95-0649

Income

Signed 12/4/95

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

XXXXX, )

Petitioner, : ORDER

v. : Appeal No. 95-0649

AUDITING DIVISION OF THE : Account No. XXXXX

UTAH STATE TAX COMMISSION, :

Respondent. : Tax Type: Income

_____________________________________

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. The matter had originally been scheduled for a Status Conference but the Status Conference was converted to an Initial Hearing upon the approval of the parties. Jane Phan, Administrative Law Judge, heard the matter for and on behalf of the Commission. Present and representing Petitioner by telephone conference call was XXXXX. Present and representing Respondent was XXXXX.

Additional tax, penalties of $$$$$ and interest of approximately $$$$$ were assessed against Petitioner relating to his income tax for the year XXXXX. The assessment was based on an audit by the Internal Revenue Service (IRS) and the resulting final determination increasing Petitioner's federal taxable income. The IRS reported the increase of Petitioner's federal taxable income to the Respondent and the Respondent made the appropriate changes to Petitioner's state taxable income issuing the statutory notice of audit change on XXXXX. Petitioner now appeals only the penalty and interest.

At the hearing Petitioner explained that his tax preparer had erred in filing income taxes for XXXXX and XXXXX. While the discussions with the Internal Revenue Service (IRS) concerning both years were pending, Petitioner went to the Provo Tax Commission Office to request assistance on his state tax returns for both years. At that time he was told that the IRS had not yet made a final determination so adjustments could not be made.

Later, after the final determination for XXXXX was made by the IRS, Petitioner called the Tax Commission Office in Cedar City and was told again that they could not adjust Petitioner's state income tax for XXXXX until the IRS made a final determination and sent the Tax Commission the paperwork. Petitioner maintains that he was told to wait until the Tax Commission sent him a bill. Further, Petitioner was not told that he needed to file an amended return with the State of Utah. Petitioner relied on this erroneous information and waited until he was contacted by the Respondent.

Respondent explained that the statutes as set out in the Utah Code require the taxpayer to notify the Commission, by filing an amended return, within 90 days of a final determination by the IRS affecting the taxpayer's state tax liability. If the taxpayer fails to notify the Tax Commission, the Commission is not aware of the change until so notified by the IRS which may take several years. Respondent acknowledged that Petitioner had been to the Provo office requesting assistance for both income tax years.

APPLICABLE LAW

State taxable income is defined as federal taxable with some modifications, subtractions and adjustments. (Utah Code Ann. §59-10-112.)

For the purposes of determining state taxable income, federal taxable income means taxable income as defined in Section 63, of the Internal Revenue Code. (Utah Code Ann. §59-10-111.)

If a change is made in a taxpayer's net income on his or her federal income tax return, either because the taxpayer has filed an amended return or because of an action by the federal government, the taxpayer must notify the Utah Tax Commission within 90 days after the final determination of such change. (Utah Code Ann. §59-10-536 (5)(a).)

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

When the IRS made a final determination to increase Petitioner's federal taxable income this resulted in a change in Petitioner's state taxable income. The legislature, by statute, has placed the burden upon the taxpayer to notify the State Tax Commission of this change. Petitioner failed to do so and the 10% penalty was assessed along with interest from the time the additional tax was originally due in XXXXX. However, Petitioner's initiation of contact with the Tax Commission to find out what he needed to do and the incorrect information which was given is sufficient reasonable cause for waiver of the 10% penalty assessed.

More stringent guidelines are applied to the waiver of interest because the State of Utah was denied the benefit of the funds, and the Petitioner retained the benefit of the funds, from the time the tax was due in XXXXX until it was actually paid by Petitioner. Interest is generally waived only in the event an error on the part of the Tax Commission caused the original underpayment. In this case the underpayment resulted from an error in the taxpayer's original return.

Based upon the information presented at the hearing, and the records of the Tax Commission, the Commission finds sufficient cause has been shown to waive the penalties of $$$$$ relating to Petitioner's income tax for XXXXX. Sufficient cause has not been shown for waiver of 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 4th day of December, 1995.

BY ORDER OF THE UTAH STATE TAX COMMISSION.

W. Val Oveson Roger O. Tew

Chairman Commissioner

Joe B. Pacheco Alice Shearer

Commissioner Commissioner