97-0698

INCOME

Signed 9/3/97

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

PETITIONER, )

:

Petitioners, ) DECISION

:

v. )

:

AUDITING DIVISION OF THE ) Appeal No. 97-0698

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 June 18, 1997. Gail S. Reich, Administrative Law Judge, heard the matter for and on behalf of the Commission. Present and representing Petitioners by telephone was PETITIONER. Present and representing Respondent were Dan Engh and Frank Hales, of the Auditing Division.

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

FINDINGS

This appeal involves the 1995 income tax year. This matter involves additional tax of $$$$$ accruing as a result of a disallowance of a retirement deduction which the Division asserts did not qualify for the state retirement deduction. No penalty was imposed and approximately $$$$$ in interest has accrued. Petitioner asserts it is retirement income and not disability income and should be subject to the deduction.

According to the federal returns, payments received are taxed as wages until reaching minimum retirement age. Minimum retirement age generally is the age at which one can first receive a pension or annuity if not disabled. The Petitioner was 61 in 1995. Petitioner=s 1099 form indicates a distribution code for the income as Adisability@ The form 1099 could have indicated Anormal distribution@, but instead indicated income due to Adisability@. Tax Commission rule 865-9I-38(A) indicates that the deduction is not available if the amounts received are not deemed retirement income if due to termination of employment before reaching normal retirement age. The designation of disability distribution as opposed to normal distribution indicates that the Petitioner has not reached normal retirement age and therefore is not eligible for the deduction according to the rule.

APPLICABLE LAW

Utah Code Annotated '59-10-114(2)(d) provides:

Amounts received by taxpayers under the age 65

as retirement income which, for purposes of this

section, means pensions and annuities, paid from

an annuity contract purchased by an employer

under a plan which meets the requirements of

'404(a)(2), Internal Revenue Code, or purchased

by an employee under a plan which meets the

requirements of '408, Internal Revenue Code,

or paid by the United States, a state, or

political subdivision thereof, or the District

of Columbia, to the employee involved or the

surviving spouse.

Utah Code Annotated '59-10-114(3)(a) provides in pertinent part:

For purposes of Subsection (2)(d), the amount

of retirement income subtracted for taxpayers

under 65 shall be the lesser of the amount

included in federal taxable income, or $4,800...

Tax Commission Rule R865-91-38(A) provides in pertinent part:

Amounts received by taxpayers from pension or

annuity plans described in Utah Code Annotated

'59-10-114 are not retirement income for purposes

of that section if...3) The amounts received

are due to termination of employment before reaching

a normal retirement age as established under the

qualifying plan. (emphasis added)

DECISION AND ORDER

Based upon the foregoing, it is hereby determined that the disability income was income due to termination before reaching a Anormal retirement age@ and therefore not subject to the deduction. The Tax Commission finds the additional tax and interest were properly assessed in this matter. It is so ordered.

DATED this 3 day of SEPTEMBER, 1997.

BY ORDER OF THE UTAH STATE TAX COMMISSION.

GAIL S. REICH

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

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