00-0949 and 00-1383

Income Tax

Signed 6/20/01









v. ) Appeal Nos. 00-0949

) 00-1383


THE UTAH STATE TAX ) Tax Type: Income Tax


) Judge: Phan

Respondent. )




Jane Phan, Administrative Law Judge



For Petitioner: PETITIONER




For Respondent: Tim Bodily, Assistant Attorney General

Brent Taylor, Manager Income Tax Auditing




This matter came before the Utah State Tax Commission for a Formal Hearing on May 23, 2001. Based upon the evidence and testimony presented at the hearing, the Tax Commission hereby makes its:


1. Petitioners are appealing the additional income tax and interest assessed against them for the tax years 1996 and 1998. For 1996 Petitioners had filed a Utah income tax return. However, the return was audited by Respondent based on information from the Internal Revenue Service ("IRS"). For the 1998 tax year Petitioners failed to file a Utah Individual Income Tax Return.

2.                  The Statutory Notice of Audit Change for the 1996 tax year was issued on October 20, 2000, against both Petitioners jointly. For the 1996 tax year $$$$$ in additional tax, along with $$$$$ in interest had been assessed. Interest continues to accrue on the unpaid balance.

3. The Statutory Notice of Estimated Income Tax for the 1998 tax year was issued against PETITIONER 2 on May 17, 2000. For the 1998 tax year, $$$$$ in tax, $$$$$ in penalties and $$$$$ in interest were assessed against PETITIONER 2. Interest continues to accrue on the unpaid balance.

4. The Statutory Notice of Estimated Income Tax for the 1998 tax year was issued against PETITIONER on November 6, 2000. For 1998, $$$$$ in tax, $$$$$ in penalty and $$$$$ in interest were assessed against PETITIONER. Interest continues to accrue on the unpaid balance.

5. At the request of Petitioners, the appeals of the separate assessments against PETITIONER 2 and PETITIONER, for the 1998 tax year, were consolidated with the appeal of the joint assessment for the 1996 tax year.

6. During the tax years 1996 and 1998 Petitioners were "resident individuals" for the purposes of Utah Code Ann. '59-10-104. Petitioner PETIIONER 2 acknowledged that she resided in Utah during the years in question and Respondent submitted evidence that PETITIONER 2 had worked full time in Utah and had a Utah Drivers License. Petitioner PETITIONER refused to answer under oath Respondent's questions concerning residency, even after instructions that this would raise a presumption against his interest. Neither of the Petitioners presented any evidence, nor did they attempt to argue that their residence or domicile was outside the borders of the state of Utah.

7. During 1996 and 1998, Petitioner PETITIONER 2 received income in the form of wages from the COMPANY A. For the 1996 tax year the Internal Revenue Service had audited Petitioners and based on the IRS audit, Respondent concluded that Petitioners jointly received $$$$$ in Utah taxable income during that year. Much of this income in 1996 was trust or business income. In addition there was interest income. In 1998 Petitioner PETITIONER received wages from COMPANY B. Petitioners presented no evidence to refute the fact that they had received this income or to contest the dollar amount determined by Respondent in the audit.

8. Petitioners present no arguments which would support the waiver of the penalties assessed for the 1998 tax year.


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) with the modifications, subtractions, and adjustments provided in Section 59-10-114 . . .


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 26 U.S.C. 63 as:

Except as provided in subsection (b), for purposes of this subtitle, the term Ataxable 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 26 U.S.C. 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 Utah Legislature has specifically provided that the taxpayer bear the burden of proof in proceedings before the Tax Commission. Utah Code Ann. '59-10-543 provides the following:

In any proceeding before the commission under this chapter, the burden of proof shall be upon the petitioner except for the following issues, as to which the burden of proof shall be upon the commission:

(1) whether the petitioner has been guilty of fraud with intent to evade tax;

(2) whether the petitioner is liable as the transferee of property of a taxpayer, but not to show that the taxpayer was liable for the tax; and

(3)whether the petitioner is liable for any increase in a deficiency where such increase is asserted initially after a notice of deficiency was mailed . . .



