Income Tax

Signed 12/19/02


                                          BEFORE THE UTAH STATE TAX COMMISSION



PETITIONER,                                                   )  FINDINGS OF FACT,


         Petitioner,                                                 )  AND FINAL DECISION


v.                                                                     )  Appeal No.        01-1731

)  Account No.      #####           

AUDITING DIVISION OF                                 ) 

THE UTAH STATE TAX                                    )  Tax Type:          Income

COMMISSION,                                                 ) 

)  Judge:               Phan

Respondent.                                              ) 




Marc Johnson, Commissioner

Jane Phan, Administrative Law Judge



For Petitioner:          PETITIONER,

For Respondent:       Susan Barnum, Assistant Attorney General

Angie Hillas,  Manager, Income Tax Auditing

Amyee Gillett, Auditor


                                                         STATEMENT OF THE CASE

This matter came before the Utah State Tax Commission for a Formal Hearing on October 28, 2002.   Based upon the evidence and testimony presented at the hearing, the Tax Commission hereby makes its:

                                                              FINDINGS OF FACT

1.         Petitioner is appealing an individual income tax audit deficiency issued by Statutory Notice of Audit Change, dated October 26, 2001.   Petitioner timely filed an appeal of the deficiency and the matter proceeded to the Formal Hearing.

2.         The tax year in question is 1999.

3.         The amount of the deficiency was $$$$$ in tax and $$$$$ in interest.

4.         The deficiency resulted from Respondent's disallowance of a portion of a retirement income deduction. 

5.         During the year at issue Petitioner, who was not retirement age, received a Social Security Survivors Benefit.  Petitioner took a retirement income tax deduction for the survivor's benefit on her Utah Individual Income Tax Return. 

6.         Petitioner's representative had Petitioner take the deduction after reviewing the Utah 1999 Individual Income Tax Forms and Instruction TC-40 booklet.  In the booklet, under the paragraph titled "Under Age 65-Retirement Income Deduction" it states, "Qualifying income comes in the form of pensions, annuities or taxable social security benefits."  It was his position that the social security survivors benefit was a taxable social security benefit.

7.         The Utah 2000 Individual Income Tax Forms and Instructions TC-40 booklet  was revised to make it clear that the retirement deduction applied only to "taxable retirement social security" (emphasis added).  The underlying statute which provided the deduction did not change between 1999 and 2000.      

8.         The Form TC-40A for 1999, at Part 2, Line 2, did further clarify that the deduction was only available for retirement income.  It states as follows:

2. Retirement Deduction for UNDER AGE 65 (see instructions on pages 6 and 7, paragraph B)  This deduction is limited to qualifying taxable retirement income up to $$$$$ per retiree and can only be used by the retiree who earned the income. 


                                                                APPLICABLE LAW

1.    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 form 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 Untied States, a state, or political subdivision thereof, or the District of Columbia, to the employee involved or the surviving spouse;  (Utah Code Ann. 59-10-114(2)(d).)

2.    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).

                                                           CONCLUSIONS OF LAW

1.    Petitioner is not entitled to the under age 65 retirement deduction for Social Security Survivor's Benefit she received during the year at issue.  (Utah Code Ann. 59-10-114(2)(d).)

2.     Although it could have been clearer, the Utah 1999 Individual Income Tax Forms and Instruction TC-40 booklet along with the Form TC-40A did not present erroneous information and upon careful reading they certainly could have lead the taxpayer to the correct interpretation.  However, Petitioner's interpretation which was erroneous, is also not unreasonable considering the language of the booklet.  Certainly the Tax Commission attempts to make its instruction booklets and forms as clear as possible.  However, an unclear instruction does not give rise to a deduction where none is provided by statute.         3.    Interest may be waived for reasonable cause pursuant to Utah Code Ann. Sec. 59-1401(10) and the Commission finds sufficient reasonable cause to justify waiver in the circumstances at hand.







                                                            DECISION AND ORDER

Based upon the foregoing, the Tax Commission finds that  the assessment of the additional individual income tax for the 1999 tax year is appropriate and sustains the tax assessment.  However, the Commission waives the interest.  It is so ordered.

DATED this   19th   day of   December  , 2002.



Jane Phan

Administrative Law Judge




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

DATED this   19th   day of   December  , 2002.



Pam Hendrickson                                                                       R. Bruce Johnson

Commission Chair                                                                      Commissioner





Palmer DePaulis                                                                         Marc B. Johnson

Commissioner                                                                            Commissioner