96-2137

Income Tax

Signed 10/7/96

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

XXXXX, )

:

Petitioners, : ORDER

:

v. : Appeal No. 96-2137

:

AUDITING DIVISION OF THE : Account Nos.XXXXX

UTAH STATE TAX COMMISSION, : XXXXX

:

Respondent. : Tax Type: Income Tax

_____________________________________

STATEMENT OF CASE

This matter came before the Utah State Tax Commission for an Informal Hearing on XXXXX. Jane Phan, Administrative Law Judge, heard the matter for and on behalf of the Commission. The matter had originally been scheduled for a Status Conference but the Status Conference was converted to an Informal Hearing upon the suggestion of the Administrative Law Judge with the approval of the parties. Present and representing Petitioner by telephone conference call was XXXXX. Present and representing Respondent were XXXXX and XXXXX of the Auditing Division.

Additional tax of $$$$$, penalties of $$$$$ and interest of approximately $$$$$ were assessed against Petitioners relating their income tax for the year XXXXX. The assessment was based on an increase made by the Internal Revenue Service (IRS) to Petitioners' federal taxable income. The IRS reported the increase of Petitioners' federal taxable income to the Respondent. The Respondent made the appropriate changes to Petitioners' state taxable income issuing the statutory notice of audit change on XXXXX. Petitioners have appealed only the penalty and interest. The penalties consist of a 10% negligence penalty in the amount of $$$$$ and a $$$$$ late payment penalty.

At the hearing Petitioner explained that they had filed their return for XXXXX and moved from the State of Utah in XXXXX. They moved first to XXXXX and then to XXXXX. They did not receive the request for information or the notice from Respondent concerning the additional tax because they were mailed to the wrong addresses. Respondent mailed a request for information to the Petitioners' former address in Utah and the notice of assessment to their former address in XXXXX. Petitioner states that he did not receive the request or assessment letter. Had he received them he says he would have paid immediately, but since he did not receive the request or assessment letter he did not pay. Since payment was not made with 30 days of the date of the assessment letter the $$$$$ late payment penalty was assessed.

Petitioner explained that he did not know at the time the IRS increased his federal taxable income that there would be a domino affect with his state taxable income, or that he was required to file an amended return with the State of Utah. He wondered why the State of Utah did not obtain Petitioners' new address from the IRS at the time they received the information concerning the increase in Petitioners' federal taxable income. Further, he felt it would have been fairly easy on the part of the Tax Commission to find his new address because he had been working for the same company for the past XXXXX years. Petitioner stated that under the circumstances the penalty and interest should be waived.

Respondent's representatives explained that the Utah Code requires taxpayers to 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 generally takes six months to one year, but may take even longer. The delay in Petitioners' case was caused by Petitioners' failing to file an amended return with the State of Utah. Since Petitioner did not file the amended return the State of Utah was unaware of the change until the IRS forwarded the information. Respondent's representatives stated that Petitioner was required to notify the Tax Commission of an address change.

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 Petitioners' federal taxable income, this resulted in a change in Petitioners' 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. Had Petitioner complied with this 90 day requirement the matter would have been resolved quickly without the accrual of the interest or the assessment of penalties. However, under the circumstances waiving the late payment penalty of $$$$$ would be appropriate.

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 tax was due in XXXXX of XXXXX until the tax liability 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 and was compounded by Petitioners' failure to file an amended return as required by law.

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 late payment penalty of $$$$$ relating to Petitioners' income tax for XXXXX. Sufficient cause has not been shown for waiver of the $$$$$ negligence penalty or the interest of approximately $$$$$. It is so ordered.

DATED this 7th day of October, 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 Petition for Judicial Review by trial de novo in district court. (Utah Administrative Rule R861-1A-5(P) and Utah Code Ann. §63-46b-13 et. seq.)

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