96-0419

Income Tax

Signed 6/26/96

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

XXXXX,

Petitioners, : ORDER

v. : Appeal No. 96-0419

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. Jane Phan, Administrative Law Judge, heard the matter for and on behalf of the Commission. A Status Conference had originally been scheduled in this matter on XXXXX but upon the request of the parties, the Status Conference was converted to the Initial Hearing in this matter. Present and representing Petitioner were XXXXX. Present and representing Respondent were XXXXX.

Petitioners are appealing the assessment of a negligence penalty of $$$$$ and interest relating to their income tax for the XXXXX tax year. At the hearing, Petitioners stated that they were not appealing the additional tax assessment.

Petitioners stated that they had not been negligent and were upset that the negligence penalty had been applied. Petitioners explained that the IRS had audited their federal income tax return for XXXXX and the audit, which lasted two years, was unreasonably long. The stated that they were not aware they needed to file an amended Utah return within 90 days of the final IRS determination. According to Petitioners, IRS employees told them the IRS would pass the information on to the State of Utah and to wait until the State of Utah contacted them.

Further, Petitioners were confused as to when the IRS made its final determination. Petitioners had contested the original IRS assessment. Petitioners worked out an agreement with the IRS as to the amount they would pay sometime in XXXXX. However, Petitioners state they did not receive a notice of final determination from the IRS and it was their understanding that the IRS appeal was open until XXXXX, when they received a letter from the IRS indicating the case was closed.

Respondent requested that the assessment of the negligence penalty be upheld. Respondent explained that the law required Petitioners to file an amended Utah return within 90 days of the change made to Petitioners federal net income. The negligence penalty is assessed for failure to file an amended return whether or not the taxpayer knows he or she is required to file. Respondent maintains that Petitioners failed to file the required amended return within the 90 day period.

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

After reviewing the information presented, the Commission notes that Petitioners may have been misinformed or not fully informed by IRS employees as to the filing requirements with the Utah State Tax Commission. Further, had Petitioners been aware that they needed to file an amended return, it was their understanding that their case with the IRS was open until XXXXX. The assessment of additional tax, penalty and interest was made by Respondent in XXXXX.

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 negligence penalty of $$$$$ assessed relating to Petitioners' income tax for the XXXXX tax year. The Commission upholds the assessment as to the additional tax and the interest as set out in the Statutory Notice dated 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 26 day of June, 1996.

BY ORDER OF THE UTAH STATE TAX COMMISSION.

W. Val Oveson Roger O. Tew

Chairman Commissioner

Joe B. Pacheco Alice Shearer

Commissioner Commissioner