BEFORE THE UTAH STATE TAX
COMMISSION
___________________________
In Re: ) FINDINGS OF FACT,
: CONCLUSIONS
OF LAW,
XXXXX ) AND FINAL DECISION
:
: Appeal No.
91-0811
: Account
No. XXXXX
________________________
STATEMENT OF CASE
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:
FINDINGS OF FACT
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.
CONCLUSIONS OF LAW
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.
DECISION AND ORDER
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.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
R. H. Hansen Roger
O. Tew
Chairman Commissioner
Joe B.
Pacheco G.
Blaine Davis
Commissioner Commissioner