95-0576

Withholding Tax

Signed 6/14/95

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

XXXXX, )

:

Petitioner, ) ORDER

:

v. ) Appeal No. 95-0576

:

COLLECTION DIVISION OF THE ) Account No. XXXXX

UTAH STATE TAX COMMISSION, :

)

Respondent. : Tax Type: Withholding

_____________________________________

STATEMENT OF CASE

This matter came before the Utah State Tax Commission for a Settlement Conference pursuant to the provisions of Utah Code Ann. '59-1-502.5, on XXXXX. Jane Phan, Administrative Law Judge, heard the matter for and on behalf of the Commission. Present and representing Petitioner was XXXXX, CPA. Present and representing Respondent was XXXXX of the Collection Division Legal Unit.

Penalties totalling $$$$$ and interest of approximately $$$$$ were assessed against Petitioner relating to withholding tax for the audit period of XXXXX. Petitioner had requested waiver of the penalties and interest from the Collection Division Waiver Unit which was denied. The original audit assessment, dated XXXXX, found additional taxes owed by Petitioner in the amount of $$$$$ and assessed a penalty of $$$$$. According to the parties the audit was amended on XXXXX, in response to documentation provided by Petitioner, and the assessment of taxes reduced to $$$$$ with a reduction of the penalties to the $$$$$ amount at issue.

The information from the Auditing Division indicated that the penalties at issue consist of three penalties but did not provide, and Respondent could not provide, a breakdown of the dollar amount of each of these penalties. Further, Respondent could not explain why these three penalties did not add up to the total penalty amount of $$$$$ assessed by the Auditing Division. The information indicated that the Auditing Division assessed the penalties as follows: 1) a 10% negligence penalty because of Petitioner's misclassification of workers as independent contractors; 2) a 50% intent to evade penalty for paying obvious personal expenses without claiming them as compensation; and 3) a 10% penalty under '59-1-401(4) for Petitioner's failure to file W2 Reconciliations.

In response to the 10% negligence penalty, Petitioner explained that the nature of the roofing industry led to the use of transient labor and Petitioner had hired labor on a contract bases for one to two weeks until it was determined they could perform the job adequately. At this point they would be hired as an employee. Petitioner felt that this did not constitute negligence.

Petitioner stated that there was no intent to evade tax and the 50% penalty should not have been assessed. Petitioner asserted that he had provided supporting documentation indicating the personal expenses had been claimed properly as compensation and upon review of these documents the Auditing Division had removed the additional tax assessed for these expenses in the amended audit assessment. Petitioner felt this eliminated the basis for the 50% penalty.

As for the third penally, Petitioner explained that all withholding reconciliations for the audit period had been filed and he may be able to provide copies of the reconciliations which were boxed away in storage. Petitioner has not provided these copies.

Respondent stated that the withholding tax assessment for contract labor had remained on the amended audit. Respondent could not tell whether some or all of the taxes assessed relating to the personal expenses that resulted in the 50% penalty were reduced in the amended audit. Respondent asked for the reconciliation statements for the years at issue. Respondent did not know why the total amount of the penalties assessed were nearly four times the amended audit assessment. Respondent stated that no other penalties were listed by the Auditing Division as being assessed against Petitioner for the audit at issue. Respondent recommended that the penalties be reduced so that the three penalties listed by the Auditing Division be based on the amended audit assessment. This would reduce the penalties to $$$$$.

DECISION AND ORDER

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(10).)

Petitioner has provided sufficient information, which Respondent did not refute, to indicate that an error was made in the calculation of the amount of penalties. Petitioner has also provided information, which was not refuted by Respondent, that the additional tax for which the 50% intent to evade tax penalty had been assessed was removed in the amended audit because Petitioner had satisfied the Auditing Division that this income had been properly claimed.

Based upon the information presented at the conference, and the records of the Tax Commission, the Commission finds sufficient cause has been shown to waive the 50% intent to evade penalty, to reduce the 10% negligence and the 10% failure to file penalties to $$$$$ each, based on 10% of the tax assessment in the amended audit, for the audit period of XXXXX. Sufficient cause has not been show to waive the interest but the interest is to be adjusted according to this decision.

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

Appeals Division

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 14th day of June, 1995.

BY ORDER OF THE UTAH STATE TAX COMMISSION.

W. Val Oveson Roger O. Tew

Chairman Commissioner

Joe B. Pacheco Alice Shearer

Commissioner Commissioner

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