95-0913

Income

Signed 12/4/95

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

XXXXX, )

Petitioners, : ORDER

v. : Appeal No. 95-0913

AUDITING DIVISION OF THE : Account Nos. XXXXX

UTAH STATE TAX COMMISSION, : & XXXXX

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. This 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 and XXXXX.

Additional tax of $$$$$, XXXXX, penalties of $$$$$ and interest of approximately $$$$$ were assessed against Petitioners relating their income tax for the year XXXXX. The assessment was based on an Internal Revenue Service (IRS) audit and 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 and issued the statutory notice of audit change on XXXXX, assessing the additional tax penalty and interest. Petitioners now appeal only the penalty and interest.

At the hearing, and in correspondence filed with the appeal Petitioners explained that they were not aware that they had to contact the Tax Commission concerning the IRS's change in their federal taxable income. Petitioners state that the IRS did not tell them they needed to contact the State Tax Commission. Petitioners further asserted that the length of time between when they filed their XXXXX return, which was filed early in XXXXX of XXXXX, and when the assessment was made, in XXXXX, was an error on the part of the Tax Commission contributing 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 XXXXX days of a final determination of 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.

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 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 at issue was validly assessed. Further, ignorance of the law is not sufficient reasonable cause for waiver of penalties or interest.

Based upon the information presented at the hearing, and the records of the Tax Commission, the Commission finds sufficient cause has not been shown to waive or reduce the penalties and interest assessed relating to Petitioners' income tax for XXXXX.

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 4 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