Income Tax

Signed 4/16/02









v. ) Appeal No. 01-0439

) Account No.


THE UTAH STATE TAX ) Tax Type: Income Tax

COMMISSION, ) Tax Year: 1999


Respondent. ) Judge: Davis




G. Blaine Davis, Administrative Law Judge



For Petitioner: PETITIONER


For Respondent: Mr. Tim Bodily, Assistant Attorney General

Ms. Becky McKenzie, from the Auditing Division

Mr. Brent Taylor, from the Auditing Division

Ms. Angie Hillas, from the Auditing Division




This matter came before the Utah State Tax Commission for a Formal Hearing on September 20, 2001. Based upon the evidence and testimony presented at the hearing, the Tax Commission hereby makes its:


1. The tax in question is income tax.

2. The year in question is 1999.

3. For the year at issue, 1999, Petitioner filed both federal and Utah Individual Income Tax Returns. On almost all of the lines, including the lines asking for salaries and tips, Petitioner wrote "zero" notwithstanding that he had received a W-2 form from COMPANY A in CITY, Utah showing he had wages, tips or other compensation of $$$$$.

4. On the lines showing withholding, he set forth the amount of withholding tax which had been withheld by his employer, showed zero tax, and asked for a refund of 100% of the amount which had been withheld by his employer.

5. Respondent made a proposed change to the tax return of Petitioner and sent him a Statutory Notice of Audit Change on approximately February 20, 2001, and showed an amount which was to be paid on or before March 22, 2001. In its change, Respondent assessed income tax in an amount of $$$$$, a penalty in an amount of $$$$$, and interest as of that date of $$$$$, for a total amount due, after deducting $$$$$ which was withheld from Petitioner's return, of $$$$$.

6. The penalty imposed upon Petitioner was the frivolous return penalty imposed pursuant to Utah Code Ann. 59-1-401(7).

7. Petitioner maintains several positions, including that his wages are not income, that the income tax system is a voluntary and not an involuntary system, that he is protected by the Fifth Amendment of the U.S. Constitution from incriminating himself on a tax return, that he has not been made liable for federal income tax, and therefore the State cannot assess tax upon him, and that Utah has unlawfully delegated its authority to the Internal Revenue Service which means the State of Utah is enforcing federal law.

8. During the year at issue, Petitioner lived in CITY, Utah, and was therefore domiciled in the State of Utah.


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 individual, 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."


1. Wages are taxable income.

2. The audit assessment of additional tax and interest based on Petitioner's corrected taxable income is appropriate.

3. Petitioner, in furtherance of frivolous positions, filed a clearly erroneous return. He did so intentionally, after doing some very limited and one-sided research, and his actions impeded the administration of the tax laws. Petitioner knew or had reason to know his actions would impede the administration of the tax laws. For these reasons, the $500 penalty assessed pursuant to Utah Code Ann. 59-1-401(7) is appropriate.


Petitioner raises several arguments alleging that he has no Utah income tax liability, despite the fact the he earned wages in Utah. His arguments are clearly without merit and, as Petitioner would have been aware had he truly researched the issues that he argues, these issues have been heard and rejected numerous times by the state and federal courts systems as well as the Utah State Tax Commission.

For example, Petitioner argues that the Tax Commission cannot assess individual income tax until the federal taxable income has been determined and assessed by the IRS. Similar arguments were considered, and rejected, in two cases before the Utah Supreme Court.[1] These two cases also support Respondent's contention that Respondent has the authority to make the assessment against Petitioner, which is the issue of this appeal. In fact, Petitioner has presented no case that supports his contentions that the Utah State Tax Commission lacks authority to make the assessment at issue or enforce the assessment, or that he has not been provided sufficient due process at the administrative level.[2]

Petitioner's claim that he had no taxable income for 1999 is clearly without merit.[3] See also Granzow v. C.I.R., 739 F 2d 265, 267 (7th Cir. 1984), "It 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." Petitioner received compensation for his services. The Internal Revenue Code is very clear on this issue. According to the Internal Revenue Code at 26 USC 61(a), "[c]ompensation for services" is federal taxable income.[4] Utah taxable income is based on federal taxable income and Petitioner's wages are clearly compensation for service, are included in Petitioner's federal taxable income and, in turn, his state taxable income. In addition, if Petitioner had read Newman v. Schiff, 778 F 2d 460 (Eighth Cir. 1985) he would know which Internal Revenue Code provision mandated payment of taxes or as Petitioner framed the issue, provides the liability section which he alleges is missing.[5]

As Respondent pointed out at the hearing, it was very bold of Petitioner to rely on erroneous information which purported to support the position that Petitioner had no taxable income, without even reading the cases for himself or consulting with a competent tax advisor.


Based upon the foregoing, the Tax Commission sustains the audit assessment of income tax and a $500 frivolous penalty pursuant to Utah Code Ann. 59-1-401(7), and interest at the statutory rate for the 1999 tax year. It is so ordered.

DATED this 16th day of April , 2002.



G. Blaine Davis

Administrative Law Judge



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

DATED this 16th day of April , 2002.



Pam Hendrickson R. Bruce Johnson

Commission Chair Commissioner




Palmer DePaulis Marc B. Johnson

Commissioner Commissioner


[1] A similar assertion was considered and rejected by the Utah Supreme Court in Nelson v. Auditing Div., 903 P.2d 939 (Utah 1995) and Jensen v. State Tax Commission, 835 P.2d 965 (Utah 1992).


[2] Petitioner argues he is entitled to a jury trial. In Jensen, id, the Utah Supreme Court held that Jensen was not entitled to a jury trial in the adjudication before the Tax Commission.


[3] See United States v. Koliboski, 732 F.2d 1328 (7th Cir. 1984). The court stated "the 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 setate, 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."


[4] 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, "His 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 "person" 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: "The 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."


[5] It is worth noting that Mr. Schiff, of Newman v. Schiff, was convicted for criminal violations of the federal income tax laws and those convictions were affirmed by the United States Court of Appeals in U.S. v. Schiff, 800 F.2d 930 (2d Cir. 1986) and U.S. v. Schiff, 875 F.2d 228 (2d Cir. 1989).