95-1296

Income Tax

Signed 9/30/96

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

XXXXX, )

Petitioner, : FINDINGS OF FACT,

) CONCLUSIONS OF LAW,

v. : AND FINAL DECISION

)

COMPLIANCE AUDITING UNIT, : Appeal No. XXXXX

COLLECTION 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 a Formal Hearing on MMDDYY. Jane Phan, Administrative Law Judge, heard the matter for and on behalf of the Commission. Present and representing the Petitioner were XXXXX and XXXXX. Present and representing the Respondent were XXXXX, and XXXXX, for the Collection Division.

Based upon the evidence and testimony presented at the hearing, the Tax Commission hereby makes its:

FINDINGS OF FACT

1. Petitioner is appealing the assessment of Utah individual income tax, penalties and interest for the years 19YY through 19YY as set out in the Statutory Notice issued MMDDYY.

2. For 19YY, the assessments at issue were individual income tax in the amount of $$$$$, penalties of $$$$$ and interest of $$$$$. For 19YY, the individual income tax was $$$$$, the penalties $$$$$ and the interest $$$$$. For 19YY, the individual income tax assessed was $$$$$, the penalties $$$$$ and the interest $$$$$. For 19YY, the individual income tax assessed was $$$$$, the penalties $$$$$ and the interest $$$$$. For 19YY, the individual income tax assessed was $$$$$, the penalties $$$$$ and the interest $$$$$. For 19YY, the individual income tax assessed was $$$$$, the penalties $$$$$ and the interest $$$$$. For 19YY, the individual income tax assessed was $$$$$ and the penalties $$$$$.

3. The amount of interest listed in the Statutory Notice had been calculated through MMDDYY. Interest has continued to accrue based on the unpaid liability. The total assessment of tax, penalties and interest for all years in question as indicated on the Statutory Notice was $$$$$. The amount is currently higher due to the additional accrual of interest.

4. For each year in question a $$$$$ penalty for intent to evade and a %%%%% penalty for failure to file was assessed.

5. Petitioner has refused to file state individual income tax returns for any of the years in question. Prior to making the assessment at issue, Respondent notified Petitioner by certified mail that Petitioner=s Utah individual income tax returns were not on file with the Tax Commission. Respondent made a number of requests that Petitioner file the returns and provide financial information so that Respondent could determine Petitioner=s tax liability. Petitioner refused to file the returns or provided the financial information requested by Respondent. Petitioner responded to Respondent requests with only frivolous arguments. Because the requested financial information was not provided, Respondent based assessments on CPI projections. The XXXXX projections were the best information available to Respondent.

6. In preparation for this hearing Petitioner did not file returns for any of the years in question, nor provide financial information to Respondent. At the Formal Hearing, Petitioner did not submit financial information or evidence concerning his finances to dispute the dollar amount of the XXXXX projections. Instead Petitioner relied on several meritless arguments in an attempt to assert that he was not liable for any income tax.

7. From the facts presented and the findings listed above Petitioner acted with intent to evade the income tax. Petitioner clearly has knowledge that it is the State of Utah's position that he is required to file returns or provide sufficient financial information to prove otherwise, from the contacts with the Respondent prior to the assessment, after the assessment and during the appeals process. However, Petitioner has continued to refuse to file or provide sufficient financial information. Petitioner has provided only frivolous and meritless arguments in defense of his position.

CONCLUSIONS OF LAW

It is the intent of the legislature to impose on each resident individual for each taxable year a tax measured by the amount of his or her taxable income for such year as determined for federal income tax purposes, subject to certain adjustments. (Utah Code Ann. 59-10-102(1).)

A tax is imposed on the state taxable income of every resident individual for each taxable year. (Utah Code Ann. '59-10-104).

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

The Utah Individual Income Tax Act provides for the following civil and criminal penalties in Utah Code Ann. '59-10-541:

(1) Every person who, without fraudulent intent, fails to make, render, sign or verify any return, or to supply any information within the time required by or under the provisions of this chapter, is liable to a penalty as provided in Section 59-1-401.

(2) It is unlawful for any person, with intent to evade any tax, to fail to timely remit the full amount of tax required by this chapter. A violation of this section is punishable as provided in Section 59-1-401.

(3) Any person who knowingly or intentionally makes, renders, signs, or verifies any false or fraudulent return or statement or supplies any false or fraudulent information is guilty of a criminal violation as provided in Section 59-1-401.

(4) Any person who, with intent to evade any tax or any requirement of this chapter, or any lawful requirement of the commission, fails to pay the tax or to make, render, sign or verify any return, or to apply any information, within the time required by or under this chapter, or who, with like intent, makes, renders, signs or verifies any false or fraudulent return or statement, or supplies any false or fraudulent information, is liable to a civil penalty as provided in Section 59-1-401, and is also guilty of a criminal violation as provided in Section 59-1-401.

Utah Code Ann. '59-1-401(5)(a) provides as follows:

Additional penalties for underpayment of taxes are as follows: (iii) For intent to evade the tax, the penalty is the greater of $500 per period or 50% of the tax due; (iv) If the underpayment is due to fraud with intent to evade the tax, the penalty is the greater of $500 per period or 100% of the underpayment.

