BEFORE THE UTAH STATE TAX COMMISSION
) Appeal No. 01-1649
v. ) Account No. #####
AUDITING DIVISION OF ) Tax Type: Income Tax
THE UTAH STATE TAX )
COMMISSION, ) Judge: Davis
G. Blaine Davis, Administrative Law Judge
For Petitioner: PETITIONER
For Respondent: Ms. Susan Barnham, Assistant Attorney General
Mr. Brent Taylor, from the Auditing Division
Mr. Frank Hales, from the Auditing Division
Ms. Becky McKenzie, from the Auditing Division
STATEMENT OF THE CASE
This matter came before the Utah State Tax Commission on May 01, 2002 for an Initial Hearing to be conducted pursuant to the provisions of Utah Code Ann. §59-1-502.5.
Petitioner, PETITIONER is retired under the COMPANY A and COMPANY B and receives disability payments as wages. During the years at issue he was ages 54 and 55, which was less than the normal retirement age required by his retirement plan.
For 1998 and 1999, Petitioner deducted an amount of $$$$$ each year as a retirement exemption or deduction on line 14 of the Utah individual income tax return.
Disability payments are paid by the New England Teamsters and Trucking Industry Pension Fund as wages until the person has reached a minimum retirement age, at which time, the person will be paid as a pension or annuity. The amounts deducted by Petitioner were reported on a form 1099-R issued by New England Teamsters and Trucking Industry Pension Fund. The distribution code was shown on the 1099-R as a “3-Disability”. The amounts were not shown as retirement income, or payment of an annuity or pension.
The amounts deducted by Petitioner were received by him due to his termination of employment before reaching a normal retirement age as established under the COMPANY A and COMPANY B. Petitioner did not present the actual requirements for retirement under the fund, but it was represented that Petitioner did not meet the service or age requirements set forth under the plan to qualify for retirement.
Petitioner argued that Utah Admin. Rule R865-9I-38 (A) (3) was vague and ambiguous because it states that amounts received by taxpayers from pension or annuity plans are not retirement income if they are received due to termination of employment prior to reaching normal retirement age. He argued that the Rule does not differentiate between voluntary or involuntary termination of employment, but that the Rule only applies to voluntary terminations of employment.
The amounts received by Petitioner were disability income received by him as wages, and were not retirement income. The retirement income tax credit does not apply to disability income. Disability income is intended to compensate the Petitioner for his inability to work until he can receive his retirement benefits.
The relevant portions of Utah Code Ann. §59-10-114 are as follows:
. . .
(2) There shall be subtracted from federal taxable income of a resident or nonresident individual:
(d) amounts received by taxpayers under age 65 as retirement income which, for purposes of this section, means pensions and annuities, paid from an annuity contract purchased by an employer under a plan which meets the requirements of Section 404(a)(2), Internal Revenue Code, or purchased by an employee under a plan which meets the requirements of Section 408, Internal Revenue Code, or paid by the United States, a state, or political subdivision thereof, or the District of Columbia, to the employee involved or the surviving spouse;
(e) for each taxpayer age 65 or over before the close of the taxable years, a $$$$$ personal retirement exemption;
. . .
(3)(a) For purposes of Subsection (2)(d), the amount of retirement income subtracted for taxpayers under 65 shall be the lesser of the amount included in federal taxable income, or $4,800, except that:
( i ) for married taxpayers filing joint returns, for each $$of adjusted gross income earned over $32,000, the amount of the retirement income exemption that may be subtracted shall be reduced by 50 cents;
. . .
(b) For purposes of Subsection (2)(e), the amount of the personal retirement exemption shall be further reduced according to the following schedule:
( i ) for married taxpayers filing joint returns, for each $$ of adjusted gross income earned over $$$$$, the amount of the personal retirement exemption shall be reduced by $$ cents;
. . .
The relevant portions of Utah Administrative Code Rule R865-9I-38, provide as follows:
A. Amounts received by taxpayers from pension or annuity plans described in Section 59-10-114 are not retirement income for purposes of that section if:
. . .
3. The amounts received are due to termination of employment before reaching a normal retirement age as established under the qualifying plan.
DECISION AND ORDER
Based upon the foregoing, the Commission finds that the amounts deducted by Petitioner were not received by him as retirement income, but were received by him as wages. These payments were based upon the disability of Petitioner and were not based upon his retirement. Such payments were therefore received by him due to his termination of employment before reaching a normal retirement age as established under the qualifying plan, and are therefore not deductible. The determination of Respondent is hereby affirmed, and the Petition for Redetermination of Petitioner is hereby denied. 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 30th 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 30th day of December , 2002.
Pam Hendrickson R. Bruce Johnson
Commission Chair Commissioner
Palmer DePaulis Marc B. Johnson