95-087
Response December 14, 1995 and February 9,
1996
Request
Chairman
Utah
State Tax Commission
210
North 1950 West
Salt
Lake City, Utah 84134
Re: XXXXX
v. Utah State Tax Commission
Dear
XXXXX:
As a courtesy to you, I am enclosing
a copy of a Complaint filed on behalf of XXXXX against the Tax Commission in
the Third Judicial District Court of Salt Lake County.
The Complaint seeks an adjudication
of an important and pressing issue for XXXXX.
It was filed in response to a Tax Commission Order of XXXXX dismissing,
without discussion or explanation, XXXXX’ XXXXX, Request for Agency Action. Through the Request for Agent Action, XXXXX
sought guidance on the availability of loss carry backs to offset deficiencies
resulting from a formal adjudication of the prior years tax liabilities. Relevant to the inquiry are issues involving
res judicata, statutes of limitation and the procedural steps required to be
taken by a taxpayer.
While we would prefer to deal with
the Tax Commission in briefing and discussing such issues, the Order formally
eliminates that avenue to us. However,
we informally appeal to you to meet with us and discuss the issues raised in
our XXXXX Request for Agency Action. We
are certainly prepared to seek a stay or continuance from the district Court if
the Tax Commission is willing to consider our issues. On the other hand, if such discussions are deemed to be imprudent
by the Tax Commission, the we will seek to have those issues addressed as
provided in our Complaint.
I would be happy to meet with you or
discuss by phone our perceived dilemma at your convenience, if you are so
inclined.
Very
truly yours,
XXXXX
XXXXX
RE: Advisory
Opinion on behalf of XXXXX on loss carry backs to offset deficiencies in prior
tax years.
Dear
XXXXX,
You asked the Commission for
guidance as to whether XXXXX’ may carry back losses from the tax years XXXXX
through XXXXX to offset deficiencies in tax years XXXXX through XXXXX. You raised this question in response to our
order dismissing your client’s objections to the XXXXX deficiency assessment. However, the carry back issue is independent
of that appeal, and we are treating your question as a separate request for an
advisory opinion.
XXXXX timely filed returns for all
tax years in question. Its original
returns for XXXXX through XXXXX showed income in XXXXX and losses in XXXXX and
XXXXX. XXXXX field timely claims to
carry back the XXXXX and XXXXX losses to offset XXXXX income and to claim a
refund of taxes paid. A subsequent
audit of tax years XXXXX through XXXXX changed XXXXX’ tax position for XXXXX and
XXXXX from loss positions to income positions.
This audit created the opportunity for XXXXX to carry back losses from
XXXXX through XXXXX.
During the course of the XXXXX
through XXXXX audit, XXXXX communicated with the Auditing Division regarding
the carry back losses from XXXXX to XXXXX to offset income proposed by the
audit. In the course of those
discussions, XXXXX timely submitted claims to carry back XXXXX and XXXXX losses
to offset the XXXXX, XXXXX and XXXXX deficiencies. The claims were transmitted by facsimile on XXXXX, prior to the
issuance of the statutory notice of deficiency.
Upon receipt of the statutory notice
of deficiency, XXXXX petitioned the Tax Commission for redeterminations. XXXXX’ petition was later dismissed by order
issued XXXXX and the deficiency assessment became final on that date. XXXXX has not yet paid the deficiencies
determined by the audit.
Upon the facts described here, XXXXX
may carry back losses from tax years XXXXX through XXXXX to offset income for
tax years XXXXX through XXXXX. The
Commission is aware that the Auditing Division has scheduled an audit in XXXXX
to examine tax years XXXXX through XXXXX.
As part of the audit, the Auditing Division will allow for the
appropriate carry back. In the
meantime, XXXXX must pay the deficiencies, including interest, assessed against
it for tax year XXXXX through XXXXX.
Upon conclusion of the upcoming audit, the Commission will issue refunds
to the extent that losses are carried back to offset taxes paid.
If we can answer any other questions
on this or other matters, please let us know.
For
the Commission,
Alice
Shearer
Commissioner
Alice Shearer, Commissioner
Utah State Tax Commission
210 North 1950 West
Salt Lake City, Utah 84134
Re: XXXXX Corporation - Advisory Opinion dated
XXXXX
Dear Commissioner Shearer:
By
letter dated XXXXX, (but not postmarked and mailed until XXXXX) you provided to
XXXXX (XXXXX) an “Advisory Opinion on behalf of XXXXX-- Limitations on Loss
Carry backs to Offset Deficiencies in Prior Tax Years” (Advisory Opinion). XXXXX would like to thank you for the
Advisory Opinion and the guidance and clarification it provides.
