00-1339 and 00-0950

Income Tax

Signed 5/15/01

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

PETITIONERS, ) FINDINGS OF FACT,

) CONCLUSIONS OF LAW,

Petitioners, ) AND FINAL DECISION

)

v. ) Appeal Nos. 00-1339, 00-0950

) Account Nos. #####, #####

AUDITING DIVISION OF )

THE UTAH STATE TAX ) Tax Type: Income Tax

COMMISSION, ) Tax Periods: 1997 & 1998, 1994 & 1997

)

Respondent. ) Judge: Davis

_____________________________________

Presiding:

G. Blaine Davis, Administrative Law Judge

Palmer DePaulis, Commissioner

Appearances:

For Petitioner: PETITIONER

PETITIONER 2

PETITIONER REP

For Respondent: Mr. Tim Bodily, Assistant Attorney General

Ms. Becky McKenzie, from the Auditing Division

STATEMENT OF THE CASE

This matter came before the Utah State Tax Commission for a Formal Hearing on May 2, 2001. Based upon the evidence and testimony presented at the hearing, the Tax Commission hereby makes its:

FINDINGS OF FACT

1. The tax in question is income tax.

2. The years in question are 1997 and 1998 for the Petitioner PETITIONER, and 1994 and 1997 for the Petitioner PETITIONER 2.

3. Petitioners have not filed Utah State income tax returns for the years at issue in this proceeding.

4. Respondent received information from the Internal Revenue Service on each of the Petitioners indicating they had income for the years at issue for which Utah State income tax returns had not been received.

5. After following the procedures prescribed by law, Respondents sent to each of the Petitioners a Statutory Notice of Estimated Income Tax for each of the periods at issue. Petitioners dispute the assessment of such income tax.

6. The positions of Petitioners were read into the record from an Affidavit by PETITIONER, and Petitioner PETITIONER 2 submitted a similar Affidavit. The positions stated in the Affidavit are as follows:

a. That the captioned Respondent, styled AUDITING DIVISION OF THE UTAH STATE TAX COMMISSION, and the captioned Petitioner, styled PETITIONER 2, are fictitious contrivances of the Respondent's attorneys' and is an artifice, in fact and law, for true purpose to defraud the natural person, PETITIONER 2, and to deceive this Tribunal to the extreme prejudice of PETITIONER 2.

b. That any assertion by the Utah State Tax Commission of a violation of Title 26, United States Code, subtitle C individual income tax against PETITIONER 2, without the written document executed by expressed assumpsit of exclusive control, is a feigned collusive issue.

c. That whereas Respondent's attorney representatives reply on the aforesaid collusion to be given the presumption that Petitioner has an existing disability of having a "duty" to file and/or pay upon a required return.

d. That any money rendered to the Federal government or the federal government by exercising the "election" for tax treatment provided pursuant Act of Aug. 16, 1954, ch. 736, 68A Stat. 18, as amended, is an equitable election under 26 U.S.C. §63(e)(1) and pursuant section 63(e)(2) filing of an IRS Form 1040 is a general deposit of locatio rei, which is subject to refund upon demand.

e. That Petitioner's voluntary election of contract to file a 1040 Federal tax return or a State TC-40 tax return is a discretionary function subject to disaffirmance by Petitioner's express assumpsit signatory pursuant clause for option of recission (sic) by election of alternative rights as allowed by Congress pursuant section 63(e)(3).

f. That any prior "election" taken by Petitioner for the tax treatment provided by secyion (sic) 63(e)(1) pursuant Act of Aug. 16, 1954, ch. 736, 68A Stat. 18, as amended, is an equitable election under 26 U.S.C. §63(e)(3), which works a recission (sic) and disaffirmance of the previous 1040 Federal tax return(s) or a State TC-40 return(s) for targeted years, for exercise of right with authentic interpretation to all allowable deductions, pursuant Acts of Congress within Chapter 1 of Title 26, United States Code to compute "taxable income."

g. That for purposes of making a determination of "taxable income" for purposes of Title 59, Chapter 10, Utah Code Annotated, "adjusted gross income" is the amount as defined and provided by law pursuant section 62 of Title 26, United States Code, i.e. Act of Aug. 16, 1954, ch. 736, 68A Stat 17, as amended, when section 63(e)(1) is not exercised.

h. That any assertion against Petitioner by Auditing Division, Utah State Tax Commission, utilizing asserted evidence of a "Summary of Account" or otherwise as provided by the Internal Revenue Service is prohibited by 26 U.S.C.S §6201(e), i.e. Act of Aug. 16, 1954, ch. 736, 68A Stat. 791, as amended.

i. That any document proffered by the Internal Revenue Service or the Auditing Division, Utah State Tax Commission, containing "Federal adjusted gross income, inapposite "adjusted gross income" defined at 26 U.S.C.S. §62, i.e., Act of Aug. 16, 1954, ch. 736, 68A Stat. 791, as amended, is a false declaration and part of the artifice to defraud.

j. That on date of 19 September 2000, Mary Lewis, Auditing Division, Utah State Tax Commission, has attempted to evade or defeat a provision of Title 26, United States Code, by disallowing Petitioner's exercise of right to election under 26 U.S.C. §63(e)(3) and thereby denying Petitioner's right to make demand or refund as authorized by section 6401(c ), i.e., Act of Aug 16, 1954, ch. 736, 68A Stat. 791, as amended, and is subject to sanctions as provided by 26 U.S.C.S. §7214(a) et seq. and authorized by 26 U.S.C.S. §7344.

