99-0793

INCOME TAX

Signed 8/15/00

 

 

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

 

PETITIONER, ) FINDINGS OF FACT,

) CONCLUSIONS OF LAW,

Petitioner, ) AND FINAL DECISION

)

v. ) Appeal No. 99-0793

) Account No. #####

AUDITING DIVISION OF )

THE UTAH STATE TAX ) Tax Type: Income Tax

COMMISSION, )

) Judge: Phan

Respondent. )

_____________________________________

 

Presiding:

Jane Phan, Administrative Law Judge

 

Appearances:

For Petitioner: REPRESENTATIVE FOR PETITIONER

PETITIONER

For Respondent: Gale K. Francis, Assistant Attorney General

 

 

STATEMENT OF THE CASE

This matter came before the Utah State Tax Commission for a Formal Hearing on June 13, 2000. Based upon the evidence and testimony presented at the hearing, the Tax Commission hereby makes its:

FINDINGS OF FACT

1. Petitioner is appealing the assessment of additional income tax, penalty and interest assessed for the tax year 1988. The penalty assessed is a $$$$$ penalty pursuant to Utah Code Ann. '59-1-401(7).

2. During the tax year 1988 Petitioner was a "resident individual" for the purposes of Utah Code Ann. '59-10-104, so that his "state taxable income" was subject to Utah individual income tax.

3. During 1988 Petitioner was a licensed chiropractor. He received compensation for his chiropractic services. From the original and amended state and federal returns filed by Petitioner the Commission makes a finding that the amount of federal taxable income earned by Petitioner in 1988 was $$$$$.

4. For the year 1988 Petitioner originally filed a Utah Individual Income Tax Return on which he reported $$$$$ in federal adjusted gross income. The return was apparently filed in April 1989. Later, in 1999, Petitioner filed an amended 1988 Utah Individual Income Tax Return on which he reported $$$$$ in federal adjusted gross income. Petitioner attached to the amended Utah return an amended, and unsigned, 1988 U. S. Individual Income Tax Return on which he listed $$$$$ as business income and $$$$$ as taxable refunds and then made a deduction of $$$$$ as "nontaxable income." Petitioner had attached a Nontaxable Income Schedule 1988 1040X to his federal return which listed his gross income and then claimed that $$$$$ was "nontaxable."

5. Respondent issued the Statutory Notice of Audit Change for the 1988 tax year on September 2, 1999, assessing additional income tax in the amount of $$$$$ as well as interest of $$$$$ and a penalty of $$$$$.

6. The Tax Commission has treated Petitioner's Request for Reconsideration as a timely filed appeal for the 1988 tax year. Petitioner also requested that he again be allowed to appeal the tax assessments for the tax years 1991, 1992, 1993 and 1994. Respondent filed a Motion to Dismiss the Petitioner's appeal as to the tax years 1991 through 1994 on the grounds that those years had been the subject of a prior appeal before the Tax Commission for which the Tax Commission issued its final decision on April 15, 1997. An Interim Order Granting Motion To Dismiss was issued on March 28, 2000, dismissing Petitioner's appeal as to the years 1991 through 1994.

7. The filing of individual income tax returns such as the amended return filed by Petitioner for the 1988 tax year requires review by the Processing Division of the Tax Commission so that they do not issue a refund based on the erroneous return was well as additional attention from the Auditing Division. The Auditing Division is required to perform an audit to correct the return to reflect the true amount of state taxable income and state tax liability. Additional time is spent by Tax Commission employees to provide the administrative appeal process. The amount of state taxable income claimed on Petitioner's amended 1988 Utah Individual Income Tax Return was substantially incorrect. The correct amount of state taxable income was available from the information contained on the original 1988 state income tax return and the amended federal income tax return. 8. A refund was paid to Petitioner based on the erroneous return. In addition to the time spent in processing the return, auditing the return and providing administrative appeals, Tax Commission employees may spend additional time collecting for the state of Utah the refund issued based on the erroneous income tax return. Petitioner had filed his amended 1988 return after the Tax Commission had issued its final decision on his appeal for the 1991 through 1994 tax years. In the Tax Commission's final decision for those years, issued on March 4, 1997, the Tax Commission stated that it found Petitioner's claims were "without merit."

