BEFORE THE UTAH STATE TAX COMMISSION
Petitioner, : ORDER
AUDITING DIVISION : Appeal No. 93-1643
UTAH STATE TAX COMMISSION, :
STATE OF UTAH, : Account No. XXXXX
Respondent. : Tax Type: Corporate Franchise
STATEMENT OF CASE
This matter comes before the Utah State Tax Commission as an Initial Hearing pursuant to the provisions of Utah Code Ann. §59-1-502.5. This appeal was originally scheduled to proceed to a Settlement Conference or a full hearing after briefs from the parties had been filed. On XXXXX, Petitioner informed the Utah State Tax Commission by mail that a determination should be made pursuant to the information on file.
XXXXX, manager of Corporate Taxation, represented Petitioner. XXXXX, Assistant Attorney General, represented Respondent. Joe B. Pacheco, Commissioner, was the presiding officer.
STATEMENT OF CASE
Petitioner is seeking a refund of corporate franchise taxes relating to an overpayment attributed to a net loss carryback
affected by a Federal Revenue Agent Review (RAR). Respondent denied the refund stating that Petitioners refund claim resulted from an RAR. A loss had occurred for the short period return ended October XXXXX in the amount of $$$$$. The RAR reduced the loss to $$$$$.
Respondent refutes the Petitioner's refund claim could not be filed until the RAR was complete. Respondent says Petitioner simply failed to carryback the loss incurred in the short period return which ended October XXXXX. If the Petitioner had applied their loss carryback within the statutory time period, then a refund would have been issued accordingly and the RAR would have resulted in a tax assessment.
The sole issue in dispute in this matter is whether or not the statute of limitations on the loss carryback refund claim had expired when the claim was filed.
STATEMENT OF FACTS
1. XXXXX is the successor-in-interest to XXXXX Corporation.
2. XXXXX filed a separate Utah return for the XXXXX tax year reporting a loss of $$$$$. The loss was not carried back to the XXXXX tax year and therefore, no refund of taxes paid was claimed or received.
3. On XXXXX, the Federal Revenue Agent Review (RAR) for the XXXXX tax year was finalized.
4. Utah amended returns were filed by XXXXX on XXXXX for the tax years ending XXXXX and XXXXX. The amended return for tax year ending XXXXX reflected the RAR adjustment while the amended return for the tax year ending XXXXX was a loss carryback refund claim for losses incurred in tax year ending XXXXX (as reduced by the Federal audit) carried back to tax year ending XXXXX.
5. The Utah loss for the XXXXX Utah return was decreased from $$$$$ to $$$$$ based on the Federal RAR.
6. The XXXXX Utah amended return and carryback refund claim reflected a refund of $$$$$.
7. On XXXXX, the Auditing Division issued an audit reflecting the Federal RAR adjustments and denying the loss carryback refund claim based on the tolling of the statute of limitation.
8. A Petition for Redetermination was timely filed on XXXXX.
Application of Loss Carryback
Utah Code Ann. §59-7-108(14)(c),(1) Now 59-7-110(2)(a):
[a] net loss is first
carried back to the earliest of the next preceding three years ...
Statutory Time Periods
Utah Code Ann. §59-7-138(1)(2),(1) Now 59-7-519(1)and(2):
The amount of taxes
imposed by this chapter shall be assessed within three years after the return
was filed ..." and "In the case of a deficiency attributable to the
application of a net loss carryback, this deficiency may be assessed at any
time before the expiration of the period within which a deficiency for the
taxable year of the net loss which results in the carryback may be assessed.
Revenue Agent Report Notification
Utah Code Ann. §59-7-138(3),(1) Now 59-7-518(3):
If the amount of net
income for any year of any corporation as returned to the United States
treasury department is changed or corrected by the commissioner of internal
revenue or other officer of the United States or other competent authority, or
where a renegotiation of a contract or subcontract with the United States
results in a change of net income, such taxpayer shall report such change or
corrected net income within 90 days after the final determination of such
change or correction as required to the commission.
Failure to Report Change or Correction
Utah Code Ann.
