Income Tax

Signed 9/24/02


                                     BEFORE THE UTAH STATE TAX COMMISSION



PETITIONER’S,                                             )     ORDER


Petitioners,                                        )     Appeal No.      01-1854


v.                                                                     )     Account No.    #####


AUDITING DIVISION OF                             )     Tax Type:         Income Tax

THE UTAH STATE TAX                                )

COMMISSION,                                             )     Tax Year:         1998


Respondent.                                      )     Judge:               Davis




  G. Blaine Davis, Administrative Law Judge



For Petitioner:         PETITIONER1

For Respondent:     Ms. Susan Barnum, 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 September 5, 2002.

Petitioner filed Utah Resident Income Tax Returns for the years 1998 and 1999.  On those returns, a retirement deduction was claimed for social security disability benefits paid to PETITIONER2.  As a result of her illness, she died on June 27, 2000, and at the time was under the age of 65, and in fact, began receiving the social security disability payments at age 46.  She was not of an age sufficient to receive social security retirement benefits without a disability.

                               APPLICABLE LAW

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 $7,500 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 $1 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 $1 of adjusted gross income earned over $32,000, the amount of the personal retirement exemption shall be reduced by 50 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.


Pursuant to Section 216 of the Social Security Tax Act, taxpayers are entitled to receive social security disability benefits if their disability is expected to last for a continuous period of not less than 12 months.  When the taxpayer attains retirement age, as defined in Section 216, the disability period ends and any distributions received thereafter are considered to be retirement pay.  Prior to the time a person reaches retirement age, such payments are not deemed to be retirement pay.


In this matter, the wife of Petitioner received social security disability payments, but those payments were not deemed to be retirement pay, but are in the form of compensation.  Therefore, the pay was not received because of the retirement at the normal retirement age of the wife of  Petitioner, but was received as disability or taxable compensation.

                             DECISION AND ORDER

Based upon the foregoing, it is hereby determined that the social security disability benefits received by the wife of Petitioner were not retirement pay, and therefore, the retirement deduction was in error.  Accordingly, the audit assessment made by Respondent is hereby affirmed.  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   24th   day of   September  , 2002.




G. Blaine Davis

Administrative Law Judge




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

DATED this   24th   day of   September  , 2002.




Pam Hendrickson                                                                     R. Bruce Johnson

Commission Chair                                                                    Commissioner




Palmer DePaulis                                                                       Marc B. Johnson

Commissioner                                                                           Commissioner