99-0902

INCOME TAX

Signed 6/8/00

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

 

PETITIONER, ) FINDINGS OF FACT,

) CONCLUSIONS OF LAW,

Petitioners ) AND FINAL DECISION

)

v. ) Appeal No. 99-0902

) Account Nos. #####

AUDITING DIVISION OF ) #####

THE UTAH STATE TAX ) Tax Type: Income Tax

COMMISSION, )

) Judge: Phan

Respondent. )

_____________________________________

 

Presiding:

Jane Phan, Administrative Law Judge

 

Appearances:

For Petitioner: REPSRESENTATIVE FOR PETITIONER

PETITIONER

 

For Respondent: Tim Bodily, Assistant Attorney General

Daniel Engh, Manager Income Tax Auditing

 

STATEMENT OF THE CASE

This matter came before the Utah State Tax Commission for a Formal Hearing on June 27, 2000. Based upon the evidence and testimony presented at the hearing, the Tax Commission hereby makes its:

FINDINGS OF FACT

1. Petitioners are appealing the assessment of additional income tax and interest assessed for the tax years 1993 and 1994. No penalties were assessed. The amounts of the assessments under appeal are listed in the Statutory Notices of Audit Change for each tax year at issue.

2. During the years at issue Petitioners were "resident individuals" for the purposes of Utah Code Ann. '59-10-104, so that their "state taxable income" was subject to Utah individual income tax.

3. During the years at issue Petitioners received income from wages and other sources.

4. For the year 1993 Petitioners filed a Utah Individual Income Tax Return on which they reported $$$$$$ in federal adjusted gross income. The Internal Revenue Service audited Petitioner's return and assessed an additional $$$$$$ of federal taxable income.

5. Based on the Internal Revenue Service's audit adjustment, Respondent recalculated Petitioners state taxable income and issued the assessment of addition income tax and interest. The Statutory Notice of Audit Change for the 1993 tax year was issued on September 14, 1999. The audit assessment was determined using federal adjusted gross income of $$$$$$ and determining from that Utah taxable income of $$$$$$.

6. For the year 1994 Petitioners filed a Utah Individual Income Tax Return on which they reported $$$$$$ in federal adjusted gross income. The Internal Revenue Service audited Petitioners' return and assessed an additional $$$$$$ of federal taxable income.

7. Respondent issued the Statutory Notice of Audit Change for the 1994 tax year on September 14, 1999, assessing additional income tax and interest. The audit assessment was based on the Internal Revenue Services' revised federal adjusted gross income.

8. The Commission has accepted as timely filed Petitioners' appeals for the years at issue.

9. Petitioners have filed for each of the years at issue documents tilted Legal Notice of the Determination of NO Federal Income Tax Liability. In these notice Petitioners claim that they are entitled to take a deduction from their gross income an amount which is essentially the amount of their gross income, indicating that they have $$$$$$ taxable income. The result is a claim of no federal taxable income and a request for a refund of the amount of all the taxes that they had paid to Internal Revenue Service and the state of Utah with their original returns.

10 At the Formal Hearing in this matter Petitioners' submitted a document tilted Notice of Specific Negative Averment, in which Petitioners alleged that Respondent lacked standing in this matter.

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 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. Petitioners were Utah residents throughout the tax years at issue and are liable for income tax on their state taxable income. Utah Code Ann. '59-10-104.

2. The wages[1] and other income that Petitioners received during the subject years are included in 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[2] and federal[3] individual income tax. Respondent's assessment is based on the best information it had available as to the taxable income received by Petitioners during the audit years. Petitioners provided no evidence that the amount of income they received from whatever sources during the years at issue was different from the amount determined by the Internal Revenue Service audit. Petitioners have not sustained their burden of proof on this issue. Utah Code Ann. '59-10-543.

3. There is no basis in federal law, the Internal Revenue Code, or case law for the claims made by Petitioners in their Legal Notice of the Determination of No Federal Income Tax Liability or in the Notice of Specific Negative Averment. Respondent has authority to issue the audit assessments at issue and the State Tax Commission has the authority to hear this appeal. The Commission finds that Petitioners distinction between "the state" and "this state" is without merit and not relevant to the appeal at hand. The Commission points out to Petitioners that "state taxable income" is defined statutorily as "federal taxable income" with certain modifications and adjustments and "federal taxable income," for state income tax purposes, is taxable income as defined in Section 63 of the Internal Revenue Code. Utah Code Ann. '59-10-111.

DISCUSSION

The Presented to the Commission in this appeal is whether Respondent has correctly determined Petitioners' Utah individual income tax liability for the years 1993 and 1994. Petitioners argue that they are entitled to deduct from their gross income a reasonable allowance for necessities. The deductions Petitioners make from their gross income are expenses for non-reimbursed household work in lieu of hiring other professions, deductions for shelter and transportation expenses, certain food expenses, rent and utilities . It is the Commission's position that Petitioner's allegations are without merit and have no basis in statute or case law.


DECISION AND ORDER

Based upon the foregoing, the Tax Commission affirms the audit assessment of additional income tax and interest for the tax years 1993 and 1994. It is so ordered.

DATED this __ 8___ day of __June__________, 2000.

 

_____________________

Jane Phan

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 __8___ day of __June__________, 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. Koliboski, 732 F.2d 1328 (7th Cir. 1984). The court stated Athe defendant=s entire case at trial rested on his claim that he in good faith believed that wages are not income for taxation purposes. Whatever his mental state, he, of course, was wrong, as all of us already are aware. Nonetheless, the defendant still insists that no case holds that wages are income. Let us now put that to rest: WAGES ARE INCOME.@

See also Granzow v. C.I.R., 739 F.2d 265, 267 (7th Cir. 1984), AIt is well settled that wages received by taxpayers constitute gross income within the meaning of Section 61 (a) of the Internal Revenue Code . . . and that such gross income is subject to taxation.@

[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).

[3]See also 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.@