92-1635 - Income






Petitioner, : FINDINGS OF FACT,






: Account No. XXXXX


Respondent. : Tax Type: Ind. Income



This matter was heard before the Utah State Commission on XXXXX and again on XXXXX in a formal hearing, Lisa L. Olpin, Administrative Law Judge, presiding. Representing Petitioner was XXXXX, a certified public accountant. Representing Respondent was XXXXX, Assistant Utah Attorney General.

Based upon the evidence and testimony presented at the hearing, the Tax Commission makes its:


1. The tax in question is individual income tax.

2. The years in question are XXXXX.

3. The Auditing Division audited Petitioner's individual income tax for the years in question and determined that Petitioner had erred on her amount of state deductions in each of the years. Petitioner was charged with an additional amount of taxes, plus a ten percent negligence penalty and interest.

4. Petitioner argues that in XXXXX the Tax Commission had previously approved the manner in which Petitioner had handled her state deductions and that, therefore, it cannot now change its position and assess additional taxes, penalty and interest on the intervening returns.

5. Before addressing the merits of this case, the Tax Commission first determines that Petitioner has timely appealed this case as Petitioner's certified public accountant had filed a notice of power of attorney with the Commission, informing the Commission of his representation. The Commission, for whatever reason however, failed to send the accountant copies of the statutory notices.

6. The Commission then considers the merits of this case without concern for any timeliness issues.

7. Prior to the formal hearing in this matter, the parties stipulated to several statements of fact. Those stipulations pertinent to the remaining issue are as follows:

a. Petitioner filed a married filing jointly federal tax return with her spouse, XXXXX, in each year of the audit period.

b. Petitioner filed a married filing separately Utah tax return during the audit years, claiming Petitioner was a Utah resident while her husband was a non-resident.

c. Petitioner moved to Utah on XXXXX. She maintained a residence here for herself and her children. She is employed with XXXXX and was transferred by that company to the State of Utah. In consideration for being transferred, Petitioner received additional compensation for anticipated additional mortgage interest rates in effect when she moved to Utah. Petitioner's spouse remained in XXXXX where he was employed and rented a residence.

d. Petitioner has filed tax returns itemizing the full amount of itemized deduction attributable to the State of Utah including interest expenses on the Utah home mortgage and property taxes on the Utah home. Since the tax year XXXXX, returns have been prepared pursuant to information received in XXXXX from XXXXX, a former employee of the Utah State Tax Commission. The XXXXX return was adjusted by XXXXX, an auditor in the Utah State Tax Commission, and he issued a report of Utah Individual Income Tax Audit Changes Form. (See Exhibit A.) That report was canceled after XXXXX received it. In reliance on this information, subsequent returns were prepared by Petitioner and filed with the Tax Commission.

8. Petitioner's certified public accountant, XXXXX, has been preparing Petitioner's individual income tax returns since Petitioner moved to the state. In preparing Petitioner's returns and based upon the information received by Commission employee XXXXX, XXXXX determined Petitioner's state deductions and then subtracted the entire amount

on Petitioner's state returns.

9. XXXXX recalled that XXXXX approved these 100% deductions as an acceptable alternative way to file a return where one spouse is a Utah resident and the other is not.

10. XXXXX continued to file Petitioner's tax returns taking these full deductions until the Auditing Division notified Petitioner in XXXXX of the audit changes.

11. The Auditing Division amended Petitioner's returns for the years in question, explaining that Petitioner was not entitled to the full state deductions she had claimed. XXXXX, a supervising auditor at the Tax Commission, stated that Petitioner is only allowed to take deductions in proportion to her state of Utah income.

12. For example, in the tax year XXXXX, the Auditing Division took Petitioner's and her nonresident spouse's federal adjusted gross income and divided this sum by Petitioner's federal adjusted gross income to calculate the pro-rata share of Utah income. In so doing, the percentage of Utah income was XXXXX. Petitioner is then allowed certain deductions of up to XXXXX and no more.

13. After adjusting all of the returns for the years in question, the Auditing Division determined that Petitioner owed more in taxes. A ten percent negligence penalty and interest were charged in addition.

14. XXXXX contends that his client, Petitioner, should not be accountable for the additional amount in taxes because 1) he filed her returns after asking the Commission for guidance and approval of the way he filed in XXXXX; and 2) a lead auditor overruled another auditor's opinion of how to file under the circumstances of this case (in fact, this earlier XXXXX audit change had it been sustained would have required Petitioner to limit her deductions on the percentage basis that Auditing now insists upon).