APPLICABLE LAW

The state of Utah imposes income tax on individuals who are residents of the state, in Utah Code Ann. '59-10-104 as follows:

...a tax is imposed on the state taxable income, as defined in Section 59-10-112, of every resident individual...

 

State taxable income is defined in Utah Code Ann.'59-10-112 as follows:

"State taxable income" in the case of a resident individual means his federal taxable income (as defined by Section 59-10-111) with the modifications, subtractions, and adjustments provided in Section 59-10-114 . . .

 

Federal taxable income is defined in Utah Code Ann. '59-10-111 as follows:

"Federal taxable income" means taxable income as currently defined in Section 63, Internal Revenue Code of 1986.

Taxable income is defined in the Internal Revenue Code at 26 U.S.C. 63 as:

Except as provided in subsection (b), for purposes of this subtitle, the term Ataxable income@ means gross income minus the deductions allowed by this chapter (other than the standard deduction).

 

Gross income is defined in the Internal Revenue Code at 26 U.S.C. 61(a) as:

Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items: (1) Compensation for services, including fees, commissions, fringe benefits, and similar items; ...

 

The Utah Legislature has determined that a $500 penalty is necessary in the following

circumstances as set out in Utah Code Ann. '59-1-401(7):

If any taxpayer, in furtherance of a frivolous position, has a prima facie intent to delay or impede administration of the tax law and files a purported return that fails to contain information from which the correctness of reported tax liability can be determined or that clearly indicates that the tax liability shown must be substantially incorrect, the penalty is $500.

 

The Utah Legislature has specifically provided that the taxpayer bear the burden of proof in proceedings before the Tax Commission. Utah Code Ann. '59-10-543 provides the following:

In any proceeding before the commission under this chapter, the burden of proof shall be upon the petitioner except for the following issues, as to which the burden of proof shall be upon the commission:

(1) whether the petitioner has been guilty of fraud with intent to evade tax;

(2) whether the petitioner is liable as the transferee of property of a taxpayer, but not to show that the taxpayer was liable for the tax; and

(3)whether the petitioner is liable for any increase in a deficiency where such increase is asserted initially after a notice of deficiency was mailed . . .

 

CONCLUSIONS OF LAW

1. Petitioner was a Utah resident throughout the tax year at issue and is liable for income tax on his state taxable income. Utah Code Ann. '59-10-104.

2. The weight of the evidence indicates that Petitioner's 1988 federal adjusted gross income was $$$$$. This income becomes the base for calculating Petitioner's state taxable income. Utah Code Ann.'59-10-112; Utah Code Ann. '59-10-111; 26 U.S.C. 63; 26 U.S.C. 61(a). The statutes and case law clearly support state and federal[1] individual income tax.

3. Petitioner's state taxable income is based on his "federal taxable income" with certain modifications and adjustments. Utah Code Ann. '59-10-112. "Federal taxable income," for Utah state income tax purposes, is taxable income as defined in Section 63 of the Internal Revenue Code. Utah Code Ann.'59-10-111. The Utah State Tax Commission can issue its assessment whether or not the Internal Revenue Service has made an assessment of federal income tax for the year at issue.[2] 4. The audit assessment of additional tax and interest based on Petitioner's corrected taxable income is appropriate and is based on the statutory definition of state taxable income. Utah Code Ann.'59-10-112; Utah Code Ann. '59-10-111; 26 U.S.C. 63; 26 U.S.C. 61(a).


5. After filing the original 1988 Utah individual income tax return which apparently followed Utah individual income tax law, in furtherance of frivolous positions, Petitioner filed a clearly erroneous amended Utah return, claiming a refund for which he was not entitled. A refund was issued for 1988 based on the erroneous return. Petitioner's action was intentional. He ignored common knowledge and his past experience of filing and paying Utah income tax. He ignored a decision from the Utah State Tax Commission pertaining to his taxes for the years 1991 through 1994. He followed a novel theory that has no support in either case law or the statutes. His actions impeded the administration of the tax laws. For these reasons the $$$$$ penalty assessed pursuant to Utah Code Ann. '59-1-401(7) is appropriate.

