Penalty and Interest
BEFORE THE UTAH STATE TAX COMMISSION
) Appeal No. 01-1211
) Account No. #####
AUDITING DIVISION OF THE )
UTAH STATE TAX COMMISSION, ) Tax Type: Penalty & Interest
Respondent. ) Judge: Rees
Irene Rees, Legal Counsel / Hearing Official
For Petitioner: PETITIONER, taxpayer
For Respondent: Dan Engh, Section Manager, Auditing Division
STATEMENT OF THE CASE
This matter came before the Commission for Status Conference on October 22, 2001. The Conference was converted to an Initial Hearing for purposes of determining whether the facts and circumstances of Petitioner's case justify a waiver of interest assessed against him.
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).
Petitioner timely filed his 1999 return. Thereafter, he noticed an error and corrected the error by filing an amended return. The amended return generated a refund to Petitioner. Subsequent to issuance of the refund, the Auditing Division performed an audit on Petitioner's return and discovered that Petitioner had deducted medical insurance premiums that were funded in part by Petitioner's employer, the federal government. Petitioner contacted the Tax Commission for an explanation and came away with the impression that Federal Civil Service retirees are treated differently than other retirees. Petitioner also stated that the tax booklet instructions were unclear, resulting in this error.
On July 23, 2001, Petitioner notified the Appeals Unit that he had mailed a check for the assessment but had never received any indication that the check had been received. Dolores Furniss, Tax Commission Disclosure Officer, investigated and informed Petitioner that his check had not cleared. Petitioner opted to stop payment on the check and reissue a new check. As of the date of the Initial Hearing, the Commission's records indicate that Petitioner's first check posted on August 6th and his second check posted on August 7th. The record also indicates a credit of $$$$$ on Petitioner's account.
This Order addresses Petitioner's request for a waiver of the interest assessment in the amount of $$$$$. The error which gave rise to the interest assessment involves the deduction for medical insurance premiums under section 59-10-114 (2) (h) of the Utah Tax Code. That section allows for a deduction as follows:
(h) subject to the limitations of Subsection (3)(e), amounts a taxpayer pays during the taxable year for health care insurance, as defined in Title 31A, Chapter 1, General Provisions:
(A) the taxpayer;
(B) the taxpayer's spouse; and
(C) the taxpayer's dependents; and
(ii) to the extent the taxpayer does not deduct the amounts under Section 125, 162, or 213, Internal Revenue Code, in determining federal taxable income for the taxable year; . . . .
The limitations of Subsection (3)(e) are as follows:
(e) For purposes of Subsection (2)(h), a subtraction for an amount paid for health care insurance as defined in Title 31A, Chapter 1, General Provisions, is not allowed:
(i) for an amount that is reimbursed or funded in whole or in part by the federal government, the state, or an agency or instrumentality of the federal government or the state; and
(ii) for a taxpayer who is eligible to participate in a health plan maintained and funded in whole or in part by the taxpayer's employer or the taxpayer's spouse's employer. (Emphasis added.)
For explanation of the deduction, Petitioner relied on Instruction 17, page 8 of the 1999 Income Tax instruction booklet, which states:
Qualified taxpayers may deduct 60 percent of the premium paid by the taxpayer for health insurance during the taxable year for the taxpayer, spouse, and dependent, including Medicare Plans A & B. Taxpayers may NOT take this deduction: (1) for premiums paid for health insurance if the premiums were, or could have been, deduction under IRS Code Section 125, 162, or 213; (2) for premiums fully or partially reimbursed or funded, by the federal, state, or any agency or instrumentality of the federal government or sate, excluding Medicare; or (3) if the taxpayer (or spouse) is eligible to participate in a health plan fully or partially maintained and funded by an employer. (Emphasis added.)
There has been a reasonable effort, both in statute and in the instruction booklet, to point out that the health care insurance premium deduction is not available to any taxpayer who is eligible to participate in a health plan that is fully or partially funded by his or her employer. In practice, this provision extends to retirees who participate in health plans offered funded by their previous employer. The parties indicated that Petitioner participates in a health plan that is funded by his former employer, the federal government. Therefore, Petitioner is not entitled to the deduction, including any deduction for supplemental insurance through Medicare Plans A & B.
Although Petitioner made an error by taking a deduction, no penalty was assessed. Petitioner has not shown sufficient cause to justify waiver of the interest.
DECISION AND ORDER
Based upon the foregoing, the Commission finds that sufficient cause has not been shown to justify a waiver of the interest. 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
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 8th day of November, 2001.
Legal Counsel/Hearing Official
BY ORDER OF THE UTAH STATE TAX COMMISSION:
The Commission has reviewed this case and the undersigned concur in this decision.
DATED this 8th day of November, 2001.
Pam Hendrickson R. Bruce Johnson
Commission Chair Commissioner
Palmer DePaulis Marc B. Johnson