90-0787 - Corporate Franchise







: Appeal No. 90-0787

: Account No. XXXXX



This matter came before the Utah State Tax Commission for a formal hearing on XXXXX. Alan Hennebold, Presiding Officer, heard the matter for and on behalf of the Commission. Present and representing the Petitioner was XXXXX, C.P.A. Present and representing the Respondent were XXXXX, Assistant Attorney General, XXXXX, of the Auditing Division staff.

Based upon the evidence and testimony presented at the hearing, the Tax Commission hereby makes its:


1. The tax in question is corporate franchise tax.

2. The period in question is XXXXX.

3. The Petitioner suffered losses of $$$$$ during the XXXXX tax year and $$$$$ during the XXXXX tax year.

4. The Petitioner had a taxable income of $$$$$ during the XXXXX tax year and a taxable income of $$$$$ during the XXXXX tax year.

5. The Petitioner had a taxable income of $$$$$ during the XXXXX tax year.

6. The Petitioner's accountant had previously mailed "Corporation Application for Refund From Carry back of Operation Loss" forms to the Petitioner, whereby the Petitioner would apply its XXXXX and XXXXX losses to offset its income for XXXXX and XXXXX, thereby obtaining refunds from the Commission for taxes paid in XXXXX and XXXXX. The refund requests were not received by the Tax Commission, and consequently, the XXXXX and XXXXX losses were not applied to the XXXXX and XXXXX income.

7. In an attempt to make use of the losses from XXXXX and XXXXX, the Petitioner's accountant submitted a tax return for the Petitioner for XXXXX in which he carried forward the losses sustained in XXXXX and XXXXX to the XXXXX tax year.

8. Following an audit of the XXXXX tax return by Commission staff, the audit staff disallowed the Petitioner's use of XXXXX and XXXXX losses to offset XXXXX income, on the grounds the losses should first have been applied to XXXXX and XXXXX income. As a result of the disallowance of the XXXXX and XXXXX losses, a tax deficiency of $$$$$ was assessed for XXXXX plus associated interest.


A net loss is first carried back to the earliest of the next preceding three years, if not entirely used to offset income of that year, it is carried to the second year preceding the loss year; and any remaining amount is next carried to the taxable year immediately preceding the losses year. Any amount then remaining can be carried to each of the five taxable years following the taxable year with the net loss. (Utah Code Ann. 59-7-108(14)(c).)

If the claim for credit or refund relates to an overpayment attributable to a net loss carry back adjustment as provided in subSection 59-7-108(14), in lieu of the three year period provided for in subsection (2)(a), the period shall be that period which ends with the expiration of the 15th day of the 40th month following the end of the taxable year of the net loss which results in the carry back. (Utah Code Ann. 59-7-141(2)(b).)


Although the Petitioner's representative contends the Petitioner attempted to properly apply its losses in XXXXX and XXXXX to its income for XXXXX and XXXXX, there is only indirect evidence to support that contention. The Petitioner has provided documentation which tends to support his statement that he mailed the necessary refund forms to his client, but there is no evidence that the client submitted the forms to the Tax Commission. Tax Commission records do not indicate that any such refund requests were received. It must be concluded that the client failed to follow his C.P.A.'s instructions. As a result, the applications which would have applied the XXXXX and XXXXX losses to prior years' income were not submitted.

Utah law is explicit that losses may not be carried forward until they have been applied to prior income. That has not been done by Petitioner in this case.

The Audit Division properly disallowed the Petitioner's attempt to carry forward XXXXX and XXXXX losses. Because no request to apply the Petitioner's losses in XXXXX and XXXXX against income from XXXXX and XXXXX was received within the time permitted by statute, the Petitioner has unfortunately lost the ability to use his losses as an offset against income.

Based upon the foregoing, the Tax Commission affirms the determination of the Auditing Division in its assessment of a tax deficiency for the audit period. It is so ordered.

DATED this 27 day of August, 1991.


R. H. Hansen Roger O. Tew

Chairman Commissioner

Joe B. Pacheco S. Blaine Willes*

Commissioner Commissioner