XXXXX
is pleased with your determination that its XXXXX losses are available to be
carried back to offset the final deficiency assessments for XXXXX, XXXXX and
XXXXX. However, XXXXX is disappointed
that the loss carry backs will not be honored during the pendency of the
examination and (possible adjudication) of tax years XXXXX. XXXXX believes the requirement to pay the
deficiency assessment for tax years XXXXX, XXXXX and XXXXX without the benefit
of its existing loss carry backs is tantamount to a denial of its carry back
rights, and as applied against XXXXX, is unlawful, unfair and discriminatory.
First,
for the years in question, Utah Code Ann. 59-7-108(14) (1990) provides that
losses must be carried back three years.
The provision is mandatory and no discretion appears to be granted
either to the Tax Commission or the taxpayer in the application of the
provision. The Advisory Opinion’s
denial of the use of the loss carry backs by XXXXX appears to be a violation of
this statute.
Second,
XXXXX is unable to find any authority, statutory, or regulatory, which provides
for the treatment specified in the Advisory Opinion. Further, XXXXX is unaware of any statute or regulation which
grants the Tax Commission discretion to not follow the statutory provisions
related to carry backs.
Third,
XXXXX believes that the proper treatment is to apply the loss carry backs from XXXXX,
XXXXX against the deficiency assessments for XXXXX, XXXXX and XXXXX as the
statute requires. Of course, the years
XXXXX are subject to audit and possible adjustments as a results of the audit. However, the completion of the proposed
audit and the time required to adjudicate any adverse determinations may take
years. It took nearly three years to
get a final adjudication from the prior audit cycle. It is unfair for XXXXX to be denied its carry back claims for
such lengthy periods of time.
Fourth,
the Advisory Opinion states: “the carry back issue is independent of that
appeal, and we are treating your question as a separate request.” If the loss carry backs are independent of
the audit and appeal for the years to which such relate, they must certainly be
independent of years yet to be examined.
The claims should be independently treated.
Fifth,
normally if a taxpayer files a claim for refund, the claim is honored and
processed, subject to the Auditing Division’s later examination rights. The procedure prescribed in the Advisory
Opinion treats XXXXX differently and discriminatorily from this norm. XXXXX requests the Tax Commission allow the
loss carry backs to be processed to offset all or such portion of the
deficiency assessments for XXXXX, XXXXX and XXXXX as the reported losses will
property allow. When the audit for tax
years XXXXX has finally been completed and any disagreements adjudicated, the
appropriated adjustments, if any, can be made.
We
request the opportunity to discuss this matter further to see if some
reasonable accommodation can be made.
If such is not possible, we must consider our option to proceed with the
adjudication of the loss carry back issues in the action filed in the Third
Judicial Court. Inasmuch as service of process
for that action must occur by the end of February, we will call you within the
next few days to follow up on our request.
Very
truly yours,
XXXXX
XXXXX
Re: XXXXX Corporation
Dear XXXXX:
This
letter will confirm our telephone conversation of XXXXX. During that conversation, we discussed your
XXXXX letter to Commissioner Shearer and your XXXXX discussion with XXXXX of
the Auditing Division.
As
I mentioned on the telephone, the Auditing Division contacted XXXXX of the
Collections Division last June to discuss your concerns regarding the payment
of the full XXXXX - XXXXX deficiency prior to a determination of the proper
amount of loss carry back from later years.
At that time, the Auditing Division had calculated the amount of
interest which XXXXX would owe even it its tax liability for the earlier years
was completely offset by losses from the later years. The interest which would still be owed totaled approximately
$$$$$. The Auditing Division asked
XXXXX whether the Collections Division would be willing to accept payments
totaling $$$$$ during the first year of a repayment arrangement. XXXXX had suggested to the Auditing Division
that such an arrangement would be acceptable.
As we
discussed this on the telephone, you expressed optimism that XXXXX would be
willing to make payments totaling $$$$$ during the next twelve months, thus
allowing time for the Auditing Division to complete its audit of the XXXXX loss
years. It is my understanding that the
Auditing Division will be conducting the audit of the later years in XXXXX.
You
also advised me that you had recently spoken with XXXXX and that he had
referred you to XXXXX as the collection agent who would be working on this
case. XXXXX has also worked with XXXXX
in connection with the payment arrangements we negotiated in the XXXXX case,
Appeal No. XXXXX. It is my
understanding that you will likely contact XXXXX to make satisfactory payment arrangements
after reviewing this matter with your client.
I
am hopeful that within the next twelve months, XXXXX and the Auditing Division
will resolve the XXXXX audit years, or at least be far enough along in the
process to determine the impact of loss carry backs to the earlier years. Given the payment arrangement which is in
place for the XXXXX deficiency, and the willingness of the Collections Division
to work with your client in setting up payment arrangements in this case as
described above, I am optimistic that satisfactory arrangements for payment of
the XXXXX-XXXXX deficiency can be made.
Please
feel free to call me if you have any questions regarding this matter, or if I
can be of any assistance in facilitating your discussions with the Collections
Division.
Sincerely,
XXXXX