The Utah Legislature has required that a penalty be assessed when a taxpayer fails to file a tax return timely. The amount of the penalty is the greater of $$$$$ or %%%%% of the unpaid tax due on each return. (Utah Code Ann. '59-1-401(1).)

The issue of which party has the burden of proof is answered in Utah Code Ann. '59-10-543 as follows:

In any proceeding before the commission under this chapter, the burden of proof shall be upon the Petitioner except for the following issues, as to which the burden of proof shall be upon the commission:

(1) whether the petitioner has been guilty of fraud with intent to evade. . .

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).)

ANALYSIS

There are four issues before the Tax Commission in this appeal. The first issue is which party has the burden of proof in this proceeding. The second is whether or not Petitioner is liable for Utah individual income tax. The third, related issue, is if Petitioner is in fact liable for Utah individual income tax what is the amount of the tax liability. The last issue concerns the assessment of the penalties and interest.

The Utah Legislature has made it clear that in this proceeding it is Petitioner who has the burden of Proof. Utah Code Ann. '59-10-543. Petitioner's situation does not come under the exception to this rule as set out in '59-10-543(1). Under this exception the burden of proof would shift from the taxpayer if the Commission had made an assessment based on the taxpayer being guilty of fraud with intent to evade. In Petitioner's situation, the $$$$$ penalties were assessed for intent to evade, not fraud with intent to evade. These are two separate penalties. For certain deficiencies in compliance with Utah individual income tax laws, Utah Code Ann. '59-10-541 (2) requires application of the penalties set out in Utah Code Ann. '59-1-401. Two separate choices are the penalty for intent to evade set out in '59-1-401(5)(a)(iii), which was the penalty assessed by the Respondent in this matter, and the penalty for fraud with intent to evade, set out in '59-1-401(5)(a)(iv).

In looking at the second issue Petitioner and his representative allege that Petitioner is not liable for any Utah individual income tax. To support this position they allege that the Tax Commission does not have jurisdiction over this matter because, in their opinion, it is a criminal matter. This allegation is incorrect. Although failure to file or pay proceedings can be both civil or criminal, this proceeding is civil. A second argument offered was that in Petitioner's opinion the Statutory Notice was fatally flawed because it failed to allege that Petitioner's income was income for federal tax purposes. They also argued that Respondent had the burden of proof to establish that Petitioner had income equal to the federal minimum taxable wage levels. These arguments are without merit. Petitioner did not present evidence to indicate that his income was below the minimum taxable level. Petitioner is liable for Utah individual income tax.

In considering the third issue in this matter concerning the amount of the tax liability, since Petitioner has the burden of proof and he did not provide evidence at the Formal Hearing to show that the dollar amount of the assessment was incorrect, the amount of the tax assessment will be sustained. The assessment for individual income tax, although based on CPI projections is based on the best information available to the Respondent.

The last issue concerns the assessment of penalties and interest. Both a 10% failure to file penalty under Utah Code Ann. '59-1-401(1) and a $500 intent to evade penalty pursuant to Utah Code Ann. '59-1-401(5)(a)(iii) were assessed against Petitioner for each year at issue. Interest was assessed at the statutory rate.

There is no question that Petitioner has failed to file. He still has not filed individual income tax returns for the years at issue and he has refused to provide evidence to show that he would not be required to file based on his income. Therefore, the failure to file penalty was validly assessed.

The facts as presented indicate that Petitioner, after being notified by the Commission of the State of Utah's requirements for filing individual income tax returns, made a conscious decision not to file for the purposes of evading payment of his Utah individual income taxes. This is sufficient intent to evade for purposes of assessment of the penalty pursuant to Utah Code Ann. '59-1-401 (5)(a)(iii).

Further, Petitioner has not shown reasonable cause for waiver or reduction of the penalties or interest. The Commission has determined that reasonable cause is a cause that arises despite the ordinary care and prudence of the taxpayer. Petitioner has not acted reasonably or prudently.

DECISION AND ORDER

Based upon the testimony and evidence entered into the record at the hearing, the Tax Commission sustains the assessment, for 19YY through 19YY, of tax, penalties and interest in the amount of MMDDYY as set out in the Statutory Notice dated MMDDYY, along with the additional interest which has accrued since the date of the assessment. It is so ordered.

DATED this 30th day of Septebmer, 1996.

BY ORDER OF THE UTAH STATE TAX COMMISSION.

W. Val Oveson Richard B. McKeown

Chairman Commissioner

Joe B. Pacheco Alice Shearer

Commissioner Commissioner

NOTICE: You have twenty (20) days after the date of a final order to file a Request for Reconsideration with the Commission. If you do not file a Request for Reconsideration with the Commission, you have thirty (30) days after the date of a final order to file a.) a Petition for Judicial Review in the Supreme Court, or b.) a Petition for Judicial Review by trial de novo in district court. (Utah Administrative Rule R861-1A-5(P) and Utah Code Ann. ''59-1-601(1), 63-46b-13 et. seq.)