01-0837

Income Tax

Signed 12/30/2

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

PETITIONER, ) FINDINGS OF FACT,

) CONCLUSIONS OF LAW,

Petitioner, ) AND FINAL DECISION

)

v. ) Appeal No. 01-0837

) Account No. ########

AUDITING DIVISION OF )

THE UTAH STATE TAX ) Tax Type: Income Tax

COMMISSION, ) Tax Year: 1999

)

Respondent. ) Judge: Davis

_____________________________________

Presiding:

G. Blaine Davis, Administrative Law Judge

Appearances:

For Petitioner: PETITIONER

For Respondent: Mr. Laron Lind, 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 November 5, 2002. 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 calendar years 1999 and 2000.

3. Petitioners filed their 1999 and 2000 income tax returns with the Internal Revenue Services and with the Utah State Tax Commission. The returns for both years contained zeros on all lines except for the lines showing total withholding and credits and refund, and on those lines, Petitioner showed the total amount withheld and requested a refund of those amounts.

4. During each of the years in question, both Petitioners had earnings within the State of Utah and received W-2 forms showing the amounts of wages paid to them and the amount of taxes withheld.

5. Petitioners are domiciled in CITY, Utah, and were so domiciled during 1999 and 2000.

6. The position of Petitioner is that the tax returns of the parties were correctly filed because they showed zeros on their federal return, and they were therefore required to show zeros on their State of Utah return.

7. Petitioners also cited several sections of the Internal Revenue Code, but those sections are not relevant to this proceeding. Petitioner also claims there is no law that states a definition of income for the purposes herein.

8. Petitioner acknowledged that he and his wife received the income shown on the W-2 forms, and that they worked for the companies shown on those W-2 forms.

9. Respondent imposed tax at the statutory rate on the amount shown on the W-2 forms, and also imposed a $$$$$ frivolous filing penalty pursuant to the provisions of Utah Code Ann. §59-1-401(7).

10. Based upon Petitioner's filing a return with zeros, it has required more time and effort to process his return, audit the return, and then prepare for the hearing. The Commission finds that the tax was materially misstated on the return and therefore Petitioner had a prima facie intent to delay or impede the administration of the tax law and filed a purported return that failed to contain information from which the correctness of reported tax liability could be determined and which also clearly indicates that the tax liability shown must be substantially incorrect.

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) 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 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."

The Utah Legislature has specifically provided that the taxpayer bear the burden of proof in proceedings before the Tax Commission.

The Petitioner in furtherance of a frivolous position delayed and impeded the administration of the tax law and filed a purported return that failed to contain information from which the correctness of the reported tax liability could be determined and which clearly indicated that the tax liability shown must be substantially incorrect. Therefore, the $$$$$ frivolous filing penalty provided by Utah Code Ann. §59-1-401(7) should be sustained.

DISCUSSION

In this matter, Petitioner has the burden of proof to establish that the audit assessment made by Respondent was erroneous, and to show the correct amount of tax due thereon. Petitioner has failed to present any factual evidence to establish either that the assessment made by Respondent was erroneous, or to show the correct amount of the tax.

DECISION AND ORDER

Based upon the foregoing, the Tax Commission hereby sustains the audit assessment made by the Auditing Division, including the imposition of the penalties and interest, and denies the Petition for Redetermination. It is so ordered.

DATED this 30^th day of December , 2002.

______________________________

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 30^th day of December , 2002.

Pam Hendrickson R. Bruce Johnson

Commission Chair Commissioner

Palmer DePaulis Marc B. Johnson

Commissioner Commissioner

01-0837 and 01-1236

Income Tax

Signed 8/12/02

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

PETITIONERS, ) ORDER

)

Petitioners, ) Appeal Nos. 01-0837 and 01-1236

)

v. ) Account No. #########

)

AUDITING DIVISION OF ) Tax Type: Income Tax

THE UTAH STATE TAX )

COMMISSION, ) Tax Year(s): 1999 and 2000

)

Respondent. ) Judge: Davis

_____________________________________

Presiding:

G. Blaine Davis, Administrative Law Judge

Appearances:

For Petitioner: PETITIONER

For Respondent: Mr. Laron Lind, Assistant Attorney General

Mr. Brent Taylor, from the Auditing Division

STATEMENT OF THE CASE

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 24, 2002.

