95-080
Response
November 14, 1995
Request
XXXXX
RE:
Advisory Opinion - Income tax filing extensions and penalties
Dear
XXXXX
XXXXX,
the Executive Director, asked us to prepare an advisory opinion to settle the issues
that you have raised regarding filing extensions and penalties. We find as follows:
1.
Your primary issue involves prepayment.
You argue that the Income Tax Act grants an automatic extension for
every taxpayer who fails to file a timely return. We interpret the Income Tax Act to require a prepayment of some
sort as a prerequisite to an extension for filing. To arrive at that conclusion, we turn first to section 59-1-401
of the Utah Code.
Section
59-1-401 discusses various penalty schemes related to filing returns or paying
taxes due. Subsection (1)(a) sets out a penalty for failure to file a return,
but subsection (4)(a) sets out a separate penalty scheme which applies “[i]n
case of an extension of time to file ....”
If the penalties under subsection (4)(a) apply only “in case of an
extension,” one must assume that there are cases in which there are no
extensions. Therefore, the Commission
construes the language of subsection (4)(a) to mean that some, but not all
cases of late filings involve an extension of time to file.
If
extensions apply in some, but not all cases, something must trigger the
extension. That trigger is set out in section 59-10-516 (1)(b) which states
that “[t]he payment accompanying the extension request” must equal at least 90%
of the total tax reported or 100% of the previous year's tax to avoid the 2%
per month extension penalty. This
statute doesn't not say “if a payment accompanies the request ...” or “a
payment may accompany the request ....”
It mandates that a payment must accompany the extension request. If the legislature intended payment to be
optional, it would have crafted the language of the statute to indicate such.
Although
the Commission does not hold the taxpayer to the requirement of filing an
extension request, we continue to interpret sections 59-1-401 (4)(a) and
59-10-516 to say that an extension will be granted only if the taxpayer makes a
prepayment of tax by the original due date of the return. Prepayment may be in the form of income tax
withheld, credits carried forward from the prior year, or a direct payment
accompanying an extension request. If
the prepayment is less than 90% of the total tax due or 100% of the previous
year's tax, the taxpayer is subject to a 2% per month penalty over the six month
term of the extension.
2. If the taxpayer makes a prepayment and
secures an extension, but fails to file a return within the extension period,
the taxpayer is subject to a failure to file penalty. Under section 59-1-401,
the failure to file penalty is the greater of $20 or 10% of the unpaid tax due,
and it is assessed in lieu of the 2% per month extension penalty.
3. If the taxpayer makes a prepayment and
secures an extension, but fails to pay the taxes when due, section
59-1-401(2)(b) imposes a failure to pay penalty of the greater of $20 or 10% of
the unpaid tax. This penalty is
assessed in lieu of the 2% per month extension penalty, but it applies in
addition to the failure to file penalty, if applicable.
4. If the taxpayer makes no prepayment, no
extension is granted. The taxpayer is
automatically subject to a failure to file penalty under section
59-1-401(1)(a). If the taxpayer also
fails to timely pay the tax, the taxpayer is subject to an additional failure
to pay penalty under section 59-1-401(2)(b).
If
this opinion has not satisfactorily resolved your concerns, we will be happy to
discuss it further. If you feel you
cannot agree with our interpretation of the law, we are happy to work with you
to ask the legislature to clarify the statutory language.
For
the Commission,
W.
Val Oveson Roger O.
Tew
Chairman Commissioner
Joe
B. Pacheco Alice
Shearer
Commissioner Commissioner