97-0238

INCOME

Signed 5/1/97

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

PETITIONER. )

, :

Petitioners, ) DECISION

v. )

AUDITING DIVISION OF THE ) Appeal No. 97-0238

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 April 22, 1997. Jane Phan, Administrative Law Judge, heard the matter for and on behalf of the Commission. Petitioners were present and represented themselves. Present and representing Respondent were Frank Hales and Dan Engh.

Based upon the evidence in the file and presented at the hearing, the Commission makes its:

FINDINGS

Additional tax, penalties of $$$$$ and interest of approximately $$$$$ were assessed against Petitioners relating to their income tax for the year 1991. Petitioners are appealing the assessment of the penalties and interest. The assessment was based on an increase of Petitioners' federal taxable income as determined by 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 caught the adjustment in its tape match with the IRS and issued the Statutory Notice on January 10, 1997, assessing additional tax, interest and penalty.

At the hearing Petitioners explained that they had made an "honest," unintended error in the preparation of their 1991 returns. They were distracted by a family medical crisis and they did not feel it was fair to penalize them for the unintended error. They stated that they did not know about the requirement to file an amended Utah return.

Respondent explained that the Utah Code requires the taxpayer 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. Since Petitioners failed to do this the 10% negligence penalty was assessed. Interest was assessed at the statutory rate. Respondent requested that the assessment of tax, penalty and interest be sustained.

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

Since this was this was the first time Petitioners were required to file an amended state return resulting from an IRS audit and Petitioners were not aware of the requirement, the Tax Commission will waive the penalty based on first time error. However, interest is statutory and, because the State of Utah is denied the benefit of the use of the funds from the time the taxes are due until they are actually paid, interest is generally waived only in the event an error on the part of the Tax Commission caused the late payment.

Based on the forging the Tax Commission finds sufficient cause exists to waive the 10% negligence penalty associated with the Petitioners' 1991 income tax. However, the Tax Commission sustains the assessment of additional tax and interest for that year. It is so ordered.

DATED this 1 day of MAY, 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 1 day of MAY, 1997.

BY ORDER OF THE UTAH STATE TAX COMMISSION.

W. Val Oveson Richard B. McKeown

Chairman Commissioner

Joe B. Pacheco Alice Shearer

Commissioner Commissioner