97-0023
INCOME TAX
Signed 9/3/97
BEFORE THE
UTAH STATE TAX COMMISSION
____________________________________
)
PETITIONER, :
) DECISION
Petitioner, :
v. )
:
AUDITING DIVISION OF THE ) Appeal
No. 97-0023
UTAH STATE TAX
COMMISSION, :
) Account No. #####
Respondent. : Tax
Type: Income Tax
_____________________________________
STATEMENT OF CASE
This matter came before
the Utah State Tax Commission pursuant to the Administrative Procedures Act and
the rules of the Utah State Tax Commission for informal adjudicative
proceeding. A hearing was held on
August 14, 1997. Jane Phan,
Administrative Law Judge, heard the matter for and on behalf of the
Commission. Present and representing
Petitioners were PETITIONERS REP. and PETITIONERS REP.. Present and representing Respondent were
Michelle Bush, Assistant Attorney General, and Daniel Engh from the Auditing
Division.
Based upon the evidence
in the file and presented at the hearing, the Commission makes its:
FINDINGS
Petitioners are appealing
the assessment for the 1992 tax year of additional income tax in the amount of
$$$$$, penalties of $$$$$ and interest of approximately $$$$$. The assessment was based on an increase of
Petitioners' federal taxable income as determined in a settlement between
Petitioners and the Internal Revenue Service (IRS). Petitioners did not file an amended return with the State of Utah
based on the IRS adjustment, as is required by law. Respondent eventually received information concerning the change
from the IRS and issued the Statutory Notice on October 15, 1996, assessing the
additional tax, interest and penalty.
At the hearing
Petitioners' representative argued that Petitioners should be allowed to
relitigate the issue of whether or not Petitioners were entitled to a deduction
for travel expenses in computing their federal taxable income. He stated that Petitioners settled with the
IRS, not based on their legal position, but based instead on the cost of
litigating the issue. He pointed out
that Petitioners agreed to pay a certain amount to the IRS in settlement but
did not specifically agree to an amount of federal taxable income, maintaining
that the adjustment amount of federal taxable income was just a book keeping
entry on the part of the IRS.
The representatives for
Respondent argued that the amount of the assessment was based on the settlement
amount. It was their position that if
Petitioners were not bound by the settlement then the Auditing Division should
go for the entire amount of the original IRS assessment. They argued that the taxpayer had agreed to
the federal taxable income for whatever reason and the state should not
relitigate the issue of whether or not Petitioners were entitled to the travel
deduction.
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
The Tax Commission's
policy is clear and has been applied uniformly to many similarly situated
taxpayers. The Tax Commission does not
make its own determination of a taxpayer's federal taxable income after an
adjustment has been made by the IRS.
Federal taxable income is based on the Internal Revenue Code, not Utah
Law. Sound policy dictates that the Tax
Commission give the IRS deference in interpreting the Internal Revenue
Code.
The penalty was assessed
because Petitioner did not file the required amended Utah individual income tax
return after the change in federal taxable income. The Commission will waive the penalty based on first time
error. Should it happen a second time
the Commission will generally not be so lenient. Interest is statutory and no justification was presented for its
waiver.
Based on the forging the
Tax Commission sustains the assessment of additional income tax and interested
assessed relating to Petitioners' 1992 income tax return. The Tax Commission waives the related 10%
negligence penalty. It is so ordered.
DATED this 3 day of
SEPTEMBER, 1997.
BY ORDER OF THE UTAH
STATE TAX COMMISSION.
Jane Phan
Administrative Law Judge
The agency has reviewed
this case and the undersigned concur in this decision.
DATED this 3 day of
SEPTEMBER, 1997.
BY ORDER OF THE UTAH
STATE TAX COMMISSION.
W. Val Oveson Richard B. McKeown
Chairman Commissioner
Joe B. Pacheco Pam Hendrickson
Commissioner Commissioner
^^