99-0811
Income Tax
Signed 6/1/01
BEFORE THE UTAH STATE TAX
COMMISSION
____________________________________
PETITIONERS, ) FINDINGS
OF FACT,
) CONCLUSIONS OF LAW,
Petitioners, ) AND FINAL DECISION
)
v. ) Appeal No. 99-0811
) Account No. #####
AUDITING DIVISION OF )
THE UTAH STATE TAX ) Tax Type:
Income Tax
COMMISSION, )
) Judge: Davis
Respondent. )
_____________________________________
Presiding:
G. Blaine Davis,
Administrative Law Judge
Appearances:
For Petitioner: PETITIONER REP
For Respondent: Mr. Laron Lind, Assistant Attorney General
Ms. Becky McKenzie, from the Auditing
Division
Mr. Brent Taylor, from the Auditing
Division
STATEMENT OF
THE CASE
This matter came before the Utah State Tax
Commission for a Formal Hearing on May 15, 2001. Based upon the evidence and testimony presented at the hearing,
the Tax Commission hereby makes its:
FINDINGS
OF FACT
1. The
tax in question is income tax.
2. The
years or periods in question are calendar years 1993, 1994, 1995, 1996 and
1997.
3. Petitioner
originally attempted to raise issues with respect to tax years 1981, 1982, and
1984 through 1992, in addition to the years set forth above. However, on or about January 28, 2000, an
Order was issued granting the Motion to Dismiss for all years prior to 1993 on
the basis that a timely Petition for Redetermination had not been filed. Therefore, the only years at issue are 1993
through 1997.
4. For
the years still at issue in this proceeding, Respondent issued Statutory
Notices of Audit Change for each year increasing the federal adjusted gross
income for 1993 from zero to $$$$$, for 1994 from zero to $$$$$, for 1995 from
zero to $$$$$, for 1996 from zero to $$$$$, and for 1997 from zero to
$$$$$. Petitioner timely filed a
Petition for Redetermination for these years.
5. The
primary reason for changing the federal adjusted gross income was because of
changes made by the Internal Revenue Service and disallowing personal living
deductions which Petitioners had used to reduce their adjusted gross income to
zero.
6. At
the hearing, Petitioners were not personally present and did not give any
personal testimony. The positions taken
by the Representative of Petitioners were substantially to attack the process
used by Respondent in making the assessment and alleging that it violates the
procedural requirements of federal and state law.
7. The
substance of the arguments of the Representative of Petitioners is as follows:
a.
Respondent
"is fictitious and not a creature under constitution or legislative
enactment."
b.
Respondent
"lacks capacity to sue or be sued."
c.
The
action brought by Respondent named the wrong persons because it used all
capital letters in their names, and the fiction of using all capital letters
was created only for social security purposes.
d.
Respondent
is not the real party in interest.
e.
Using
full or all capitals in names is an artifice and is false and collusive, and
alleges a fictitious person.
8.
The Representative of Petitioners read into the record a document
entitled "Notice by Specific Negative Averment.
9.
The Representative of Petitioners did not deny that the Petitioners were
domiciled in the State of Utah for the years at issue, nor did such
Representative deny that the Petitioners received the income on which income
tax has been assessed by Respondent.
10.
The Representative of Petitioners did not allege that taxes had been
paid on any such income.
11.
The Representative of Petitioners did not present any evidence that the
deductions, which had been taken to reduce the income to zero, were allowable
deductions on either the federal or the state income tax return of Petitioners.
12.
Respondent assessed a $500 penalty for each year at issue pursuant to
the provisions of Utah Code Ann. §59-1-401(7).
Ms. McKenzie testified on behalf of Respondent, that all of the returns
required special processing, that the claims made were frivolous and had a
prima facie intent to delay or impede the administration of the tax law, and
that the returns clearly indicate that the tax liability shown must be
substantially incorrect. The Commission
hereby finds that such returns were frivolous and that the tax liability shown
thereon is substantially incorrect.
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)...
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 23 USC 63 as:
Except as provided in subsection (b), for
purposes of this subtitle, the term "taxable 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 23 USC 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
requirement to file a federal income tax return is established by IRC
§6012. Utah Code Ann. §59-10-502,
provides in relevant part:
An income tax return with respect to the tax
imposed by this chapter shall be filed by:
(1) Every resident individuals,
estate, or trust required to file a federal income tax return for the taxable
year; . . .
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.
CONCLUSIONS
OF LAW
1. Petitioners were
domiciled in the State of Utah for the years at issue.
2. Petitioners’ income
during all of the years at issue was subject to income tax within the State of
Utah.
3. The burden of proof is
upon the Petitioners (Utah Code Ann. §59-10-543). Petitioners’ burden of proof specifically applies to Petitioners
responsibility to establish that the audit assessment made by Respondent is not
correct, and to further establish that the income, which has been taxed in this
proceeding, is not subject to income tax pursuant to Utah State law.
4. Petitioners, in furtherance
of a frivolous positions, had the intent to delay or impede the administration
of the tax law and filed a purported return that failed to contain information
from which the correctness of the reported tax liability could be determined,
and it clearly indicated that the tax liability shown must be substantially
incorrect.
In this proceeding, the Representative for
Petitioners has made several arguments as to why the income tax imposed upon
Petitioners by Respondent was incorrect and violates law. There is no merit to any of the arguments
made by Petitioners’ Representative, and in fact the arguments are frivolous
and made only for the purpose of impeding the administration of the tax laws,
and are on their face without any merit.
This case is somewhat similar to Crain v.
Commissioner, 737 F.2d 1417, (5th Cir. 1984). In that case, the Fifth Circuit Court of
Appeals stated:
"We are sensitive
to the need for the courts to remain open to all who seek in good faith to
invoke the protection of law. An appeal
that lacks merit is not always--or often--frivolous. However we are not obliged to suffer in silence the filing of
baseless, insupportable appeals presenting no colorable claims of error and
designed only to delay, obstruct, or incapacitate the operations of the courts
or any other governmental authority.
Crain's present appeal is of this sort.
It is a hodgepodge of unsupported assertions, irrelevant platitudes, and
legalistic gibberish. The government
should not have been put to the trouble of responding to such spurious
arguments, nor this court to the trouble of adjudicating this meritless
appeal."
In that case, the court not only ruled
against the taxpayer, but imposed a damage award against him in an amount of
$2,000 for bringing a frivolous appeal.
The above statement from the Crain
case applies to this proceeding.
DECISION
AND ORDER
Based upon the foregoing, the Tax Commission
finds that there is no merit to any of the positions taken by Petitioners. Therefore, the audit assessment is hereby
sustained, and the Petition for Redetermination is hereby denied. The penalty for frivolous returns imposed by
Utah Code Ann. §59-1-401(7) is sustained.
It is so ordered.
DATED this 1st
day of June, 2001.
__________________________________
G. Blaine Davis
Administrative Law Judge
BY ORDER OF THE UTAH
STATE TAX COMMISSION:
The Commission has reviewed this case and the
undersigned concur in this decision.
DATED this 1st
day of June, 2001.
Pam Hendrickson R.
Bruce Johnson
Commission Chair Commissioner
Palmer DePaulis Marc
B. Johnson
Commissioner Commissioner