96-2104

Corporate Franchise

Signed 11/27/96

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

XXXXX, )

Petitioner, ) ORDER

v. ) Appeal No. 96-2104

COLLECTION DIVISION OF THE ) Account No. XXXXX

UTAH STATE TAX COMMISSION, :

)

Respondent. : Tax Type: Corporate Franchise

_____________________________________

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 MMDDYY. Commissioner Richard B. McKeown and 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.

Petitioner is appealing the assessment of penalties totaling $$$$$and interest of approximately $$$$$ relating to the late payment and filing of corporate franchise tax for the period of July 19YY through June 19YY. This period represents five corporate tax years.

Petitioner's representative explained that late in 19YY a fire destroyed part of the business and records. This took a lot of his time and made it difficult to file tax returns. He also explained that the fire caused a financial burden for the next few years. In 19YY, Petitioner's bookkeeper for many years left Petitioner's employment. Petitioner's representative maintained that the new bookkeeper did not know what she was doing and did not file the returns. He stated that he thought the Internal Revenue Service (IRS) did not require corporate returns to be filed unless there was corporate income so he assumed it was the same with the State of Utah. After 19YY, Petitioner's old bookkeeper came back but according to Petitioner's representatives, the corporate records were in such a state that it took a significant amount of time to prepare the corporate franchise returns. The returns for all periods at issue were not filed until 19YY.

Petitioner's representative also thought that because the IRS waived the penalties that the State Tax Commission should do the same. However, the State of Utah does not follow the same reasonable cause criteria as is followed by the IRS.

Petitioner's representatives was also upset because Respondent had garnished his account in 19YY, just before pay day, which he said was extremely burdensome. The garnishment was to collect unpaid tax due in 19YY, not for the periods in question in this appeal. Petitioner's representative stated that he thought he was working out payment arrangements with Respondent and that he had owed other monies to the Tax Commission for longer periods of time, so he thought it was unfair that the Tax Commission came after him so fast and aggressively by the account garnishment. Respondent's representatives pointed out that they had mailed the 10 Day Letter and followed all the required procedure prior to the garnishment.

Respondent's representatives stated that had Petitioner exercised reasonable prudence Petitioner would not have allowed five years of corporate franchise tax to be unpaid. It was Respondent's position that the assessment of penalties and interest should be upheld.

APPLICABLE LAW

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 the pattern of not filing the corporate franchise tax returns began prior to the two events described by Petitioner, the fire and the departure of the long time bookkeeper. Further, Petitioner is ultimately responsible for the filing of tax returns so that Petitioner needs to supervise employees. The error was not corrected with the return of the long time bookkeeper until 19YY. These facts do not rise to the level of sufficient reasonable cause for the purpose of waiving most of the penalties or interest. However, because Petitioner has represented that some of its business records were destroyed by fire, this is sufficient cause to waive penalties of $$$$$ for the June 19YY through June 19YY period.

As for the concern of Petitioner's representative with the account garnishment, this matter is not properly before the Tax Commission. Generally, Petitioner needed to file an appeal within thirty days of the date of the assessment for which he was garnished or of the garnishment action.

Based upon the information presented at the hearing, and the records of the Tax Commission, the Commission finds sufficient cause been shown to waive $$$$$ in penalties relating to the June 19YY through June 19YY corporate franchise tax period. Sufficient cause was not shown to waive or reduce the penalties for the remaining periods nor was sufficient cause shown to waive or reduce the interest for all periods from July 19YY through June 19YY, relating to Petitioner's corporate franchise tax.

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 27th day of November, 1996.

BY ORDER OF THE UTAH STATE TAX COMMISSION.

W. Val Oveson Richard B. McKeown

Chairman Commissioner

Joe B. Pacheco Alice Shearer

Commissioner Commissioner