7. Respondent presented evidence showing that Petitioners lived in the State of Utah during the times for which income tax has been assessed against them.

8. During the times Petitioners lived in Utah, they were gainfully employed and were compensated for their services. W-2 forms were issued for such employment by their employers, and the income which they earned, as shown by the W-2 forms, is the income on which Respondent has assessed income taxes to Petitioners.

9. There were withholdings made from the paychecks of Petitioners, and no credit has been given on the assessment by Respondent for such withholdings because of the provisions of Utah Code Ann. §59-10-529(7), which prohibits giving credit for the amount of withholding unless "the taxpayer or his legal representative files with the Commission a tax return claiming the refund or credit;". . . . Petitioners have not filed such a tax return claiming the credit.

10. Prior to the commencement of the hearing, the parties stipulated that the separate cases for Petitioner PETITIONER 2 and Petitioner PETITIONER could be consolidated, and the Administrative Law Judge ordered that the cases be consolidated and heard together.

11. There has not been an imposition for a frivolous position penalty pursuant to the provisions of Utah Code Ann. §59-1-401(7) because Petitioners have not filed returns.

APPLICABLE LAW

The State of Utah imposes income tax on individuals who are residents of the state in Utah Code Ann. §59-10-104 as follows:

. . . a tax is imposed on the state taxable income, as defined in Section 59-10-112, of every resident individual . . .

State taxable income is defined in Utah Code Ann. §59-10-112 as follows:

"State taxable income in the case of a resident individual means his federal taxable income (as defined by Section 59-10-111). . .

Federal taxable income is defined in Utah Code Ann. §59-10-111 as follows:

"Federal taxable income" means taxable income as currently defined in Section 63, Internal Revenue Code of 1986.

Taxable income is defined in the Internal Revenue Code at 23 USC 63 as:

Except as provided in subsection (b), for purposes of this subtitle, the term "taxable income" means gross income minus the deductions allowed by this chapter (other than the standard deduction).

Gross income is defined in the Internal Revenue Code at 23 USC 61(a) as:

Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:

(1) Compensation for services, including fees, commissions, fringe benefits, and similar items; . . .

The requirement to file a federal income tax return is established by IRC §6012. Utah Code Ann. §59-10-502, provides in relevant part:

An income tax return with respect to the tax imposed by this chapter shall be filed by:

(1) Every resident individuals, estate, or trust required to file a Federal income tax return for the taxable year; . . .

The Utah Legislature has determined that a $500 penalty is necessary in the following circumstances as set out in Utah Code Ann. §59-1-401(7):

If any taxpayer, in furtherance of a frivolous position, has a prima facie intent to delay or impede administration of the tax law and files a purported return that fails to contain information from which the correctness of reported tax liability can be determined or that clearly indicates that the tax liability shown must be substantially incorrect, the penalty is $500.

Utah Code Ann. §59-10-529(7) provides:

(a) "If a refund or credit is due because the amount of tax deducted and

withheld from wages exceeds the actual tax due, a refund or credit may not

be made or allowed unless the taxpayer or his legal representative files

with the commission a tax return claiming the refund or credit;

(i) within three years from the due date of the return, plus the period

of any extension of time for filing the return provided for in subsection

(7)(c ); or

(ii) within two years from the date the tax was paid, whichever period is

later.

(b) except as provided in subsection (7)(d), in other instances where a refund

or credit of tax which has not been deducted and withheld from income is due,

a credit or refund may not be allowed or made after three years from the time

the tax was paid, unless, before the expiration of the period, a claim is filed

by the taxpayer or his legal representative.

CONCLUSIONS OF LAW

1. Petitioners were domiciled and lived in the State of Utah for the periods at issue.

2. Petitioners income during all of the times at issue was subject to income tax

within the State of Utah.

3. The burden of proof is upon Petitioners (Utah Code Ann. §59-10-543). Petitioners’ burden of proof specifically applies to Petitioners' responsibility to establish that the audit assessment made by Respondent is not correct, and to further establish that the income which has been taxed in this proceeding is not subject to income tax pursuant to Utah State law. Petitioners failed to meet that burden of proof.

4. There is no legal or factual merit to any of the positions and arguments of Petitioners.

DECISION AND ORDER

Based upon the foregoing, the Petition for Redetermination is hereby denied, and the audit assessment imposed by Respondent is affirmed. It is so ordered.

DATED this 15^th day of May, 2001.

_____________________________________

G. Blaine Davis

Administrative Law Judge

BY ORDER OF THE UTAH STATE TAX COMMISSION:

The Commission has reviewed this case and the undersigned concur in this decision.

DATED this 15^th day of May, 2001.

Pam Hendrickson R. Bruce Johnson

Commission Chair Commissioner