1. The Commission has made a finding of fact that Petitioners were Utah resident individuals throughout the tax years at issue. For this reason the Commission concludes that Petitioners are liable for income tax on their state taxable income. Utah Code Ann. '59-10-104.

2. Petitioners did not dispute that they had received income during the years at issue, nor question the dollar amount of the income as determined by Respondent. This income came from wages, trust or business income and interest. The wages,[1] trust and other income which comprise the Utah taxable income as listed in the audits were properly included in Petitioners state taxable income. Utah Code Ann.'59-10-112; Utah Code Ann. '59-10-111; 26 U.S.C. 63; 26 U.S.C. 61(a). Petitioners arguments that their income was not subject to state income tax are without merit and have no basis in statute or case law. The statutes and case law clearly support state[2] and federal[3] individual income tax. The Commission sustains the assessments of income tax for both years at issue.

3. Petitioners allegation that signing a W-4 or not signing a W-4 has any relevance to the state tax liability is without merit.[4] Income tax is not voluntary.[5]

4. There is no merit to Petitioners' argument set out in the Notice by Specific Negative Averment of Defect of Misnomer and Defense in Nature of Plea in Abatement and Motion to Dismiss for Cause of Artifice to Defraud. Listing parties in all capital letters on the Statutory Notices or the pleadings and orders in this matter does not conceal the identity of the parties, nor does it violate the Utah Rules of Civil Procedure.

5. Penalties were appropriately assessed for the 1998 tax year pursuant to Utah Code Ann. Sec. 59-1-401. Petitioners present no argument as to why these were not appropriate or that could be considered reasonable cause for their waiver. Interest was properly assessed pursuant to Utah Code Ann. Sec. 59-1-402.


Petitioners' claims have no merit. The Tax Commission sustains the audit assessments of additional income tax and interest against Petitioners for the 1996 tax year and sustains the audit assessments of tax, penalties and interest against both Petitioners for the 1998 tax year. It is so ordered.

DATED this 20th day of June, 2001.



Jane Phan

Administrative Law Judge




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

DATED this 20th day of June, 2001.


Pam Hendrickson R. Bruce Johnson

Commission Chair Commissioner



Palmer DePaulis Marc B. Johnson

Commissioner Commissioner


[1]See United States v. Koliboski, 732 F.2d 1328 (7th Cir. 1984). The court stated Athe defendant=s entire case at trial rested on his claim that he in good faith believed that wages are not income for taxation purposes. Whatever his mental state, he, of course, was wrong, as all of us already are aware. Nonetheless, the defendant still insists that no case holds that wages are income. Let us now put that to rest: WAGES ARE INCOME.@

See also Granzow v. C.I.R., 739 F.2d 265, 267 (7th Cir. 1984), AIt is well settled that wages received by taxpayers constitute gross income within the meaning of Section 61 (a) of the Internal Revenue Code . . . and that such gross income is subject to taxation.@

[2]See the Utah Supreme Court decisions in Nelson v. Auditing Div., 903 P.2d 939 (Utah 1995) and Jensen v. State Tax Commission, 835 P.2d 965(Utah 1992).

[3]See also United States v. Mann, 884 F.2d 532 (10th Cir. 1989). In that case, Mann offered many theories as to why he was not required to file income tax returns. The court stated, AHis many theories include the asserted beliefs that 1) the United States Supreme Court has declared that the sixteenth amendment applies only to corporations, 2) the Internal Revenue Service (IRS) has no jurisdiction over him, 3) he is not a Aperson@ within the meaning of 26 I.R.C. '7203, 4 ) wages are not income, 5) federal reserve notes are not legal tender, and 6) the income tax is voluntary.@ The court in Mann responded to these assertions as follows, AThe government=s expert on tax law, Mr. Chancellor, testified that the representation . . . that the sixteenth amendment applies only to corporations - is untrue. . . We agree and add that each of the views offered by Mann, whether found in his published materials or articulated additionally at trial, falls somewhere on a continuum between untrue and absurd.@

[4]See United States v. Drefke, 707 F.2d 978, 981 (8th Cir. 1983).

[5]See Lonsdale v. Untied States, 919 F.2d 1440 (10th Cir. 1990).