BEFORE THE UTAH STATE TAX COMMISSION
Petitioner : FINDINGS OF FACT
: CONCLUSIONS OF LAW,
v. : AND FINAL DECISION
AUDITING DIVISION OF THE : Appeal No. 89-1070
UTAH STATE TAX COMMISSION :
: Account No. XXXXX
STATEMENT OF CASE
This matter came before the Utah State Tax Commission for a formal hearing on XXXXX. Joseph G. Linford, Presiding Officer, heard the matter for and on behalf of the Commission. Present and representing the Petitioner were XXXXX, and XXXXX, attorney at law. Present and representing the Respondent were XXXXX, Assistant Attorney General, and XXXXX of the Auditing Division of the Utah State Tax Commission.
Based upon the evidence and testimony presented at the hearing, the Tax Commission hereby makes its:
FINDINGS OF FACT
1. The tax in question is individual income tax.
2. The periods in question are the tax years XXXXX through XXXXX.
3. Petitioner married XXXXX in XXXXX. That marriage lasted until XXXXX when Petitioner and Ms. XXXXX were divorced. Ms. XXXXX was employed by XXXXX from XXXXX until XXXXX. While she was employed there, she received large sums of money from XXXXX which were not reflected on her W-2 forms. She did not inform Petitioner of the extra, unreported income and it was not placed in any joint account maintained by the couple. Petitioner had no knowledge of this additional income and obtained no benefit from it.
4. Petitioner and his ex-wife filed joint income tax returns for the years in question. However, their financial affairs were separate throughout the entire marriage. They never had a joint checking or savings account, but always maintained each of their individual finances separate from the other partner in the marriage. Petitioner's ex-wife purchased her own automobile and condominium without the signature and over the objections of Petitioner. Petitioner believed that the condominium was purchased with money from the sale of Ms. XXXXX's father's home.
5. The Petitioner went under a doctor's care in XXXXX for severe depression due to marital problems. Antidepressants and sleeping pills were prescribed. Petitioner presently remains under the care of his physician for depression.
6. In the spring of XXXXX, Petitioner's ex-wife retained an attorney without the Petitioner's knowledge or consent in order to amend their joint tax returns for the years in question to report the previously unreported income received by Ms. XXXXX from XXXXX. Petitioner first learned of this unreported income when he was summoned to the law offices of Ms. XXXXX's attorney. The attorney told Petitioner of the unreported income and told Petitioner that he had to sign the amended tax returns immediately. The attorney represented to Petitioner that it was urgent that Petitioner do so. He did not disclose to Petitioner the potential liabilities associated with executing these amended returns and no opportunity was afforded Petitioner to consult independent legal counsel. Petitioner was at this time under medication for his depression, and under the severe pressure from Ms. XXXXX's attorney, he signed the returns. Petitioner indicated by his signature on the returns that he was signing them under protest by writing the initials "U.P."
6. Following their divorce, Ms. XXXXX left to live in California where she now resides.
7. Petitioner requests that the Tax Commission relieve Petitioner of the additional taxes assessed because of Ms. XXXXX's unreported income based upon a federal tax provision which allows this under what is known as the "Innocent Spouse Doctrine."
8. Petitioner was granted innocent spouse relief by the Internal Revenue Service by letter dated XXXXX.
CONCLUSIONS OF LAW
1. Section 6013(e) of the Internal Revenue Code provides that relief may be granted from the result of joint and several liability on a joint federal tax return where the following four conditions are met: (1) a joint return has been made for the tax year; 2) there is a substantial understatement of tax which is attributable to income which has been omitted or to grossly erroneous items of the other spouse on the return; (3) the innocent spouse establishes that in signing the return he was not aware and did not have reason to be aware of the substantial understatement; and (4) under all the facts and circumstances, it would not be equitable to hold the innocent spouse liable for the tax deficiency which results from the substantial understatement. Relief under this provision extends to the tax, penalties and interest amounts which are attributable to the understatement.
2. Utah Code Ann. §59-10-102 provides that the provisions of the federal income tax laws are incorporated by reference into those of the state of Utah. The Tax Commission is also granted power to make whatever "equitable adjustments" are necessary in the interplay of the state and federal tax laws. Utah Code Ann. §59-10-115.
3. The Tax Commission finds that innocent spouse relief should be granted, particularly since such relief has been granted by the Internal Revenue Service.
DECISION AND ORDER
Based upon the foregoing, it is the decision and order of the Utah State Tax Commission that Petitioner's request for innocent spouse relief is granted and that Petitioner is released from liability for the state income taxes attributable to Ms. XXXXX's income as reported on the amended joint returns for the years in question, including any penalty and interest amounts.
DATED this 29th day of August, 1990.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
R. H. Hansen Roger O. Tew
Joe B. Pacheco G. Blaine Davis