96-2204
Income Tax
Signed 11/22/96
BEFORE THE UTAH STATE TAX
COMMISSION
____________________________________
XXXXX, )
:
Petitioner, : ORDER
:
v. : Appeal No.96-2204
:
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, 19YY. 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.
XXXXX, 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.
Additional
tax of $$$$$, penalties of $$$$$ and interest of approximately $$$$$ were
assessed against Petitioner for his 19YY Utah income tax. The assessment was based on an audit by the
Internal Revenue Service (IRS) which increased Petitioner's federal taxable
income. The IRS reported the increase
of Petitioner's federal taxable income to the Respondent. Respondent made the appropriate changes to
Petitioner's state taxable income issuing the Statutory Notice on XXXXX. Petitioner is appealing the assessment of
additional tax, penalty and interest.
At
the hearing, Petitioner explained that for XXXXX he had claimed exemptions for
his fiancee's two children. He stated
that he was supporting them financially and asked that he be allowed to claim
them on his Utah income tax return. He
explained that he did not have the money or the time to fight the IRS when they
disallowed the exemptions, so he did not pursue the appeal process with the
IRS. However, he acknowledged that his
fiancee had also claimed these two children on her own federal and state income
tax returns. The IRS had told him
either he would have to pay the tax or she would. He stated that since she did not have the money he agreed to pay
the tax.
Respondent
explained that Utah income tax is based on the federal taxable income as
determined by the IRS. When the IRS
increases federal taxable income, by disallowing exemptions, the Utah Tax
Commission must increase the Utah taxable income by the same amount. The State of Utah follows what is done by
the IRS. Further, the law requires the
taxpayer to notify the Utah Tax Commission of a change made by the IRS, by
filing an amended return, within 90 days of a final determination from the
IRS. If the taxpayer fails to notify
the Tax Commission within the 90 days a 10% negligence penalty is assessed. Respondent also pointed out that other
changes had been made by the IRS along with the disallowance of the exemptions
for the two children.
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 the increase in Petitioner’s state income tax. The State Tax Commission does not go against
the IRS change. Further, from
Petitioner's explanation, he was not entitled to the exemption for his
fiancee's children because she also claimed them as exemptions. The two children should have been claimed as
exemptions on only one return. Based
upon the information presented at the hearing, and the records of the Tax
Commission, the Commission upholds the assessment of additional tax, penalties
and interest for Petitioner's XXXXX income tax, 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 22nd day of Novmeber, 1996.
BY ORDER OF THE UTAH STATE TAX COMMISSION.
W. Val Oveson Richard
B. McKeown
Chairman Commissioner
Joe B. Pacheco Alice
Shearer
Commissioner Commissioner
^^