92-0129 - Corporate Franchise

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

XXXXX, )

:

Petitioner, ) FINDINGS OF FACT,

: CONCLUSIONS OF LAW,

v. ) AND FINAL DECISION

:

AUDITING DIVISION OF THE ) Appeal No. 92-0129

UTAH STATE TAX COMMISSION, :

) 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, C.P.A., 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:

TAXABLE YEAR

INCOME

OR

PERIOD DESIGNATED AS (LOSS)

XXXXX FY XXXXX $$$$$

XXXXX FY XXXXX $$$$$

XXXXX FY XXXXX $$$$$

XXXXX FY XXXXX $$$$$

XXXXX Short Year XXXXX $$$$$

XXXXX CY XXXXX $$$$$

XXXXX CY XXXXX $$$$$

XXXXX CY XXXXX $$$$$

4. Petitioner attempted to carryforward its short year XXXXX and CY XXXXX losses to offset income from CY XXXXX and CY XXXXX pursuant to I.R.C. 172(b)(1)(E).

5. Respondent disallowed the carryforward of the losses by Petitioner, and required Petitioner to carryback the losses first, and then carryforward any amount of loss still available, pursuant to Utah Code Ann. 59-7-108(14)(c).

6. Respondent required the short year XXXXX loss to be carried back to reduce the income from FY XXXXX to $$$$$. Petitioner is unable to obtain a refund of taxes paid for FY XXXXX since the statute of limitations for obtaining a refund expired on XXXXX. See Utah Code Ann. 59-7-141(2)(b).

7. Respondent required the loss from CY XXXXX to be carried back to offset the remaining $$$$$ of income from FY XXXXX. Petitioner is not entitled to a refund of taxes in connection with this carryback due to the $$$$$ minimum tax. Respondent permitted the remainder of the loss from CY XXXXX to be carried forward to offset all of the income from CY XXXXX and a portion of the income from CY XXXXX.

8. As a result of the foregoing adjustment, Respondent issued a statutory notice of deficiency dated XXXXX asserting a tax deficiency for XXXXX in the amount of $$$$$ plus interest.

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 short year XXXXX and calendar year XXXXX operating losses within the time permitted by Utah Code 59-7-141(2)(b).

Having conceded the foregoing, Petitioner raises several other points.

First, Petitioner argues it is inequitable for Respondent to disallow the loss carryforward for a particular year when it is too late to carry such loss back, and obtain a refund for such other years. The Commission recognizes that the difference between federal and state law regarding loss carryback has caused confusion. However, the fact that Respondent did not discover Petitioner's error in carrying its losses forward rather than backward is not a basis for excusing Petitioner from the law's effect.

Petitioner also argues that the Commission has exercised its authority to provide relief to other taxpayers through its Tax Bulletin 6-92, but does not assist other taxpayers equally as deserving, such as Petitioner. The Commission recognizes that in exercising its authority to grant some relief, it must necessarily set limits. No matter where the limit is set, some taxpayers will fall outside the area of relief. Unfortunately, such a result cannot be avoided unless the statutes in question were to be repealed.

Finally, Petitioner questions whether Respondent's adjustments to Petitioner's liability for fiscal year XXXXX are within the period permitted by law for such adjustments. Utah Code Ann. 59-7-141(2)(b) provides a specific statute of limitations for loss carryback situations such as this. Respondent's adjustments fall within the period allowed by 59-7-141(2)(b)

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

DATED this 7th day of October, 1992.

BY ORDER OF THE STATE TAX COMMISSION

R. H. Hansen Roger O. Tew

Chairman Commissioner

Joe B. Pacheco. S. Blaine Willes

Commissioner Commissioner