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
Joe B. Pacheco S. Blaine Willes