§59-7-138(4),(1) Now 59-7-519(4):
If a corporation shall
fail to report a change or correction by the commissioner of internal revenue
or other officer of the United States or other competent authority or shall
fail to file an amended return, any deficiency resulting from such adjustments
may be assessed and collected within three years after said change, correction,
or amended return is reported to or filed with the federal government.
Refund Attributable to a Loss Carryback
Utah Code Ann.
§59-7-141(2)(b),(1) Now 59-7-522(2)(b):
.... If the claim for
a refund or credit is attributable to a loss carryback adjustment, the
statutory period for claiming a refund
shall be that period which ends with the expiration of the 15th day of the 40th
month following the end of the taxable year of the net loss which results in
Overpayments - Limitations on Time
Utah Code Ann.
§59-7-141(2)(c): (1) Now 59-7-522(2)(c):
Where an overpayment
relates to adjustments to net income referred to in §59-7-138, credit may be
allowed or a refund paid any time before the expiration of the period within
which a deficiency may be assessed.
(1) Statute applicable as of the time of the audit, has since been recodified.
Petitioner feels that if the statute is open for the assessment of tax it should also be open where an overpayment or refund is sought. Petitioner cites Utah Code Ann. 59-7-138(5), (actually Utah Code Ann. §59-7-141(2)(c)) Where an overpayment relates to adjustments to net income referred to in §59-7-138, credit may be allowed or a refund paid any time before the expiration of the period within which a deficiency may be assessed. Further §59-7-138-(4) specifically states, If a corporation shall fail to report a change or correction by the Commissioner of Internal Revenue or other office of the United States or other competent authority or shall fail to file an amended return, any deficiency resulting from such adjustments may be assessed and collected within three years after said change, correction, or amended return is reported to or filed with the federal government. Therefore, according to Utah statute the state of Utah may assess tax within three years after the change in taxable income and so the taxpayer should be allowed [pursuant to §59-7-138(4)] the same statute in which to file a refund claim. The taxpayer’s refund claim was filed in response to the RAR and the intent of the statute is to correctly reflect state taxable income as changed by the federal audit. A taxpayer whose federal audit results in changes that create a net operating loss which can be carried back to an income year, should not be treated differently from a taxpayer whose net operating loss is changed by the federal audit.
Respondent argues that Petitioner failed to claim a refund attributable to a loss carryback within the statutory limitation period. Petitioner failed to carryback their loss that originated in the short period return which ended XXXXX in a timely manner. Respondent cites Utah Code Ann. §59-7-141(2)(b) which allows the Petitioner three years from the due date of the loss year return to file a claim for refund. Respondent says that the undisputed facts show that Petitioner did not attempt to carryback the XXXXX loss and claim a refund until XXXXX. In addition, had Petitioner applies its loss carryback in a timely manner, and had its claim for refund been received by the State Tax Commission prior to XXXXX, then a refund attributable to its loss carryback would have been granted. However, because the refund was not claimed until XXXXX, the statutes do not allow the tax Commission to refund the amount requested.
Respondent argues that the RAR did not alter XXXXX’s opportunity to carryback the XXXXX loss to the XXXXX tax year, and therefore, the statute of limitations for filing a loss carryback claim to the XXXXX return ran prior to the completion of the RAR and no refund shall be granted.
DECISION AND ORDER
Based on the information presented, and the records of the Tax Commission, the Commission finds that Petitioner did not timely file a carryback of the XXXXX loss to the XXXXX return and the statute of limitation had run prior to the completion of the RAR. Therefore, Petitioner’s claim is denied and the decision of the Auditing Division is upheld.
This decision does not limit a party’s right to a Formal Hearing. However, this Decision and Order will become the Final Decision and Order of the Commission unless any party to this case files a written request within thirty (30) days of the date of this decision to proceed to a Formal Hearing. Such a request shall be mailed to the address listed below and must include the Petitioner’s name, address, and appeal number.
Utah State Tax Commission
210 North 1950 West
Salt Lake City, Utah 84134
Failure to request a Formal Hearing will preclude any further administrative action or appeal rights in this matter.
DATED this 5th day of February, 1996.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
W. Val Oveson Roger O. Tew
Joe B. Pacheco Alice Shearer