99-1039

Income Tax

Signed 6/7/01

BEFORE THE UTAH STATE TAX COMMISSION

____________________________________

PETITIONERS, ) FINDINGS OF FACT,

) CONCLUSIONS OF LAW,

Petitioners, ) AND FINAL DECISION

)

v. ) Appeal No. 99-1039

) Parcel No. #####

AUDITING DIVISION OF )

THE UTAH STATE TAX ) Tax Type: Income Tax

COMMISSION, )

) Judge: Davis

Respondent. )

_____________________________________

Presiding:

G. Blaine Davis, Administrative Law Judge

Marc B. Johnson, Commissioner

Appearances:

For Petitioner: PETITIONER REP

PETITIONER

PETITIONER REP 2

For Respondent: Mr. Tim Bodily, Assistant Attorney General

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 February 13, 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 in question are 1991, 1992, 1993, 1994, 1995, 1996 and 1997.

3. Respondent received copies of assessments made against Petitioner by the Internal Revenue Service for each of the years in question.

4. Based upon the information received from the Internal Revenue Service, Respondent made audit assessments for the State of Utah against Petitioners for each of the years in question.

5. Following the assessments made against Petitioners, they filed what were entitled "Amended Returns", but there was no prior return for most of the periods for which an amendment would be appropriate.

6. On the so-called "Amended Returns", they simply backed out each of the adjustments made by the Internal Revenue Service, without a reasonable explanation. Based upon these amended returns, Respondent has imposed a frivolous position penalty of $500 for each year pursuant to the provisions of Utah Code Ann. '59-1-401(7). The penalty was imposed because Respondent found the amended tax returns to be frivolous, and because it requested a refund of the taxes paid which were, in the opinion of Respondent, not appropriate and were a frivolous claim for a refund.

7. At the hearing, Petitioner did not present any evidence or law to support the positions taken by him in the "amended" tax returns which he filed, or in the Petition for Redetermination filed in this proceeding. He did make legal arguments that there was no valid assessment, but his legal arguments were frivolous and without merit. Among them, was an argument that by exchanging information with the Internal Revenue Service, the State Tax Commission was exchanging information with a foreign government, namely, Puerto Rico. There was no other substantive position taken by Petitioner.

8. Respondent introduced substantial information to demonstrate that Petitioners had the income set forth in the assessments made by them, confirming that Petitioners were residents of the State of Utah, and had the income set forth in the assessments.

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. Petitioners failed to meet that burden of proof.

4. Petitioners, in furtherance of a frivolous position, 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.

DECISION AND ORDER

Based upon the foregoing, the Tax Commission finds that Petitioners were domiciled in the State of Utah, were required to file a return including all of their wages and compensation for their personal services, and they filed returns which took frivolous positions with intent to delay or impede the administration of the tax laws. The audit determination made by Respondent is therefore affirmed. The Petition for Redetermination filed by Petitioners is hereby denied. It is so ordered.

DATED this 7^th 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 7^th day of June, 2001.

Pam Hendrickson R. Bruce Johnson

Commission Chair Commissioner

Palmer DePaulis Marc B. Johnson

Commissioner Commissioner