Petitioner, PETITIONER, disputes the balance shown due on the Statutory Notice of Audit Change that was mailed by the Respondent for the 1999 and 2000 tax years.

For 1999, the Petitioner filed a state income tax return reporting that his adjusted gross income was zero. For the year 2000, Petitioner also filed a state income tax return reporting that his adjusted gross income was zero.

For 1999, Respondent increased Petitioner's adjusted gross income reported on the Utah State income tax return from zero to $$$$$$ and allowed a standard deduction of $$$$$$.

For the year 2000, Respondent increased Petitioner's adjusted gross income reported on the Utah State income tax return from zero to $$$$$$ and allowed a standard deduction of $$$$$$. Petitioner contends that the changes made by Respondent are incorrect.

Petitioner claims the income tax system is a voluntary system for which he does not choose to volunteer, and the Internal Revenue Code does not define income or include wages as income, and so he does not have any "liability". He also claims that in filing a zero return he followed the law according to the Internal Revenue Code "code book".

Because of the actions of Petitioner, Respondent imposed a frivolous return penalty pursuant to the provisions of Utah Code Ann. §59-1-401(7).

Respondent introduced several W-2 forms to substantiate the income of Petitioners.

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 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."

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).

DISCUSSION

Petitioner claimed he did not have any Utah state income tax liability. In support of that claim, Petitioner recited several fallacious arguments including his assertion that the income tax is a "voluntary" tax for which he does not choose to volunteer, and that "wages are not income." Petitioner's claim that he had no taxable income is erroneous. Petitioner had received compensation in wages for services he provided to his employer. According to the Internal Revenue Code at 23 USC 61(a), "[c]ompensation for services" is income. Utah taxable income is based on federal taxable income. Therefore, to claim that he received no taxable income is incorrect.

Arguments similar to, and often identical to, Petitioner's arguments have been deemed to be without merit by courts in Utah and across the nation, in cases specifically dealing with the issue of individual income tax.^[1]

It is frivolous for Petitioner to reassert arguments that have already been deemed without merit. Petitioner does not understand the cases upon which he relies. Clearly Petitioner did not look for cases that were directly on point. The returns filed by Petitioner failed to contain information from which the correctness of reported tax liability can be determined, and the returns also clearly indicate that the tax liability shown must be substantially incorrect. By purposely filing incorrectly and then asserting his frivolous arguments before the Tax Commission, Petitioner has delayed and impeded the administration of the tax laws.

DECISION AND ORDER

Petitioner's arguments supporting his assertion that he did not have a Utah tax liability on the compensation he received for services he performed are completely without merit. Petitioner's position is frivolous, since the code clearly states that individual income tax is to be assessed on compensation for services. The courts have always upheld the assessment of individual income tax on wage income. Moreover, Petitioner filed a return that was clearly substantially incorrect. Petitioner did so with intent to delay and impede, and his actions delayed and impeded the administration of the tax laws.

Based on the foregoing, the Commission sustains the assessment of tax, penalties and interest against Petitioner for the 1999 and 2000 tax years.

The Commission also imposes and sustains a $$$$$$ frivolous position penalty as provided by Utah Code Ann. §59-1-401(7).

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 12^th day of August , 2002.

____________________________________

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 12^th day of August , 2002.

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, 1329(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 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),”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." The court in Granzow cited a number of decisions from several circuits.

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 Supreme Court has declared 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 trail, falls somewhere on a continuum between untrue and absurd."

In addition to the cases listed above, see Nelson v. Auditing Div., 903 p.2d 939 (Utah 1995). In Nelson the Utah Supreme Court stated, “Like most Utah residents, Nelson has a duty to file tax returns and pay state income taxes as they come due.” In that case the Utah Supreme Court upheld the assessment of Utah income tax as well as penalties and interest.