BEFORE THE UTAH STATE TAX
COMMISSION
____________________________
In Re: ) FINDINGS OF FACT,
: CONCLUSIONS
OF LAW,
XXXXX ) AND FINAL DECISION
: Appeal No.
91-0430
: Account
No. XXXXX
______________________________
STATEMENT OF CASE
This
matter came before the Utah State Tax Commission for a formal hearing on
XXXXX. Paul F. Iwasaki, 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 Income Tax.
2. The periods in question are XXXXX, XXXXX and
XXXXX.
3. For the tax years in question, the Petitioners
had taken certain deductions of losses in calculating their income tax. Those deductions involved the treatment of
forward contracts to buy government securities.
4. Subsequent to the years in question the
Internal Revenue Service initiated proceedings against the Petitioners claiming
that the deductions taken for the losses should be disallowed based upon a tax
court ruling in other unrelated cases.
5. Prior to a court determination of the
Petitioners liability to the Internal Revenue Service, the Petitioners entered
into a settlement agreement with the IRS.
As a part of that settlement agreement, the Petitioners made additional
payments in tax to the IRS and in exchange, the IRS waived any negligence,
penalties and interest.
6. The Petitioners did not notify the Tax
Commission regarding the Internal Revenue Service's disallowance of the
deductions in question.
7. The Petitioners were originally assessed a
total penalty of $$$$$ for the years in question. That amount was subsequently reduced by commission action to an
amount of $$$$$. The Petitioners were
made aware of that audit change by way of a notice dated XXXXX. The Petitioners subsequently paid the tax
portion owed on XXXXX as full payment of the asserted deficiencies and request
that the remaining penalty amount be waived.
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).)
If
a change is made in a taxpayer's net income on his or her federal income tax
return, either because the taxpayer has filed an amended return or because of
an action by the federal government, the taxpayer must notify the commission
within 90 days after the final determination of such change. The taxpayer shall file a copy of the
amended federal return and an amended state return which conforms to the
changes on the federal return. No
notification is required of changes in the taxpayer's federal income tax return
which do not affect state tax liability.
(Utah Code Ann. §59-10-536(5)(a).)
DECISION AND ORDER
In
the present case, the Petitioners were assessed a 10% penalty for failing to
file an amended return and an additional 10% penalty for failing to pay the
additional tax due after they were notified of the changes by the Internal
Revenue Service.
The
Petitioners maintained that a final determination of their liability to the IRS
was never made. It was their position
that because the case was settled without having the legal issues determined,
such a settlement did not constitute a "a final determination" as
provided for in Utah Code Ann. §59-10-536(5)(a).
The
Petitioners also testified that the negligence penalty would not be appropriate
because prior to taking the deductions and indeed prior to even investing in
the forward contracts to buy Government Securities, the Petitioners
thoroughly researched the matter and in their
legal opinion reasonably believed the deductions to be legitimate.
The
Tax Commission finds that under the circumstances of this case, waiver of the
penalties for the tax years XXXXX, XXXXX, and XXXXX is appropriate. The Tax Commission does so, however,
specifically without making a finding as to the correctness of the Petitioners'
determination as to what constitutes a final determination for the purposes of
Utah Code Ann. §59-10-536(5)(a). The
Tax Commission further orders that interest should be adjusted to reflect
accrual of interest up to XXXXX, the date which the Petitioners paid the tax deficiency. It is so ordered.
DATED
this 9th day of October, 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