Signed 2/25/02







Petitioner, ) Appeal No. 01-1322


v. ) Account No. #####



OF THE UTAH STATE TAX ) Tax Year: 1999



Respondent. ) Judge: Davis




G. Blaine Davis, Administrative Law Judge


For Petitioner: PETITIONER

For Respondent: Mr. Laron Lind, Assistant Attorney General

Ms. Inez Thomas, from the Taxpayer Services 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 17, 2002.

Petitioner filed his 1999 Utah Individual Income Tax Return, form TC40, on April 24, 2000. On that return, Petitioner claimed his federal adjusted gross income, line 4, was $$$$$. Petitioner's return included an attachment wherein he claimed that his wages are not taxable in Utah. On his return, Petitioner claimed a refund of $$$$$, the total amount of Utah tax withheld from wages as reflected on W-2 forms which showed Utah wages paid to Petitioner for tax year 1999.

On August 28, 2000, Respondent mailed to Petitioner a "Notice of Change to Return Filed" and a "Notice of Deficiency on Amended or Extension Return" advising him that a computer review of his return resulted in a change to Utah income tax from $$$$$ to $$$$$.

On or about August 30, 2000, Petitioner returned the aforementioned notices, and wrote on them that he refused and refuted the presentments.

On or about May 7, 2001, Petitioner mailed to Respondent a package of documents with a cover letter requesting that Respondent prove its jurisdiction or return his withheld "private earnings".

On August 14, 2001, Respondent issued a Statutory Notice to Petitioner denying Petitioner's request for refund. The Statutory Notice advised Petitioner that the information and documentation submitted by him with his 1999 Utah Individual Income Tax Return and subsequent mailings clearly indicated he was domiciled in Utah during 1999. Therefore, his federal adjusted gross income was changed based upon the documentation and information Petitioner submitted with his return. This resulted in income tax of $$$$$.

On or about August 29, 2001, Petitioner submitted letters requesting reconsideration.


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 that 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.

Petitioner's claim that he had no taxable income for 1998 is clearly without merit.[1] 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, and that compensation is taxable. 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.[2] Utah taxable income is based on federal taxable income and Petitioner's wages are clearly compensation for service, are required to be 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 the Internal Revenue Code provision which mandates payment of taxes or as Petitioner framed the issue, provides the liability section which Petitioner alleges is missing.[3] DECISION AND ORDER

Based upon the foregoing, the Tax Commission sustains the audit assessment of income tax, a $500 frivolous penalty pursuant to the provisions of Utah Code Ann. 59-1-401(7), and interest at the statutory rate. 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 25th day of February, 2002.



G. Blaine Davis

Administrative Law Judge




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

DATED this 25th day of February, 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 (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."


[2] 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."


[3] 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).