90-1091 - Individual Income

 

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

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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