BEFORE THE UTAH STATE TAX
COMMISSION
______________________________
In Re: ) FINDINGS
OF FACT,
: CONCLUSIONS
OF LAW,
XXXXX ) AND FINAL DECISION
: Appeal No.
90-0787
: Account
No. XXXXX
___________________________________
STATEMENT OF CASE
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:
FINDINGS OF FACT
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.
CONCLUSIONS OF LAW
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).)
DECISION AND ORDER
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.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
R. H. Hansen Roger
O. Tew
Chairman Commissioner
Joe B.
Pacheco S.
Blaine Willes*
Commissioner Commissioner