Corporation Franchise

Signed 10/7/92






XXXXX                             :

          Petitioner,             )    FINDINGS OF FACT,

                                  :    CONCLUSIONS OF LAW,

v.                                )    AND FINAL DECISION


AUDITING DIVISION OF THE          )    Appeal No. 91‑1922


                                  )    Account No. XXXXX

          Respondent.             :



                             STATEMENT OF CASE

          This matter came before the Utah State Tax Commission for a formal hearing on XXXXX, at 2:00 p.m.   Alan Hennebold, Presiding Officer, heard the matter for and on behalf of the Commission.  XXXXX participated by telephone for Petitioner.  XXXXX, Assistant Utah Attorney General, appeared for Respondent.

          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.  For Utah corporate franchise tax purposes, Petitioner reported the following amounts of income or loss before the application of net loss carrybacks or carryovers:


XXXXX     $$$$$

XXXXX     $$$$$

XXXXX     $$$$$

XXXXX     $$$$$

XXXXX     $$$$$

XXXXX     $$$$$

XXXXX     $$$$$

XXXXX     $$$$$

          4.  Petitioner attempted to carry the XXXXX, XXXXX, XXXXX, and XXXXX losses forward rather than first carrying them back three years as required by Utah Code Ann. '59‑7‑108(14).

          5.  The Auditing Division disallowed all of Petitioner's carry forward of the XXXXX, XXXXX, and XXXXX losses and all but XXXXX of the XXXXX loss, asserting that the losses must first be carried back to offset income from XXXXX and XXXXX.

          6.  As a result of the disallowance of the loss carry forward, the Auditing Division notified Petitioner of a tax deficiency of $$$$$ for XXXXX and $$$$$ for XXXXX, plus interest.

          7.  Petitioner is unable to obtain a refund of taxes paid for XXXXX since all applicable statutes of limitation had expired by XXXXX.

          8.  The audit was initiated on XXXXX and resulted in a Statutory Notice of Deficiency dated XXXXX.

          9.  Petitioner failed to apply its operating losses against prior years' income due to the mistaken belief that Utah law followed federal tax provisions which allow taxpayers the option of applying losses either forward or backward to other 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 or the prior three years before it may be applied to any 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. '59‑7‑141(2)(b).)

                            DECISION AND ORDER

          Petitioner concedes that it failed to apply its operating losses against prior years' operating income, as required by Utah law.  As a result, Petitioner did not properly claim a credit for its XXXXX, XXXXX and XXXXX operating losses 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 it clearly indicated its intention to carry losses forward on each return in question, and that Respondent had access to all Petitioner's returns.  Had Respondent examined those returns sooner, Petitioner's error would have been discovered in time for Petitioner to file amended returns.

          Petitioner also argues that other taxpayers have made the same error as did Petitioner, indicating a general misunderstanding of Utah's loss carryback provisions.

          The Commission has recognized that the difference between federal and state law regarding loss carryback rules has caused confusion, and has acted to end that confusion.  However, the Commission is obligated to apply the loss carryback provisions of '59‑7‑108(14)(c) as written.  The fact that Respondent did not discover Petitioner's error in carrying its losses forward rather than backward does not serve as a basis for excusing Petitioner from the statute's effect.

          Based on the foregoing, the Commission affirms Respondent's audit determination in this matter.  It is so ordered.

          DATED this 7 day of October, 1992.


R. H. Hansen                          Roger O. Tew

Chairman                              Commissioner


Joe B. Pacheco                        S. Blaine Willes

Commissioner                          Commissioner


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).