arnold is a shareholder of Rosie’s Inc., a corporation. Rosie’s Inc. has two other shareholders, Rose Machado and Louis Michel. Mr. Arnold requests, on his own behalf and not on behalf of either Rosie’s Inc. or any other shareholder, a written opinion from the department regarding a partial redemption of his stock in Rosie’s Inc. The written opinion, as the department proposes to disclose it, begins, “Corporation C has one class of stock which is owned as follows: T, with 100 shares; U, with 400 shares; and V, with 150 shares.” The part of the written opinion that the department proposes to segregate identifies Mr. Arnold as T, Ms. Machado as U, Mr. Michel as V, and Rosie’s Inc. as C. Mr. Arnold petitions for further segregation of the numbers “400” and ”150” in the sentence quoted above, only on the ground that those numbers are personal privacy information as defined in section 18-231-19.5-04(d). Because the numbers “400” and “150” represent the holdings of people other than Mr. Arnold, the department may determine that Mr. Arnold would not be specially, personally, and adversely affected by the disclosure of the numbers “400” and ”150” in the written opinion, and thus may deny his petition because he does not have a material interest in maintaining the confidentiality of that portion of the opinion sought to be segregated. (g) If the determination of the department under this section is partly or wholly adverse to the petitioner, the department shall notify the petitioner of the appeal rights under section 231-19.5(f), HRS, at the same time it notifies the petitioner of its determination on the petition. [Eff 11/25/94] (Auth: HRS §§231-3(9), 231-19.5) (Imp: HRS §231-19.5) §18-231-19.5-08 Written opinions; petition for further disclosure.  (a) Any person may petition the department to obtain additional disclosure of information contained in any written opinion that has been made open or subject to public inspection. The petition shall be submitted in writing to the department’s technical review office. (b) The petition shall contain: (1) Information identifying the written opinion for which additional disclosure is sought; (2) An indication of the information the department segregated but which the petitioner believes should be disclosed; and (3) For each item of information described in paragraph (2), an explanation of why the petitioner believes that the item of information should be disclosed. (c) No special form shall be required for the petition. A letter addressed to the technical review office, department of taxation, shall be a sufficient petition under this section if the letter complies with subsections (a) and (b). (d) If the department receives the petition more than eighteen months after the notice of intention to disclose was mailed, the department shall deny the petition and shall promptly notify the petitioner of the denial. (e) If the petition is not denied under subsection (d), the department shall notify all persons to whom the written opinion pertains of the substance of the petition, except that the department shall have no duty to notify the persons described in section 18-231-19.5-05(b). The notice shall request the recipient of the notice to reply in writing within twenty days by submitting a statement of whether the recipient agrees to the requested disclosure or any portion of it. (1) If all persons to whom the notice in this subsection is sent agree in writing to the requested disclosure or any portion of it, the written opinion shall be revised to disclose the information with respect to which an agreement to disclose has been reached, and the petitioner shall be so informed. (2) The department within a reasonable time, but not more than one-hundred-eighty days from the date it received the petition, shall deny the petition, and shall so notify the petitioner, if: (A) One or more persons to whom the notice in this subsection is sent do not agree to the additional disclosure requested; (B) One or more persons to whom the notice in this subsection is sent do not respond to the notice; or (C) The department is unable to notify one or more persons to whom the notice in this subsection is required to be sent, because of inability to locate the person, destruction of the department’s records in accord with normal procedure, or similar causes. (f) If the determination of the department under this section is partly or wholly adverse to the petitioner, the department shall notify the petitioner of the appeal rights under section 231-19.5(f), HRS, at the same time it notifies the petitioner of its determination on the petition. [Eff 11/25/94] (Auth: HRS §§231-3(9), 231-19.5) (Imp: HRS §231-19.5) §18-231-19.5-09 Appellate review of petition for further segregation or petition for further disclosure.  (a) No appeal to the office of information practices, or to any court, shall be entertained unless: HRS §231-19.5 HRS §231-19.5 ADMINISTRATION OF TAXES §18-231-19.5-11 231- 23 (Unofficial Compilation as of 12/31/2025) (1) The person desiring to take the appeal has submitted a petition for further segregation or petition for further disclosure to the department; (2) The department has issued its determination on the petition; and (3) The appeal is filed not more than sixty days after the date the department issues its determination; provided that if more than forty-five days have elapsed after the date the department received the petition, and the department has not mailed a determination on the petition to the petitioner, then the petitioner may take an appeal as if the department had denied the petition. (b) Neither the department, the office of information practices, nor any court to which an appeal has been taken under section 231-19.5(f), HRS, regarding any petition to the department, shall consider: (1) The segregation of any information if the petitioner has not proposed that it be segregated; or (2) The disclosure of any information if the petitioner has not proposed that it be disclosed. (c) The department, the office of information practices, or a court to which appeal has been taken may consider any deletion or disclosure that is fairly encompassed by the petition. Example: Taxpayer P, a meat packing company, requests and receives a written opinion from the department. After receiving the notice of intention to disclose, P petitions for further segregation of the words “meat packing company” on page 1 of the opinion, because it is the only meat packing company in the State and may be identified readily. P, however, overlooks the phrase “P and other meat packers” on page 3. If the department grants P’s petition, the department may segregate the phrase on page 3 because the segregation is fairly encompassed by the petition. (d) A petition, or any appeal taken from the department’s decision on a petition, shall be denied to the extent that the petition or appeal is determined to be: (1) Frivolous, or (2) Made for any improper purpose, such as to harass or to cause unnecessary delay. Example 1: T, a taxpayer, requests and obtains a written opinion from the department. T then petitions the department, contending that no part of the written opinion should be disclosed because “all of the disclosed facts in the written opinion, when taken together, would identify” T. T refuses to elaborate upon T’s reasons or concerns. The department may deny the petition because it is frivolous. Example 2: T, a taxpayer, claims that E, T’s employer, has committed sexual harassment. In a closed arbitration proceeding, T recovers an award from E. T then requests and obtains a written opinion from the department holding that T’s recovery is not subject to general excise tax. T petitions the department to disclose several identifying details about E, among other things. The department determines that T’s motive for that part of the petition is to publicize the arbitration proceeding and in that way subject E to public scorn and ridicule. The department may deny the petition, insofar as it relates to identifying details about E, because it is being made for an improper purpose. [Eff 11/25/94] (Auth: HRS §§231-3(9), 231-19.5) (Imp: HRS §231-19.5) §18-231-19.5-10 Written opinions; reliance by taxpayers. A taxpayer may rely upon a written opinion issued to another taxpayer to the extent, and only to the extent, that the taxpayer’s facts and circumstances are the same as those in the written opinion. A written opinion, however, may not be used or cited as precedent in any court. [Eff 11/25/94] (Auth: HRS §§231-3(9), 231-19.5) (Imp: HRS §231-19.5) §18-231-19.5-11 Annual index of written opinions. The department annually shall compile a cumulative index of the written opinions it has issued. The index shall contain the following information about each written opinion: (1) A number uniquely identifying each written opinion; (2) The date on which the written opinion was issued; (3) Sufficient information to identify the contents of the written opinion; and HRS §231-19.5 HRS §231-19.5 §18-231-19.5-12 ADMINISTRATION OF TAXES 231- 24 (Unofficial Compilation as of 12/31/2025) (4) A list of section numbers of the Hawaii Revised Statutes and the Hawaii Administrative Rules that the opinion analyzes, explains, or interprets. [Eff 11/25/94] (Auth: HRS §§231- 3(9), 231-19.5) (Imp: HRS §231-19.5) §18-231-19.5-12 Exclusivity of disclosure provisions. Section 231-19.5, HRS, is the exclusive law governing the public inspection of written opinions. It shall be applied notwithstanding chapter 92F, HRS, and any law regarding the confidentiality of tax return information. [Eff 11/25/94] (Auth: HRS §§231-3(9), 231-19.5) (Imp: HRS §231-19.5) §18-231-19.5-13 Confidentiality of segregated information and written communications that are not written opinions; communications to which section 231-19.5, HRS, does not apply.  (a) Information segregated from a written opinion under section 18-231-19.5-04 shall be considered confidential whether or not the law relating to any tax involved provides that tax return information is confidential. (b) The following communications shall be considered tax return information and shall be confidential when the law relating to the tax or taxes involved provides that tax return information is confidential: (1) A communication in connection with the examination or audit of a tax return; (2) A communication in connection with collection activities; (3) A determination letter; (4) An information letter; (5) A written opinion dated on or before December 31, 1994; or (6) A communication from a taxpayer to the department: (A) In connection with a request for a written opinion, determination letter, or information letter; (B) In connection with the audit or examination of a tax return; or (C) In connection with collection activities, including documents or other material submitted with any such communication. (c) Notwithstanding subsection (b), a document that is publicly recorded or filed, such as a recorded certificate of tax lien, shall not be confidential. (d) Section 231-19.5, HRS, does not apply to the following communications: (1) A recommendation for legislation within the meaning of section 231-3(7), HRS; (2) A report to the governor under section 231-3(8), HRS; (3) An agreement in compromise within the meaning of section 231-3(10), HRS; (4) A remission of penalty or interest within the meaning of section 231-3(12), HRS; (5) A closing agreement within the meaning of section 231-3(13), HRS; and (6) A notification to any taxpayer of setoff against any tax refund under section 231-53, HRS. [Eff 11/25/94] (Auth: HRS §§231-3(9), 231-19.5) (Imp: HRS §231-19.5) §18-231-19.5-14 Narrow construction of section. The disclosure provided by section 231-19.5, HRS, is a narrow exception to the well-established principle that tax return information, which includes written opinions, is confidential. The purpose of section 231-19.5, HRS, is to enhance correct reporting by issuing guidance to taxpayers in areas where the interpretation of the tax laws is unclear, and is not to open to public inspection the voluminous routine correspondence to taxpayers concerning well-established interpretations or principles of tax law. To protect the integrity of the tax system which depends upon voluntary compliance and reporting, any doubts about whether information should be publicly disclosed shall be resolved in favor of nondisclosure. [Eff 11/25/94] (Auth: HRS §§231-3(9), 231-19.5) (Imp: HRS §231-19.5) §18-231-20 to §18-231-25 (Reserved) §18-231-25.5-01 Cost recovery fees; in general.  (a) The department may charge cost recovery fees as provided in sections 18-231-25.5-01 to 18-231-25.5-05, unless waived under subsection (b). (b) The director may waive any cost recovery fee in cases of hardship to be determined by all relevant facts and circumstances. (c) A cost recovery fee that is due and unpaid is a debt due the State of Hawaii and constitutes a lien in favor of the State within the meaning of section 231-33(b), HRS. (d) Whenever a person liable for a cost recovery fee and for taxes assessed makes a partial payment, the payment shall be credited first to the amount of cost recovery fees due and unpaid, and the remainder, if any, shall be credited as set forth in section 231-27, HRS. (e) Penalties and interest imposed in accordance with section 231-39, HRS, shall not apply to the fees set forth by this section. (f) All cost recovery fees collected shall be state realizations. HRS §231-19.5 HRS §231-19.5 HRS §231-19.5 HRS §231-25.5 ADMINISTRATION OF TAXES §18-231-25.5-02 231- 25 (Unofficial Compilation as of 12/31/2025) (g) As used in sections 18-231-25.5-01 to 18-231- 25.5-05: “Collection action” means any action by the department undertaken for the purpose of enforcing the collection of delinquent taxes. “Cost recovery fee” means any fee set forth in sections 18-231-25.5-02 to 18-231-25.5-05. “Electronic form” includes magnetic media, CD-ROM (compact disk, read-only memory), video and other machine-readable forms that store information which may be retrieved via computer or other electronic equipment. “Hardship,” unless otherwise indicated, means the inability to pay a cost recovery fee due to economic privation or an immediate and heavy financial burden. “Immediate and heavy financial burden” includes, but is not limited to, the following situation: a person must pay for the funeral expenses of a family member and consequently cannot afford to pay the fee imposed. “Person” or “company” includes every individual, partnership, limited liability partnership, society, unincorporated association, joint adventure, group, hui, joint stock company, corporation, limited liability corporation, trustee, personal representative, trust estate, decedent’s estate, trust, trustee in bankruptcy, or other entity, whether such persons are doing business for themselves or in a fiduciary capacity, and whether the individuals are residents or nonresidents of the State, and whether the corporation or other association is created or organized under the laws of the State or of another jurisdiction. [Eff 12/15/95; am and ren §18-231-25.5-01 3/03/97] (Auth: HRS §§231-3(9), 231-25.5(e)) (Imp: HRS §231- 25.5) §18-231-25.5-02 Cost recovery fees for collection actions.  (a) The department may charge cost recovery fees for collection actions as provided by this section, unless waived under section 18-231- 25.5-01(b). (b) For the purpose of collection action fees, to establish “hardship” under section 18- 231-25.5-01(b), a person must show that the failure to pay taxes which led to the collection action was an “excusable failure” as the term is used in section 231- 3(12), HRS. (c) Fees imposed under this section may be charged after the department has mailed written notice to a taxpayer demanding payment of delinquent taxes and advising that continued failure to pay the amount due may result in collection action, including the imposition of fees under this section. The notice shall be mailed to the taxpayer’s last known address or place of business on file with the department in accordance with section 231-17, HRS, and may be mailed by first class or air mail. (d) The written notice in subsection (c) shall contain a deadline date, no earlier than ten calendar days after the date of mailing, before which no fee set forth in this section may be charged. (e) If the department determines that a collection of tax is in jeopardy as defined in section 231-24(a), HRS, the department may charge a fee set forth in this section for any collection action undertaken after the written notice in subsection (c) is given. In this instance, subsection (d) shall not apply. (f) The fees that may be charged under this section are: (1) For processing a delinquent taxpayer’s account, $50 shall be charged at the close of business on the deadline date specified in subsection (d) if the debt or any part of the debt remains unpaid; (2) For handling a foreclosure action, $50 shall be charged upon the completion of the detailed statement of taxes (prepared in connection with the filing of the department’s court complaint or affirmative statement of claim), plus any costs including court costs or recording fees (such as a fee for recording the interlocutory decree of foreclosure) that are actually charged to and incurred by the department; (3) For garnishment, levy, or other seizures of a delinquent taxpayer’s wages, property or rights to property, $15 upon each service, including service by mail, of official notice upon the payor or custodian of the asset levied, or physical seizure of the asset levied, plus any court costs, recording fees, or related costs (such as a fee paid to a United States marshal for seizure of a vessel or bank charges for honoring a levy) that are actually charged to and incurred by the department; (4) For any collection action requiring the services of collection agencies or attorneys, any reasonable fees charged by those attorneys or collection agencies that are actually incurred by the department; (5) For recording a certificate of tax lien or a release of tax lien, $25 for recording at the Bureau of Conveyances, plus any other recording fees that are actually charged to and incurred by the department for recording with other agencies (such as with a county director of finance); (6) For serving a subpoena in connection with a collection effort, $25 shall be charged, plus any other fees that are actually incurred by the department; and (7) For collection actions other than that set forth in paragraph (1) to (6), any fees or costs that are actually charged to and incurred by the department. HRS §231-25.5 §18-231-25.5-03 ADMINISTRATION OF TAXES 231- 26 (Unofficial Compilation as of 12/31/2025) (g) Each fee under subsection (f) shall be separately imposed, and a single delinquency may cause the imposition of several fees. [Eff 12/15/95; am and ren §18-231-25.5-01 3/03/97] (Auth: HRS §§231-3(9), 231-17, 231- 25.5(e)) (Imp: HRS §231-25.5) §18-231-25.5-03 Cost recovery fees for educational seminars and materials.  (a) The department may charge cost recovery fees for educational seminars and materials as provided in this section unless waived under section 18-231-25.5-01(b). (b) As used in this section: “Educational material” means informative material in electronic form or any other physical form which is disseminated by the department in connection with its seminars or workshops. “Seminar or workshop” means any meeting, class, course, session, or presentation sponsored by the department for the purpose of informing practitioners, taxpayers, or any other person about the tax laws or the administration of the tax laws. (c) The fees that may be charged under this section are: (1) For a department-sponsored seminar or workshop, a fee shall be determined by the cost of labor, rent, travel, advertisement, postage and other costs incurred by the department in organizing and hosting the seminar or workshop. The fee shall be charged for each individual registered with the department for attendance at a seminar or workshop. Refunds of fees shall not be