95-1072
Individual Income Tax
Signed 3/28/96
BEFORE THE UTAH STATE TAX
COMMISSION
____________________________________
XXXXX,
Petitioner, : ORDER
:
v. : Appeal No. 95-1072
:
COMPLIANCE
AUDITING UNIT, ) Account No. XXXXX
COLLECTION
DIVISION OF THE :
UTAH STATE TAX COMMISSION, :
:
Respondent. : Tax Type: Individual 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 Petitioner was XXXXX. Present and representing Respondent were
XXXXX, Assistant Attorney General, and XXXXX, Senior Compliance Auditor of the
Collections Division.
Petitioner
is appealing the assessment of individual income tax, penalties and interest
for the years XXXXX and XXXXX, as set out in the Amended Statutory Notice dated
XXXXX. For XXXXX the tax deficiency
assessed was $$$$$, the penalties $$$$$
and the interest $$$$$. For XXXXX the
tax deficiency was $$$$$, the penalties $$$$$ and the interest $$$$$. The penalties assessed for both years were a
XXXXX intent to evade penalty and a XXXXX not filed or late filed penalty.
Petitioner
had filed individual Income Tax Returns in the State of Utah from XXXXX through
XXXXX. For the years XXXXX and XXXXX Petitioner
did not file Individual Income Tax Returns timely. In XXXXX Petitioner filed frivolous returns indicating he had
$$$$$ federal adjusted gross income.
Petitioner had written n/a through some of the return and left other
lines of the return blank. Petitioner
did, however, fill in the amount of withholding that had been remitted to the
State of Utah by his employer and indicated on the returns that he was entitled
to a refund of the entire amount.
Petitioner included with these returns copies of his W-2s for each year
and a letter which stated that he was filing under duress, that his intent was
to avoid claiming "voluntary" taxpayer status, along with other
baseless arguments.
These
returns were processed in error and the Tax Commission caused a refund check to
be issued to Petitioner for the amount of the withholding for both XXXXX and
XXXXX. A representative for Respondent
stated that the returns had been marked "do not process" but were
processed anyway. About two years
passed then the Respondent audited the returns and determined that the refund
had been issued in error. Respondent
was unable to locate Petitioner for a time and pursued a writ of mandate
against Petitioner in the District Court.
In XXXXX Respondent issued the first Statutory Notice of Deficiency
based on an estimate of tax liability.
Petitioner subsequently filed amended returns and the assessment set out
in the Amended Statutory Notice is based on the tax liability claimed by Petitioner
in the amended returns.
Since
the fact was undisputed that Petitioner had filed the returns at issue late, as
well as incorrectly, the 10% late filing penalty was validly assessed. The assessment of state individual income
tax against Petitioner was valid and there is no justification for Petitioner's
allegation that income tax is voluntary.
The two remaining issues in this appeal are whether the intent to evade
penalty was validly assessed and whether the error by Tax Commission employees
in issuing the refund negates the validity of the assessment of penalties or
interest.
Respondent
asserts that Petitioner filed the incorrect returns to obtain full refund of
all his withholding with intent to evade payment of any tax. Petitioner states that he had filed the
incorrect returns for the reasons set out in the letter he included with the
returns. In that letter Petitioner did
state, "I am willing to pay any tax for which I am properly and legally
liable." However, Petitioner
admits that he thought the returns would be challenged. After consideration of the information
presented the Commission determines that the Respondent is correct in the
assertion that Petitioner's action constitute intent to evade payment of the
tax.
The
Commission notes that procedurally, in order to remit refunds to taxpayers as
soon as possible, refunds are often processed based on the assumption that the
information contained therein is correct without actually auditing the return
for errors. Refund returns then may be
audited after the refund was issued. If
it were determined that the taxpayer was not entitled to the refund the
taxpayer would be required to repay the refund. Petitioner claimed that he was entitled to a refund on the
returns he originally filed for XXXXX and XXXXX so the refunds were issued. However,
a Tax Commission employee had recognized that the returns were frivolous and
marked them "do not process".
The returns were then processed in error.
APPLICABLE LAW
For
intent to evade the tax, the penalty is the greater of $$$$$ per period or
XXXXX of the tax due. (Utah Code Ann. §59-1-401(5)(a)(iii).)
The
penalty for failure to file a tax return within the time prescribed by law is
the greater of $$$$$ or XXXXX of the unpaid tax due on the return. (Utah Code
Ann. §59-1-401(1)(a).)
The
Tax Commission is granted the authority to waive, reduce, or compromise
penalties and interest upon a showing of reasonable cause. (Utah Code Ann.
§59-1-401(10).)
In
any proceeding before the Commission under this chapter, the burden of proof
shall be upon the petitioner . . .(Utah Code Ann. §59-10-543.)
DECISION AND ORDER
Based
upon the information presented at the hearing, and the records of the Tax
Commission, the Commission upholds the assessment of the tax deficiency of
$$$$$ for XXXXX and $$$$$ for XXXXX, and penalties of $$$$$ for XXXXX and $$$$$
for XXXXX as set out in the Statutory Notice dated XXXXX. The Commission, however, finds that because
of the error in issuing the refunds sufficient cause has been shown to reduce
the interest by the amount that accrued during the period from XXXXX, when the
refund checks were issued, to XXXXX, when the first Statutory Notice was
issued.
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 28 day of March, 1996.
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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