91-0811 - Income








: Appeal No. 91-0811

: Account No. XXXXX



This matter came before the Utah State Tax Commission for a formal 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:


1. The tax in question is individual income tax.

2. The period in question is the tax year XXXXX.

3. When Petitioners filed their extension request for the year in question, they submitted a prepayment of $$$$$. Petitioners total tax liability for the year in question was $$$$$. The previous year's tax liability for Petitioners was $$$$$. Therefore, this prepayment did not amount to 90% of the current year's taxes, or 100% of the previous year's tax liability.

4. Petitioners' tax return was filed within the time which would have been granted if the extension had been validated by a proper prepayment. Along with the return was a payment for the remaining tax due, plus interest to the date of filing.

5. The Tax Commission applied Petitioners' payment first to penalty which had accrued because of the Petitioners' failure to make an adequate prepayment with their extension request, then to the interest which had accrued and, finally, to taxes. This left a balance of taxes due. Therefore, since there was an underpayment of tax, the Tax Commission assessed an additional late payment penalty on the remaining balance of tax due.

6. Petitioners are not contesting the imposition of the 2% per month penalty which was assessed because of their failure to make an adequate prepayment with their extension request. Petitioners are contesting the late payment penalty which was assessed on the remaining tax balance due after Petitioners had filed their return. It is Petitioners' position that this late payment penalty should never have been assessed because the payment which Petitioners made with their return should have been applied first to the tax liability, and then to penalties and interest. Petitioners state that the Tax Commission does not have any authority to apply payments first to penalty, then to interest and, finally, to the tax liability.


1. 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).)

2. Utah Code Ann59-1-401(1) and (2)(b) provide as follows:

The penalty for failure to file a tax due return within the time prescribed by law including extensions is the greater of $50 or 10% of the tax due on the. return. If the tax is not paid within 90 days of the due date of the return, an additional penalty of the greater of $50 or 10% of the tax due will be charged. For purposes of this Subsection (1), an amended return may not be considered a tax due return.

(2) The penalty for failure to pay tax due is as follows:

(b) In case of an extension of time to file a return, if the payment accompanying the extension request is not at least 80% of the total tax reported on the tax reported on the tax return when it is filed or is not at least the total amount of tax assessed on the tax return for the previous tax period, the penalty is 2% per month of the unpaid tax during the period of extension.

3. Utah Code Ann. 59-10-516 and59-10-522 provide that extensions of time for filing and paying tax may be granted when the taxpayer files, with the extension request, a prepayment of at least 90% of the total tax liability for the total tax liability for the current year, or 100% of the total tax liability for the previous year. (See also Utah Administrative Rules R865-9-231 and R865-9-251.)

4. Petitioner cites Utah Code Ann. 59-1-705, which provides as follows:

The penalties, interest, and other liabilities imposed by the provisions of Title 59, shall be paid by the taxpayer upon notice and demand by the commission, and shall be assessed and collected in the same manner as taxes. Except as otherwise provided, any reference in Title 59 to "tax" includes penalties, interest, and other liabilities.

This statute is part of the provisions of the Code relating to termination and jeopardy assessments procedures. Regarding this statute, Petitioner states as follows:

Under this section of the code, penalties and interest shall be paid by the taxpayer upon receipt of a notice and demand from the Tax Commission, not upon receipt of the tax return. The Commission did not issue a notice and demand, until November 23, 1990,...which was more than a month..after the return was filed and payment was made. Therefore, we don't feel the Tax Commission has the authority under the code to apply payments made with the return to penalty, interest and then tax. If the payment was applied properly, the late payment penalty would not have been assessed.

5. The Petitioners are confusing when taxes, penalties, and interest shall be paid, with when they are due. These obligations are due at the moment they are incurred, or at the moment a timely return is filed. Utah Code Ann. 59-1-705 merely requires that the taxpayer shall pay these obligations upon notice and demand by the Commission. It does not state that these obligations are due only upon notice and demand by the Commission. These obligations are actually due and payable as of the time when they are incurred or a timely return is filed.

6. Furthermore, the Commission has authority granted by Utah Code Ann. 59-10-528(1) to "establish the mode or time for the collection of any amount determined to be due under this chapter." Therefore, the Commission may prescribe that payments be applied first to penalty, then to interest, then to the tax amount. Therefore, it appears that the penalty and interest assessments in this case are appropriate.


Based upon the foregoing, the Tax Commission finds that sufficient cause has not been shown which would justify a waiver of the penalty associated with the Petitioners' income tax for the tax year XXXXX. It is so ordered.

DATED this 27th day of June, 1991.


R. H. Hansen Roger O. Tew

Chairman Commissioner

Joe B. Pacheco G. Blaine Davis

Commissioner Commissioner