allowed regardless of whether or not the individual actually attends except when the individual gives forty-eight hours notice to the department. A $5 surcharge for walk-ins or late registration may also be added to the original fee amount. Payment is due before the seminar or workshop. (2) For educational materials, any fees or costs that are actually charged to and incurred by the department for the production and distribution of the materials. (d) No fee shall be charged to State or county employees attending seminars or workshops within the scope of their employment duties. (e) Each fee under subsection (c) shall be separately imposed and more than one fee may apply. The fee for educational materials, however, may be included in the total cost of the seminar or workshop and need not be separately stated. [Eff 3/03/97] (Auth: HRS §§231-3(9), 231-25.5(d)) (Imp: HRS §231-25.5(a)(2)) §18-231-25.5-04 Cost recovery fees for research and reference materials.  (a) The department may charge cost recovery fees to any person requesting to receive a copy of a research or reference material as provided in this section, unless waived under section 18-231-25.5-01(b). (b) As used in this section: “Research material” means a study, report, or other information prepared or compiled by the department in electronic form or any other physical form for distribution to the public. “Reference material” means a source of information prepared for dissemination by the department in electronic form or any other physical form, but not necessarily written or compiled by the department. (c) The amount of fees imposed by this section will be determined by those amounts actually charged to and incurred by the department for the production and distribution of each research or reference material. Each fee charged under this section is separately imposed and more than one fee may apply. [Eff 3/03/97] (Auth: HRS §§231- 3(9), 231-25.5(d)) (Imp: HRS §231-25.5(a)(2)) §18-231-25.5-05 Cost recovery fees for the reissuance of refund checks.  (a) The department may charge a cost recovery fee for the reissuance of refund checks as provided in this section, unless waived by section 18-231-25.5-01(b) or by subsection (b). (b) The fee provided by this section shall not be imposed if the amount of the refund check is less than the fee. (c) A fee of $14.00 may be charged under this section for each reissuance of a refund check. [Eff 3/03/97] (Auth: HRS §§231-3(9), 231-25.5(d)) (Imp: HRS §231-25.5(a)(4)) §18-231-26 to §18-231-36 (Reserved) §18-231-36.5-01-6694 Guidance, understatement of taxpayer liability by tax return preparer; conformity to treasury regulations related to Internal Revenue Code section 6694.  (a) In administering the penalty set forth under section 231-36.5, HRS, relating to imposition of a penalty for understatements of taxpayer liability by a tax return preparer, the following treasury regulations shall be operative: (1) Title 26, code of federal regulations, section 1.6694-1; (2) Title 26, code of federal regulations, section 1.6694-2; (3) Title 26, code of federal regulations, section 1.6694-3; HRS §231-25.5 HRS §231-25.5 HRS §231-25.5 HRS §231-36.5 ADMINISTRATION OF TAXES §18-231-36.7-01-6700 231- 27 (Unofficial Compilation as of 12/31/2025) (4) Title 26, code of federal regulations, section 1.6694-4. (b) The director may prescribe a list of positions that the director believes do not meet the substantial authority standard. Such list (and any revisions thereof) shall be published and made public by Tax Information Release. (c) The director may provide additional administrative guidance pursuant to Tax Information Release. (d) Action to enjoin a tax return preparer. Section 231-36.5(g), HRS, authorizes the director to seek an injunction from a court enjoining a tax return preparer from preparing tax returns in certain circumstances. A civil action to enjoin a tax preparer shall be subject to the following procedures: (1) A civil action to enjoin a tax return preparer may be brought by the attorney general at the director’s request. (2) The civil action to enjoin a tax return preparer shall be based upon facts alleging conduct by the tax return preparer that is prohibited under sections 231-36.5(a) or (b), or both. (3) The civil action shall be brought in the circuit court where the tax return preparer resides, has a principal place of business, or where the taxpayer with respect to whose tax return the action is brought resides, at the election of the director. (4) Where a court finds that a tax return preparer has continually or repeatedly engaged in conduct prohibited under sections 231-36.5(a) or (b), and that an injunction prohibiting that conduct would not be sufficient to prevent the preparer’s interference with the proper administration of chapter 231, which is applicable to all of title 14, HRS, the court may enjoin the preparer from acting as a tax return preparer in any capacity. [Eff 11/18/2010] (Auth: HRS §§ 231-3(9), 235-2.5(b), 231-10.6, 235-118) (Imp: HRS §§ 231-36.5) §18-231-36.6-01-6662 Guidance; substantial understatements or misstatements of amounts; conformity to treasury regulations related to Internal Revenue Code section 6662.  (a) In administering the penalty set forth under section 231-36.6, HRS, relating to imposition of a penalty for substantial understatements or misstatements of amounts, the treasury regulations adopted under title 26, code of federal regulations, section 1.6662-4, shall be operative. (b) The director may prescribe a list of positions that the director believes do not meet the substantial authority standard. Such list (and any revisions thereof) shall be published and made public pursuant to Tax Information Release. (c) The director may provide additional administrative guidance pursuant to Tax Information Release. [Eff 11/18/2010] (Auth: HRS §§ 231-3(9), 235-2.5(b), 231-10.6, 235-118) (Imp: HRS §§ 231-36.6) §18-231-36.7-01-6700 Guidance, promoting abusive tax shelters; conformity to treasury regulations related to Internal Revenue Code section 6700.  (a) In administering the penalty set forth under section 231-36.7, HRS, relating to imposition of a penalty for promoting abusive tax shelters, any proposed, temporary, or final treasury regulations providing guidance in application of section 6700 of the Internal Revenue Code shall be operative. (b) The director may provide additional administrative guidance pursuant to Tax Information Release. (c) The director may maintain a list of transactions considered by the department to be abusive tax shelters. This list shall be maintained by Tax Information Release and shall be updated from time to time, as is necessary. (d) Safe harbor. A person who promotes a tax shelter that may or may not be considered abusive by the department will not be assessed the penalty under section 231-36.7, HRS, if the promoter first makes application with the department for a letter ruling pursuant to Tax Information Release 2009-1, and who thereafter receives a favorable ruling from the department. A ruling will not be considered a favorable ruling within the meaning of this safe harbor unless all partnership agreements, operating agreements, investment plan documents, and other relevant information discussing the organization of the plan are acknowledged in the ruling as having been disclosed and considered by the department in drawing its conclusion. (e) Action to enjoin a tax shelter promoter. Section 231-36.7 (c), HRS, authorizes the director to seek an injunction from a court enjoining a tax shelter promoter from engaging in any conduct described under section 231- 36.7 (a), HRS. A civil action to enjoin a tax shelter promoter shall be subject to the following procedures: (1) A civil action to enjoin a tax shelter promoter may be brought by the attorney general at the director’s request. (2) The civil action to enjoin a tax shelter promoter shall be based upon facts alleging the person is a tax shelter promoter, as defined in section 231-36.7 (a), HRS, and that person has engaged in any conduct that is prohibited under section 231-36.7 (a). (3) The civil action shall be brought in the circuit court where the tax shelter promoter resides or has a principal place of business, at the election of the director. [Eff 11/18/2010] (Auth: HRS §§ 231-3(9), 235-2.5(b), 231-10.6, 235-118) (Imp: HRS §§ 231-36.7) HRS §231-36.6 HRS §231-36.7 §18-231-36.8-01-6676 ADMINISTRATION OF TAXES 231- 28 (Unofficial Compilation as of 12/31/2025) §18-231-36.8-01-6676 Guidance, erroneous claim for refund or credit; conformity to treasury regulations related Internal Revenue Code section 6676.  (a) In administering the penalty set forth under section 231-36.8, HRS, relating to imposition of a penalty for erroneous claims for refund or credit, any proposed, temporary, or final treasury regulations providing guidance in application of section 6676 of the Internal Revenue Code shall be operative. (b) The director may provide additional administrative guidance pursuant to Tax Information Release. (c) Excessive amount. Section 231-36.8, HRS, assesses a penalty equal to twenty per cent of the claimed refund or credit amount found to be erroneous, which is called the “excessive amount.” The excessive amount is the difference between the amount of refund or credit claimed for any taxable year and the amount of refund or credit allowable for the same taxable year. (d) Section 18-231-36.8-01-6676(c), HAR, is illustrated as follows: EXAMPLE: Taxpayer made a return for the 2008 taxable year claiming $10,000 in refundable credit on its 2008 tax return. All of Taxpayer’s income was offset by allowable operating losses for the same taxable year, which resulted in a credit refund claim calculation of $10,000. Upon audit, it was determined that Taxpayer was entitled to a $6,000 credit and $4,000 in claimed credit was disallowed. The department further assessed the erroneous refund penalty under section 231-36.8, HRS. The “excessive amount” for purposes of the penalty under section 