DISCUSSION

The two issues presented to the Commission are whether Respondent has correctly made a determination of Petitioner's Utah individual income tax liabity for the tax year 1988 and whether the $$$$$ penalty assessement was appropriate.

As for the first issue, whether Respondent correctly determined Petitioner's Utah individual income tax liablity, Respondent denied the "nontaxable income deduction," made by Petitioner on his federal income tax return. After hearing Petitioner's arguments and the theories, the Commission finds Petitioner's "nontaxable income" deduction to be without merit. The Commission finds that there is no basis in law for the deduction, therefore Respondent's denial was proper. Utah Code Ann. '59-10-112 defines "state taxable income" for resident individuals as "federal taxable income" (as defined in Utah Code Ann. '59-10-111) with the modifications, subtractions, and adjustments provided in Utah Code Ann. '59-10-114. Utah Code Ann. '59-10-111 defines "federal taxable income" as "taxable income as currently defined in Section 63, Internal Revenue Code of 1986."


In considering the second issue, Petitioner's erroneous and frivolous return impeded the administration of the tax laws. Returns of this type are difficult to catch, it was not discovered until after a refund has been issued erroneously. When a frivoulus return has been filed it takes additional time on the part of the Tax Commission to obtain the information and make an appropriate audit assessment, provide the adminstrative hearing process, and collect the tax and refund issued based on the errouneous return. In addition Petitioner already had an order from the Tax Commission for years outside the audit period at issue which indicated that the Commission found Petitioner's position to be without merit.

DECISION AND ORDER

Based upon the foregoing, the Tax Commission affirms the audit assessment of additional income tax, $$$$$ penalty and interest for the 1988 tax year. In addition the Commission formally dismisses Petitioner's appeal for the tax years 1991 through 1994 based on the reasoning set out in the Interim Order Granting Motion to Dismiss dated March 28, 2000. It is so ordered.

DATED this __15___ day of ___August______, 2000.

 

_____________________

Jane Phan

Administrative Law Judge

 

The Commission has reviewed this case and the undersigned concur in this decision.

DATED this __15___ day of __August _____, 2000.

 

Pam Hendrickson R. Bruce Johnson

Commission Chair Commissioner

 

Palmer DePaulis Marc B. Johnson

Commissioner Commissioner

 

 

 

 

 

Notice of Appeal Rights: You have twenty (20) days after the date of this order to file a Request for Reconsideration with the Tax Commission Appeals Unit pursuant to Utah Code Ann. '63-46b-13. A Request for Reconsideration must allege newly discovered evidence or a mistake of law or fact. If you do not file a Request for Reconsideration with the Commission, this order constitutes final agency action. You have thirty (30) days after the date of this order to pursue judicial review of this order in accordance with Utah Code Ann. ''59-1-601 and 63-46b-13 et. seq.

 

 

 

 

 

 


[1]See United States v. Mann, 884 F.2d 532 (10th Cir. 1989). In that case, Mann offered many theories as to why he was not required to file income tax returns. The court stated, AHis many theories include the asserted beliefs that 1) the United States Supreme Court has declared that the sixteenth amendment applies only to corporations, 2) the Internal Revenue Service (IRS) has no jurisdiction over him, 3) he is not a Aperson@ within the meaning of 26 I.R.C. '7203, 4 ) wages are not income, 5) federal reserve notes are not legal tender, and 6) the income tax is voluntary.@ The court in Mann responded to these assertions as follows, AThe government=s expert on tax law, Mr. Chancellor, testified that the representation . . . that the sixteenth amendment applies only to corporations - is untrue. . . We agree and add that each of the views offered by Mann, whether found in his published materials or articulated additionally at trial, falls somewhere on a continuum between untrue and absurd.@

[2]See the Utah Supreme Court decisions in Nelson v. Auditing Div., 903 P.2d 939 (Utah 1995) and Jensen v. State Tax Commission, 835 P.2d 965(Utah 1992).