02-0125
Income Tax
Signed 12/19/02
BEFORE THE UTAH STATE
TAX COMMISSION
____________________________________
PETITIONER, )
) ORDER
Petitioners, )
) Appeal No. 02-0125
v. )
)
AUDITING DIVISION OF ) Tax Type:
Income Tax
THE UTAH STATE TAX )
COMMISSION, ) Judge: Phan
)
Respondent. )
_____________________________________
Presiding:
Jane Phan,
Administrative Law Judge
Appearances:
For Petitioner: PETITIONER 1
PETITIONER 2
For Respondent: Dan Engh, Manager, Income Tax Auditing
Brenda Slater, Senior
Auditor
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 August
20, 2002.
Petitioners are appealing
an income tax audit deficiency for the tax years 1998, 1999 and 2000. The deficiency stems from Respondent's
disallowance of the portion of their retirement deduction attributable to the
Social Security Disability Benefits received by PETITIONER. The amount of tax deficiency for 1998 is $$$$$,
for 1999 the tax is $$$$$ and for 2000 is $$$$$. Interest was also assessed from the date that the taxes were due
for each respective year until the deficiency was paid by Petitioner. Petitioner is requesting a refund.
DISCUSSION
Petitioners argue that
there is an unfair double standard were disability income is concerned. PETITIONER had to stop working prior to age
62 due to health reasons and started receiving social security disability
payments. In 1998 she was 59 years
old. Petitioners point out that government employees or employees of large
corporations can retire early at age 55 and it is Petitioners position that the
retired employees are entitled to take a retirement deduction while a person
the same age, but receiving disability can not take the deduction. Petitioners acknowledge that Respondent's
position is consistent with the law as it is currently written but argue there should
be a change in the system. However,
they did not understand the law at the time they prepared and filed their
income tax returns for the years in question and indicate that the instructions
for Utah's income tax forms should have been more clear.
Respondent pointed out
that under Utah law disability income is included in taxable income as it is
included in federal taxable income and there are no specific Utah adjustments
or deductions that apply. Utah Code
Ann. Sec. 59-10-114 (2)(d) does provide a deduction to those under age 65 for retirement
income. However, it is Respondent's
position that under that statute disability income is not retirement income and
does not qualify for the retirement deduction.
The interpretation is supported by the fact that the Social Security
Administration distinguishes its disability payments from its retirement
payments. When the person receiving the
disability income turns 62, the Social Security Administration, changes the
nature of the payments from disability to retirement payments and at that point
the recipient would be entitled to a retirement income deduction in Utah.
APPLICABLE
LAW
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) with the modifications, subtractions, and adjustments provided in
Section 59-10-114 . . .
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.
Certain additions and
subtractions from federal taxable income are set out at Utah Code Ann. Sec.
59-10-114 which provides in pertinent part at subsection (2)(d) a deduction as
follows:
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 there of, or the District of Columbia, to the employee involved or
the surviving spouse.
The Tax Commission may
waive penalties or interest pursuant to Utah Code Ann. 59-1-401(10) which
states as follows:
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).
DECISION
AND ORDER
Upon review of this
matter, the Commission finds that Respondent is following the state law as it
is written. Petitioners unfortunately
assumed that the disability payment was the same as a Social Security
retirement benefit. The Tax Commission
must follow the laws as they are written.
The Commission notes that it has waived interest in a similar matter
because the 1999 Utah Instruction booklet was somewhat unclear. The 1998 Instruction Booklet would also have
had the same language. The instruction
booklet was revised for the 2000 tax year to more clearly indicate that the
below 65 retirement deduction included only social security retirement
income. On this basis the Commission
finds reasonable cause for waiver of the interest for both the 1999 and 1998
tax years.
Based on the forgoing,
the audit deficiency of individual income tax is sustained in this matter for
the tax years 1998, 1999 and 2000.
However, the interest is waived for tax years 1998 and 1999. The interest is sustained for tax year
2000. 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 19th day of December
, 2002.
____________________________________
Jane Phan
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 19th day of December
, 2002.
Pam Hendrickson R.
Bruce Johnson
Commission Chair Commissioner
Palmer DePaulis Marc
B. Johnson
Commissioner Commissioner