95-0588

Income Tax

Signed 8/18/95

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

XXXXX, )

:

Petitioners, : ORDER

:

v. : Appeal No. 95-0588

:

COLLECTION DIVISION OF THE : Account No. XXXXX

UTAH STATE TAX COMMISSION, :

:

Respondent. : Tax Type: Income Tax

_____________________________________

STATEMENT OF CASE

This matter came before the Utah State Tax Commission for an Initial Hearing 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 Petitioners were XXXXX. Present and representing Respondent was XXXXX.

Additional income taxes of approximately $$$$$, penalties of $$$$$ and interest were assessed against Petitioners relating to the year ending XXXXX. Petitioners had requested a waiver of the penalties and interest from the Collection Division Waiver Unit which was denied. Petitioners are now appealing the penalties and interest.

At the hearing Petitioners explained that they had been audited by the Internal Revenue Services (IRS) for the tax year at issue. Following the audit the IRS disallowed certain business expenses resulting in an increase of Petitioners' federal taxable income. Petitioners stated that, although they thought their position was correct, they did not fight the IRS because one of the Petitioners was seeking employment with the federal government. Further, they stated that an IRS agent told them they would be contacted by the State of Utah concerning the increase in state taxes.

Petitioners did not file an amended return with the State of Utah within 90 days of the date of the final IRS adjustment to their federal taxable income. Instead Petitioners waited to be contacted by the State of Utah. They maintain that the penalties and interest should be waived because they did nothing wrong and they did not receive timely notice of the State of Utah's adjustment to their taxes, which resulted in further accrual of interest.

Respondent explained that state law required Petitioners to notify the State of Utah and file an amended state tax return within 90 days of the final IRS adjustment to their federal taxable income. Respondent pointed out that Petitioners failed to comply with this law. Because of Petitioners' error the state could not adjust the state taxable income until it found out about the audit from the IRS. This was the reason that Petitioners did not receive immediate notice concerning the additional state taxes and that additional interest accrued. Respondent stated that the penalties assessed were 10% late filing and 10% late payment penalties.

Respondent recommended waiving both penalties because it was possible that the IRS misinformed Petitioners that they would be notified by the State of Utah. Respondent explained that interest was waived only if there was an error on the part of the Tax Commission or a Tax Commission employee. Respondent stated that in this case the interest should not be waived because it was the result of errors made by Petitioners.

APPLICABLE LAW

Utah state individual taxable income is the federal taxable income as defined in Section 63, Internal Revenue Code of 1986, with the modifications set out in Utah Code Ann. §59-10-114. (Utah Code Ann. §§59-10-111 & 112.)

If a change is made on a taxpayer's net federal taxable income, either because the taxpayer filed an amended return or as a result of an action by the IRS, the taxpayer must notify the Tax Commission within 90 days after the final determination of such change and file a copy of the amended federal return and an amended state return. (Utah Code Ann. §59-10-536(5).)

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).)

DECISION AND ORDER

As set out by the Utah Legislature, Utah individual taxable income is based on the federal taxable income as defined by the Internal Revenue Code. A change in the taxpayer's federal taxable income will generally change the taxpayer's Utah individual taxable income and the state legislature has unequivocally placed the burden on the taxpayer to notify the state of any changes. In this case the Petitioners, relying on misinformation from the IRS, failed to contact the state or amend their state return. The additional tax, penalties and interest are the result of Petitioners' errors. In considering waiver of interest the Commission applies stringent reasonable cause standards, generally waiving interest only in the event of a Tax Commission error.

Based upon the information presented at the hearing the Commission finds sufficient cause has been shown to waive the penalties of $$$$$ relating to income tax for XXXXX. Sufficient cause has not been shown to waive the interest.

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 18th day of August, 1995.

BY ORDER OF THE UTAH STATE TAX COMMISSION.

W. Val Oveson Roger O. Tew

Chairman Commissioner

Joe B. Pacheco Alice Shearer

Commissioner Commissioner

^^