95-1260

Income Tax

Signed 1/9/96

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

XXXXX, )

Petitioner, : ORDER

v. : Appeal No. 95-1260

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 was XXXXX. Present and representing Respondent were XXXXX and XXXXX of the Auditing Division.

Additional tax of $$$$$, penalties of $$$$$ and interest of approximately $$$$$ were assessed against Petitioner relating to his income tax for the year XXXXX. Respondent made the assessment based on information from the Internal Revenue Service (IRS) indicating an increase in Petitioner's federal taxable income. The IRS reported the increase of Petitioner's federal taxable income to the Respondent. 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 an accountant assisted him with the IRS audit. When the IRS completed their process Petitioner asked if there was anything further he needed to do and was told by this accountant that there was nothing further. Petitioner states that he did not know the law required him to file an amended return with the State of Utah. He merely relied on his accountant that there was nothing further he needed to do. Petitioner states that since the Respondent made the assessment against Petitioner, Petitioner has been unable to contact this accountant.

Respondent explained that the Utah Code requires that taxpayers 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 years. The Auditing Division then issues the statutory notice of audit assessment as soon as the information from the IRS can be processed. Had Petitioner filed an amended return within the ninety day period further accrual of interest would have been avoided.

APPLICABLE LAW

State taxable income is defined as federally taxable income 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 of XXXXX. However, Petitioner has presented uncontested information that he relied on his accountant to tell him of any further action he should take which is sufficient reasonable cause for waiver of the 10% negligence penalty assessed under the circumstances presented.

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 additional tax assessment was due in XXXXX of 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. The additional tax assessment was not appealed and is sustained.

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 9th day of January, 1996.

BY ORDER OF THE UTAH STATE TAX COMMISSION.

W. Val Oveson Roger O. Tew

Chairman Commissioner

Joe B. Pacheco Alice Shearer

Commissioner Commissioner