BEFORE THE UTAH STATE TAX COMMISSION
Petitioner, ) FINDINGS OF FACT,
: CONCLUSIONS OF LAW,
v. ) AND FINAL DECISION
AUDITING DIVISION OF THE ) Appeal No. 91‑1753
UTAH STATE TAX COMMISSION, :
) Account No. XXXXX
STATEMENT OF CASE
A prehearing conference was held in this matter at 4:00 p.m. on XXXXX, Alan Hennebold, Administrative Law Judge presiding. XXXXX, President, appeared for Petitioner. XXXXX, Assistant Utah Attorney General, appeared for Respondent.
At the prehearing conference, the parties acknowledged that the facts pertaining to this matter were not in despite and that both parties were prepared to present evidence and argument on the merits of Petitioner's appeal. The prehearing conference was therefore converted to a formal hearing.
Based upon the evidence and argument presented at the hearing, the Commission hereby makes its:
FINDINGS OF FACT
1. The tax in question is corporate franchise tax.
2. The period in question is XXXXX through XXXXX.
3. Petitioner's fiscal year is XXXXX through XXXXX.
4. Petitioner reported net operating income of $$$$$ for fiscal year XXXXX and net operating income of $$$$$ for fiscal year XXXXX.
5. Petitioner reported net operating loss of $$$$$ for fiscal year XXXXX.
6. Petitioner carried its XXXXX net operating loss forward as a deduction against fiscal year XXXXX income, resulting in net operating income of $$$$$ reported for fiscal year XXXXX. Petitioner filed its fiscal year XXXXX return on XXXXX.
7. During the fall of XXXXX, Respondent audited Petitioner's franchise tax liability for the period in question. Respondent issued its statutory notice of assessment on XXXXX.
8. In connection with its audit, Respondent concluded that Petitioner should have carried its fiscal year XXXXX operating loss back against its XXXXX and XXXXX income. Respondent further concluded that the time for claiming refunds for fiscal years XXXXX and XXXXX had expired. Respondent therefore recomputed Petitioner's fiscal year XXXXX tax liability by excluding the deduction of XXXXX loss, but allowing deduction of losses incurred in fiscal year XXXXX.
9. As a result of the foregoing, and other audit adjustments not in dispute, Petitioner was assessed additional tax of $$$$$ for the XXXXX and XXXXX fiscal years.
10. Petitioner's tax preparer failed to apply fiscal year XXXXX operating loss against prior years' income due to the mistaken belief that Utah law followed federal tax provisions which allow taxpayers the option of applying losses to either past or future years.
CONCLUSIONS OF LAW
In determining income for purposes of Utah's corporate franchise tax, a deduction from income is allowed for the aggregate of net loss carryovers and net loss carrybacks. (Utah Code Ann. '59‑7‑108(14).)
A net loss must first be carried back to the earliest of the prior three years before it may be applied to ally succeeding years. (Utah Code Ann. '59‑7‑108(14)(c).)
Claims for credit or refund arising from an overpayment attributable to a net loss carryback adjustment must be made before the expiration of the 15th day of the 40th month following the end of the taxable year of the net loss which resulted in the carryback. (Utah Code Ann. 59‑7‑l4l(2)(b).)
Corporate franchise tax must be imposed within three years after the return is filed. (Utah Code Ann. '59‑7‑138(1).)
DECISION AND ORDER
Petitioner concedes it did not properly apply its fiscal year XXXXX operating loss against prior fiscal years operating income, as required by Utah law. As a result, Petitioner did not claim a credit for its XXXXX operating loss within the time permitted by Utah Code Ann. '59‑7‑141(2)(b)
Having conceded the foregoing, Petitioner requests relief based on two other points.
First, Petitioner argues that if Respondent had delayed its audit assessment one more day, the three‑year statute of limitations found in Utah Code Ann. '59‑7‑138(1) would have prevented Respondent from assessing additional tax for the XXXXX fiscal year. While it is true that Respondent made its assessment on the last possible day, the assessment was nonetheless made within the three year limitation period and is therefore valid.
Second, Petitioner contends that although the Commission has provided relief to some taxpayers through Tax Bulletin 6‑92, the Bulletin is too narrow in scope to encompass Petitioner's situation, and is therefore unfair in application. Tax Bulletin 6‑92 was adopted by the Commission for two reasons; first, to account for the implementation of a new computer system capable of tracking loss carryback deductions, and second, to address taxpayer concerns hat the Auditing Division could "sit" on a loss carryback adjustment until the time for claiming a credit for the loss had expired. Tax Bulletin 6‑92 provides an extension of up to one month for taxpayers to file claims for refunds based upon the carryback of losses. In this case, the statute of limitations for claiming a loss carryback deduction for fiscal year XXXXX expired on XXXXX, more than a year prior to Respondent's audit. The facts of this case do not fall within either the letter or the spirit of Tax Bulletin 6‑92.
Based on the foregoing, the Commission concludes that Respondent properly denied Petitioner's deduction of its XXXXX operating loss from prior years' income. The Respondent's audit determination in this matter is therefore affirmed. It is so ordered.
DATED this 13 day of October, 1992.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
R. H. Hansen Roger O. Tew
Joe B. Pacheco S. Blaine Willes
NOTICE: You have twenty (20) days after the date of the final order to file a request for reconsideration or thirty (30) days after the date of final order to file in Supreme Court a petition for judicial review. Utah Code Ann. ''63‑46b‑13(1), 63‑46b‑14(2)(a).