15. XXXXX also stated that he understood that there had been no changes in Utah tax law since XXXXX that would have apprised him of this new method of calculating deductions under these circumstances where one spouse is a Utah resident and the other is not. He feels that the way he has been preparing and continues to prepare Petitioner's returns with the 100% deductions is appropriate.

16. The Auditing Division countered that Utah law had been amended in XXXXX, specifying how to determine state taxable income and how to take deductions in these situations where one spouse is a resident and the other is a nonresident. Utah Admin. Rule R865-06I-1 (1987), citing Utah Code Ann. 59-10-119.

17. The Auditing Division argued that Petitioner is liable for the additional tax amount on the each of the years in question without regard to any prior understanding Petitioner's accountant had with the Tax Commission because 1) the law overrules any mistake in advice; and 2) the new rule in XXXXX (and still in effect) specifies the manner in which Petitioner should have filed her returns and taken deductions in her situation.


Utah law has stated since as far back as XXXXX, at least, the following statute in similar wording throughout the years:

Utah Code Ann. 59-10-119(3) (1992-93)

(3) If either husband or wife is a nonresident and the other a resident, separate taxes shall be determined on their separate state taxable incomes on such forms as the commission shall prescribe, unless both elect to determine their state taxable income as if both were residents. If a husband and wife (one being a resident, the other a nonresident) file a joint federal income tax return, but determine their state taxable income separately, they shall compute their taxable incomes in this state as if their federal taxable incomes had been determined separately.

The Utah Administrative Rule which has been in effect since 1987 states the following language:

Utah Admin. RuleR865-9I-6(A thru 2(e) (1992-93)

A. With reference to Utah Code Ann. Section 59-10-119, in cases where either husband or wife is a nonresident and the other is a resident and they have filed a joint federal return, they shall:

1. determine their state taxable income as if both were residents and file a joint return, or

2. file separate state returns and each shall determine state taxable income and tax as follows:

a. The amount of the total federal adjusted gross income pertaining to each spouse shall first be determined. If any adjustments apply jointly to both spouses, they shall be divided in proportion to the respective incomes of the individuals before deduction of adjustments.

b. The amount of federal taxable income for each spouse shall next be determined by subtracting each individual's party of the deductions and exemptions. Each spouse's percentage of the standard or itemized deductions shall be the same as that which each individual's federal adjusted gross income (FAGI) bears to their total FAGI. Both individuals shall claim their own exemptions plus a percentage of the exemptions for dependents.

c. The state taxable income of the resident spouse shall then be determined by making the applicable additions, subtractions (see e. below), and equitable adjustments to that individual's portion of the total federal taxable income.

d. In determining the state taxable income, if any, of the nonresident spouse--the applicable additions, subtractions, and equitable adjustments are made to the nonresident spouse's portion of the total federal taxable income, arriving at the amount that would have been their state taxable income if the nonresident spouse had been a resident spouse. Reference Utah Code Ann. Section 59-10-119.

e. Any federal income tax deduction shall be subtracted by each spouse in the same proportion as each individual's federal adjusted gross income bears to the total FAGI.


Of the several issues before the Tax Commission in this case, the Commission first concludes that the correct method of calculating income taxes when one spouse is a resident and the other is a nonresident is found in the administrative rule cited above. In XXXXX, without question, the Commission adopted a way to handle the situation Petitioner found herself in back in XXXXX when she moved to Utah. This method requires Petitioner to limit deductions based upon the percentage of income earned in Utah in relation to the federal adjusted income figure as the Auditing Division proposes.

Based upon this determination, Petitioner is liable for additional taxes as assessed by the Auditing Division for the years in dispute.

The fact that Petitioner's accountant relied upon XXXXX advice from a Commission employee when initially filing the returns between XXXXX is of little consequence for the audit years of XXXXX as the new administrative rule outlined the correct way to file and take deductions in these circumstances.

It is not the responsibility of the Auditing Division to identify and notify each taxpayer who may be affected by each new change in the law.

Based upon the foregoing, the Tax Commission finds that Petitioner is liable for the additional tax amount as assessed by the Auditing Division (with any corrections in math as needed per the hearing) for the years XXXXX. Penalties and interest are waived. It is so ordered.

DATED this 25 day of August, 1993.


W. Val Oveson* Roger O. Tew

Chairman Commissioner

Joe B. Pacheco Alice Shearer*

Commissioner Commissioner