92-2136 to 92-2138 - Sales, Corporate Franchise and Withholding

BEFORE THE UTAH STATE TAX COMMISSION

___________________________

In Re: )

: FINDINGS OF FACT,

)

XXXXX, INC. : CONCLUSIONS OF LAW,

) AND FINAL DECISION

:

) Appeal Nos. 92-2136,

: 92-2137 & 92-2138

) Account Nos. See Attached

_______________________________

STATEMENT OF CASE

This matter came before the Utah State Tax Commission for a formal hearing on XXXXX. Lisa L. Olpin, Presiding Officer, heard the matter for and on behalf of the Commission. Present and representing the Petitioner was XXXXX, Petitioner's controller.

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

FINDINGS OF FACT

1. The taxes in question are sales and use tax, corporate franchise tax and withholding tax.

2. The quarters in question regarding sales and use tax are the second and fourth quarters of XXXXX. The years in question regarding corporate franchise tax are XXXXX, XXXXX and XXXXX. The months in question regarding withholding tax are May XXXXX, August XXXXX and June XXXXX through February XXXXX.

3. In all of these periods in question, Petitioner failed to timely file and pay the respective taxes. In the instance of sales and use taxes, the Tax Commission assessed Petitioner a single ten percent late filing penalty and another $$$$$ late payment penalty on each of the two quarters involved.

4. In the case of corporate franchise taxes, the Tax Commission assessed Petitioner two $$$$$ late payment and late filing penalties on each of the three years in question.

5. In the case of withholding taxes, the Tax Commission assessed Petitioner at least a single ten percent late penalty on each of the months in question, sometimes ten percent plus $$$$$, and on one occasion two ten percent penalties.

6. Interest was charged on all periods in question.

7. Petitioner is requesting a waiver of the penalties and interest assessed on each of the three types of taxes over their respective periods.

8. XXXXX, Petitioner's controller, testified that he was hired by the company in May XXXXX and replaced the former controller, XXXXX. As soon as Mr. XXXXX assumed his position, he discovered that Mr. XXXXX had not carried out his responsibilities handling the accounting and payroll obligations of the company. Further, Mr. XXXXX's work in internally auditing Petitioner's books showed that Mr. XXXXX had actually embezzled money from the company.

9. Petitioner is a small business with the parent company, The XXXXX, located in XXXXX.

10. Mr. XXXXX, a certified public accountant of twenty years, worked as Petitioner's controller from February XXXXX through April XXXXX. During this time, Mr. XXXXX failed to file the necessary quarterly and yearly returns on all taxes due to the state and I.R.S. with the exception of a few filings here and there.

11. Petitioner relieved Mr. XXXXX of his duties in April XXXXX for failing to file and pay the payroll taxes on time. Mr. XXXXX's lack of handling the payroll taxes appropriately was discovered after management found unsupported entries in the accounting records.

12. After his release, Petitioner examined its financial records and learned that Mr. XXXXX had embezzled at least $$$$$ from the company during his tenure. On one occasion, Mr. XXXXX, who had check signing authority, obtained a certified check from Petitioner's bank to pay withholding taxes and then used the money to buy himself a new car. Petitioner is still unsure of exactly how much money and other items Mr. XXXXX unlawfully took from the company.

13. Mr. XXXXX testified that Mr. XXXXX had doctored the company's books to hide the fact that he had not paid the taxes or filed returns.

14. Mr. XXXXX had also falsified expense reports and obtained money in that manner.

15. Mr. XXXXX had not filed the necessary tax returns nor made payment from the time he began working for the company. Per Mr. XXXXX, the embezzlement pattern begins in August XXXXX.

16. After Petitioner was able to ascertain the extent of Mr. XXXXX's activities, it requested and received approximately $$$$$ from the parent company to cover all of the taxes, penalty, interest amounts and other outstanding debts Mr. XXXXX left behind.

17. In a letter, Petitioner's vice-president of finance, XXXXX, states that he routinely questioned Mr. XXXXX about cash balances to assure that there was always sufficient funds to cover payroll taxes. Mr. XXXXX always responded that the balances were sufficient.

18. In the end, Petitioner pursued Mr. XXXXX through law enforcement, resulting in Mr. XXXXX's two misdemeanor theft convictions in XXXXX.

19. Per Mr. XXXXX, the I.R.S. waived a significant amount of penalties on Petitioner's behalf due to the circumstances.

20. Further, the Utah Industrial Commission disallowed the unemployment benefits that Mr. XXXXX was receiving after he left XXXXX.

CONCLUSIONS OF LAW

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).)

DEFINITION AND ORDER

The foregoing findings of fact show that but for the dishonest employee's embezzlement activities, Petitioner could have paid its tax obligations. Based upon the foregoing, the Tax Commission finds that sufficient cause has been shown which would justify a waiver of the penalties assessed on 1) the sales and use taxes due for the second and fourth quarters of XXXXX, 2) the corporate franchise tax due for the years XXXXX and XXXXX, and 3) the withholding taxes-due for the months XXXXX through XXXXX. No other penalties are waived on the remaining periods, namely the XXXXX corporate franchise tax and the months May and August XXXXX of withholding tax. Interest is not waived on any period in question. It is so ordered.

DATED this 10th day of June, 1993.

BY ORDER OF THE UTAH STATE TAX COMMISSION.

R. H. Hansen Roger O. Tew

Chairman Commissioner

Joe B. Pacheco S. Blaine Willes

Commissioner Commissioner