BEFORE THE UTAH STATE TAX
COMMISSION
____________________________
In Re: ) FINDINGS
OF FACT,
: CONCLUSIONS
OF LAW,
XXXXX ) AND FINAL DECISION
:
: Appeal No.
90-1091
: Account
No. XXXXX
_____________________________________
STATEMENT OF CASE
This
matter came before the Utah State Tax Commission for a formal telephone hearing
on XXXXX. Joseph G. Linford, Presiding
Officer, heard the matter for and on behalf of the Commission. Present and representing the Petitioners was
XXXXX.
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 period in question is the tax year XXXXX.
3.
Petitioner, XXXXX, is a dealer in real estate who transacts a XXXXX portion of
his business through partnerships and an S corporation mainly formed among
XXXXX. XXXXX obtains cash distributions
from these partnerships and it is difficult for Petitioners to determine from
year to year the amount of their income.
Petitioners contend that for the period in question, when the time came
to file and pay Petitioners' taxes, they had income only "on paper"
but had not actually received any money.
Petitioners contend that they had to recognize taxable income that they
had not yet received.
4.
The partnerships and the S corporation passed Petitioners' portion of their
income or losses through to Petitioners to be included on Petitioners'
individual income tax return. These
entities did not file their own returns and did not provide Petitioners with
forms K-l until after Petitioners' taxes were due under their extension for the
period in question.
5.
Petitioners and their accountant determined that there would be no taxable
income in the state of Utah. This was
based in part upon the fact that Petitioners had no tax liability in previous
years.
6.
When the forms K-l arrived from the entities with which Petitioners are
involved, Petitioners discovered that one of the partnerships that generated
the majority of Petitioners' income for the year in question was subject, under
the new federal tax laws, to the repeal of proportionate disallowance under
Internal Revenue Code (IRC) Section 453 and also the disallowance of the use of
the installment method under IRS Section 453(b)(2)(A). As a result, Petitioners and their
accountant contend that Petitioners' distributive share of income from these
entities was substantially more than Petitioners or their accountant could have
accurately estimated.
7.
The penalty and interest in this case were imposed because of the failure of
Petitioners to include with their extension application the appropriate
prepayment. Since Petitioners were of
the opinion that they would owe no tax, Petitioners made no prepayment.
CONCLUSIONS OF LAW
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(8).)
DECISION AND ORDER
Because
Petitioners acted on the advice of their accountant and because of the
difficulties involved with Petitioners' estimation of their actual taxable
income for the year in question, both because of the changes in the federal law
and the difficulty of obtaining information from the entities with which
Petitioners are involved, the Tax Commission finds that the penalty should be
waived. Interest, however, is not
waived because the state was deprived of the use of the funds in question
through no fault of its own for a period of time and should be compensated for
that loss of use.
Based
upon the foregoing, the Tax Commission finds that sufficient cause has been
shown which would justify a waiver of the penalty associated with the tax year
XXXXX. Interest is not waived, but
shall be adjusted to account for the waiver of the penalty. It is so ordered.
DATED
this 21 day of February, 1991.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
ABSENT
R. H. Hansen Roger
O. Tew
Chairman Commissioner
Joe B.
Pacheco G.
Blaine Davis
Commissioner Commissioner