Income Tax

Signed 1/21/03







Petitioners, ) Appeal No. 01-0546


v. ) Account No. #####






Respondent. ) Judge: Davis




G. Blaine Davis, Administrative Law Judge


For Petitioner: PETITIONER


For Respondent: Mr. Mark Wainwright, Assistant Attorney General

Mr. Dan Engh, from the Auditing Division

Ms. Angie Hillas, from the Auditing Division




This matter came before the Utah State Tax Commission for an Initial Hearing pursuant to the provisions of Utah Code Ann. '59-1-502.5, on January 10, 2002.

Petitioner is a resident of Utah, but has a business in the State of STATE. The business is an "S" Corporation for federal income tax purposes, but was a "C" Corporation for STATE tax purposes. Therefore, the income was taxed at the corporate level in STATE.

PETITIONER’S REP called from STATE to inquire as to how that matter should be taxed on the income tax return for Petitioners. He represented that he talked to someone named "Grant" and was instructed to deduct the "S" Corporation earnings on line 18, other, on the Utah State tax return. The Utah tax return for Petitioners was prepared in accordance with the instructions “Grant”. The return prepared for Petitioners contained all of their income, including the income from the STATE corporation. However, in accordance with the instructions received from “Grant”, the STATE corporation income was deducted on line 18, “other” as an equitable adjustment. PETITIONER’S REP also included with the tax return of Petitioners a letter explaining what he had done and that he was doing as he had been instructed by "Grant".

Respondent reviewed the return and determined the equitable adjustment deduction on line 18 was inappropriate, and issued a Statutory Notice of Audit Change. However, the adjustment was not made until nearly three years after the return had been filed. Because Petitioners had filed tax returns for three additional years, the "S" Corporation income was deducted in the same manner on the 1998, 1999 and 2000 return.

There were no penalties imposed on any of the years, but adjustments have been made for all of the years to add the tax and interest.

The issue in the audit was whether Petitioners, as residents of Utah, were entitled to take an equitable adjustment deduction for the New Jersey corporation income. The issue was not the possible deduction of a credit for tax paid by an individual to another state. However, Petitioners have now agreed to the additional tax, and have been making payments to get that amount paid. Petitioners are concerned because they have also paid income tax on the corporate earnings in STATE, and they feel they have been double taxed on the same income.

Nevertheless, Petitioners are willing to pay the tax, but have asked that the interest thereon be waived.


The Tax Commission is granted the authority to waive, reduce, or compromise penalties and interest upon a showing of reasonable cause. Utah Code Ann. §59-1-401(10).


In this matter, because Petitioners have now agreed to pay the tax, the only issue is whether the interest should be waived. Petitioners have cited the long delay in making the audit changes, but the Commission has ruled on numerous occasions that because the taxpayers had the use of the money, a long delay does not constitute reasonable cause to waive the interest.

However, the Commission does have a policy of waiving interest if the interest is caused by a Tax Commission employee error. While the Commission has not determined there was Tax Commission employee error in this case, there was something in the conversation between the C.P.A. for Petitioners and the Tax Commission employee which caused the C.P.A. to take an improper deduction. Accordingly, the Commission determines the information given to the C.P.A. was at best unclear, but was possibly erroneous. Therefore, the Commission has determined to waive the interest.


Based upon the foregoing, the Commission finds that sufficient cause has been shown to justify a waiver of the interest for the 1997, 1998, 1999, and 2000 Utah State income tax returns associated with the tax imposed because of the improper deduction of the "S" Corporation income on the income tax return of Petitioners. It is so ordered.

This decision does not limit a party's right to a Formal Hearing. However, this Decision and Order will become the Final Decision and Order of the Commission unless any party to this case files a written request within thirty (30) days of the date of this decision to proceed to a Formal Hearing. Such a request shall be mailed to the address listed below and must include the Petitioner's name, address, and appeal number:

Utah State Tax Commission

Appeals Division

210 North 1950 West

Salt Lake City, Utah 84134

Failure to request a Formal Hearing will preclude any further appeal rights in this matter.

DATED this 21st day of January , 2003.



G. Blaine Davis

Administrative Law Judge



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

DATED this 21st day of January , 2003.




Pam Hendrickson R. Bruce Johnson

Commission Chair Commissioner




Palmer DePaulis Marc B. Johnson

Commissioner Commissioner