95-0664
Income Tax
____________________________________
XXXXX, )
:
Petitioners, : ORDER
:
v. : Appeal No. 95-0664
:
AUDITING
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. 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 were
XXXXX.
Additional
tax, penalties of $$$$$ and interest of approximately $$$$$ were assessed
against Petitioners relating their 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
Petitioners' federal taxable income.
The IRS reported the increase of Petitioners' federal taxable income to
the Respondent. The Respondent made the
appropriate changes to Petitioners' state taxable income issuing the statutory
notice of audit change on XXXXX.
Petitioners now appeal only the penalty and interest.
At
the hearing Petitioners' representative explained that their tax preparer had
erred in determining their taxable income for XXXXX and the IRS discovered the
error and made a final determination increasing their federal taxable
income. Following the IRS's final
determination she, although unaware of the specific law, reasoned that the IRS
change would affect her state taxable income.
So she took the initiative to call the State Tax Commission to ask what
she needed to do. She stated that she
was told over the phone by the Tax Commission employee that they could not tell
her how much additional tax she owed the State of Utah until they received the
papers from the IRS and that she should wait until the Tax Commission contacted
her. Petitioners relied on this
erroneous information and waited until they were contacted by the
Respondent. Petitioners were also
concerned with the length of time between the IRS audit and when the State Tax
Commission assessment was made and felt that it did contribute to the amount of
interest.
Respondent
explained that the statutes 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 from the IRS which affects 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. The delay in Petitioners' case was caused by Petitioners' failing
to file an amended return with the State of Utah. Respondent did not have any information concerning the phone call
as described by Petitioner.
APPLICABLE LAW
State
taxable income is defined as federally 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 Petitioners' federal taxable
income, this resulted in a change in Petitioners' 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, Petitioners' initiation of contact with the Tax Commission to
find out what they 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 Petitioners' 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
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