231-36.8, HRS, is $4,000, which is the difference between the amount of credit that was claimed and the amount of credit allowable. The twenty per cent penalty will be applicable to the $4,000 base amount, which results in a penalty of $800. (e) $400 minimum penalty. Section 231-36.8, HRS, provides an exclusion from the twenty per cent penalty where the penalty calculation results in an amount of less than $400. Therefore, where the excessive amount, which serves as the base for the credit calculation, results in a penalty of less than $400, no penalty will be assessed. In dollar figures, where the excessive amount is less than $2,000 in claimed refund or credit, no penalty will be assessed pursuant to section 231-36.8, HRS. The $400 minimum penalty calculation does not take into account any interest accruable on the disallowed amount. (f) Section 18-231-36.8-01-6676(e) is illustrated as follows: EXAMPLE: Assume the same facts as the Example in subsection (d), except that upon audit it was determined that the taxpayer was entitled to $9,000 in credit and was disallowed $1,000 in claimed credit. Assume further that there was no reasonable basis for the excessive $1,000 credit claim. In this case, the “excessive amount” for purposes of calculating the penalty under section 231-36.8, HRS, is $1,000. Applying the twenty per cent penalty to the $1,000 excessive base amount results in a penalty of $200. Pursuant to the express terms of section 231- 36.8, HRS, no penalty will be assessed under these facts because the penalty is less than $400. (g) Reasonable basis defense. Section 231-36.8, HRS, provides for a defense against the erroneous refund penalty where the taxpayer has a reasonable basis for claiming the credit or refund. The burden of proof is on the person claiming the position taken on the return had a reasonable basis. The reasonable basis standard is higher than frivolous or not patently improper. The reasonable basis standard is considered a one-in-four, or greater, likelihood of success on the merits of the claim after a person knowledgeable in the tax law makes a reasonable analysis. The director may prescribe a list of positions that the director believes do not meet the reasonable basis standard. Such list (and any revisions thereof) shall be published and made public pursuant to Tax Information Release. Reasonable basis expressly includes innocent mistakes related to the refund or credit claim, which are errors on a return due to inadvertence or mathematical mistakes. (h) Section 18-231-36.8-01-6676(g) is illustrated as follows: EXAMPLE 1: XYZ Corporation conducted qualified research in Hawaii and further incurred qualified research expenses that generated a credit claim under section 235-110.91, HRS. In making its credit calculation, XYZ Corporation inadvertently added a line item invoice for research expenses twice, thus creating a larger base amount for determining its credit. Upon audit, the double calculation was discovered and the second claim for the same cost was disallowed. Under the facts of this example, XYZ Corporation’s excessive amount for purposes of the penalty under section 231-36.8, HRS, was due to an inadvertent calculation error and therefore had a reasonable basis in making its excessive claim. The claim for the excessive amount is HRS §231-36.8 ADMINISTRATION OF TAXES §18-231-91-02 231- 29 (Unofficial Compilation as of 12/31/2025) rightfully disallowed; however, no penalty under section 231-36.8, HRS, should be assessed in this circumstance. EXAMPLE 2: Assume the same facts as in Example 1; however rather than an inadvertent calculating error, XYZ Corporation knowingly included travel expenses unrelated to the qualified research activity, which were charged to a particular research project journal account for accounting purposes and knowingly included in the research tax credit claim. Rather than remove the disqualified expenditure from the credit claim, XYZ Corporation made the claim for the whole project account knowing the travel costs did not qualify. Upon audit, the claim for the travel expenses unrelated to qualified research activity was disallowed. Upon inquiry, XYZ Corporation said the disqualified travel was included out of convenience in its accounting practice. Under the facts of this example, XYZ Corporation’s excessive amount included a claim for credit for which there was no basis. XYZ Corporation knowingly included the amount, which was unrelated to qualified research. Such claims are not allowed pursuant to a plain reading of section 231-110.91, HRS, which eliminates any reasonable basis for making the claim. Because XYZ Corporation’s excessive amount had no reasonable basis under these facts, a penalty under section 231-36.8, HRS, would be warranted and is assessable in the discretion of the auditor; provided the director approves of the assessment pursuant to sections 231-36.8 and 18-231-10.6-01(h). [Eff 11/18/2010] (Auth: HRS §§ 231-3(9), 235-2.5(b), 231-10.6, 235-118) (Imp: HRS §§ 231-36.8) §18-231-37 to