Khan v. Tax Comm'n

• Decision Date: 08 July 2016
• Docket Number: No. 20140583–CA,20140583–CA
• Parties: Nasrulla Khan, Petitioner, v. Tax Commission, Respondent.
• Court: Utah Court of Appeals

377 P.3d 702

2016 UT App 142

Nasrulla Khan, Petitioner

v.Tax Commission, Respondent.

No. 20140583–CA

Court of Appeals of Utah.

Filed July 8, 2016

Nasrulla Khan, Petitioner Pro Se

Sean D. Reyes and Brent A. Burnett, Attorneys for Respondent

Judge Kate A. Toomey authored this Memorandum Decision, in which Judge Stephen L. Roth and Senior Judge Pamela T. Greenwood concurred.¹

Memorandum Decision

TOOMEY

, Judge:

¶1 Petitioner Nasrulla Khan disputes the Utah State Tax Commission's determination of his 2011 renter's refund. Although we disagree with the Commission's calculation in this case, we ultimately agree with its conclusion that Khan is entitled to a refund of $106. We therefore decline to disturb the Commission's determination.

BACKGROUND

¶2 In December 2011, Khan applied for a renter's refund.² Renter's refunds are determined by an applicant's household income. See Utah Code Ann. § 59–2–1209

(LexisNexis Supp. 2010). According to the Renter Refund Schedule included in the application, if an applicant's household income is between $0 and $9,931 the applicant qualifies for an $865 refund. But if the applicant's household income is between $26,289 and $29,210 the schedule allows for a $106 refund.³

¶3 Based on the information Khan reported on his 2010 federal individual income tax return, he had an adjusted gross income (AGI) of $10,619: the sum of $12 in interest, the taxable portion of an Individual Retirement Account (IRA) distribution of $9,371, $4,236 in pensions and annuities, and a capital loss deduction of $3,000. Not included in his AGI—but reported on his tax return—was $13,842 in Social Security benefits and the nontaxable portion of his traditional IRA distribution of $1,290. He also indicated on a Capital Gains and Losses Schedule D worksheet attached to his tax forms that he had $98,086 in capital losses carried forward from previous years.

¶4 On Khan's renter's refund application, he reported that his total household income was $0 and claimed a refund of $865 according to the Renter Refund Schedule. Khan argued that the $98,086 in loss carry forwards offset his AGI and all other nontaxable income.

¶5 The Taxpayer Services Division audited Khan's application and recalculated his imputed household income as $28,657, which included the $4,236 in pensions and annuities, $10,661 in IRA distributions (which included the taxable and nontaxable portions), $13,842 in Social Security payments, $12 in interest, and a $94 deduction. The Division sent Khan a notice of the adjustment, explaining that, because the IRA distributions were taxable, it considered his IRA distribution—a rollover from a traditional IRA to a Roth IRA—as income in its calculation. The notice also stated that Khan could not offset his AGI and other nontaxable income with the $98,086 in capital loss carry forwards; instead it “allowed a $94 capital ... current year loss.” The Division reduced Khan's refund accordingly.

¶6 Khan petitioned the Commission for a redetermination of the refund. An initial hearing was held in December 2012 where Khan presented two arguments disputing the income the Division imputed to him. First, he argued his IRA conversion was not “income” because he did not physically receive the money. Second, Khan argued the Division erred in disallowing the $98,086 he claimed as loss carry forwards.

¶7 The Commission determined that Khan had “not shown he had $0 ‘household income’ as defined by Utah Code section 59–2–1202

for purposes of determining a renter['s] refund,” and although it determined the Division erroneously included the $1,290 nontaxable portion of Khan's IRA distributions in his income, the Commission ultimately concluded that Khan's properly calculated refund was $106. Khan requested a formal hearing, which was held November 5, 2013. At the formal hearing Khan made the same arguments and the Commission made the same determinations. Khan now seeks judicial review, again asserting the same arguments.

ISSUE AND STANDARD OF REVIEW

¶8 At issue is whether the Commission correctly determined Khan's household income for purposes of the renter's refund under Utah Code subsection 59–2–1202(6)(a)(ii). “The Commission's interpretation of the tax code is a question of law....” Hercules Inc. v. Tax Comm'n , 2000 UT App 372, ¶ 6, 21 P.3d 231

(citation omitted). Accordingly, we “grant the commission no deference concerning its conclusions of law, applying a correction of error standard.” Utah Code Ann. § 59–1–610 (LexisNexis Supp. 2008).

ANALYSIS

¶9 Khan first argues the Commission improperly included $9,371 in his household income because it was merely a conversion to a Roth IRA and was not physically received. For purposes of calculating the refund, the statute defines “income” as “the sum of (A) federal adjusted gross income ... and (B) all nontaxable income as defined in Subsection (6)(b).” Id. § 59–2–1202(6)(a)(i)

. According to subsection (6)(b), “nontaxable income” includes, among other things, “loss carry forwards claimed during the taxable year,” pensions or annuities, “payments received under the Social Security Act,” and “nontaxable interest.” Id. § 59–2–1202(6)(b).

¶10 Because a taxpayer must pay tax on the conversion from an IRA to a Roth IRA, the taxable amount of the contribution is added to the taxpayer's AGI. See I.R.C. § 408A(d)(3)(A) (2010)

. So although the taxpayer does not physically receive the amount contributed to the Roth IRA, it “shall be included in gross income.” Id. ; see also

Bobrow v. C.I.R. , 107 T.C.M. (CCH) 1110, 2014 WL 303234, at *6 (explaining that a rollover from an IRA to a Roth IRA “is fully includible in petitioner's gross income”).⁴

¶11 According to Khan's tax return, his AGI for 2010 was $10,619: the sum of $12 in interest, $4,236 in pensions and annuities, and the $9,371 taxable amount of his IRA distributions, less $3,000 in claimed losses. Because the $9,371 IRA distribution amount is included in his AGI, by the statute's plain language it must be included in his income. Utah Code Ann. § 59–2–1202(6)(a)(i)(A)

(defining income as the federal adjusted gross income and all nontaxable income). We therefore conclude the Commission did not err in including the $9,371 IRA distribution amount as household income for purposes of calculating Khan's renter's refund.

¶12 Khan next argues the Commission miscalculated his loss carry forwards. Specifically, he asserts that the term “loss carry forward” is undefined by the Utah Tax Code and thus should be “synonymous to IRS's ‘capital loss carryover.’ ” Therefore, Khan argues, the Commission should have deducted the entire $98,086 that he reported as loss carry forwards.

¶13 “[I]n construing any statute, we first examine the statute's plain language and resort to other methods of statutory interpretation, only if the language is ambiguous. Accordingly, we read the words of a statute literally ... and give the words their usual and accepted meaning.” Hercules Inc. v. Tax Comm'n , 2000 UT App 372, ¶ 9, 21 P.3d 231

(alteration and omission in original) (citation and internal quotation marks omitted). “When a statute fails to define a word, we rely on the dictionary to divine the usual meaning.” Id. (citation and internal quotation marks omitted).

¶14 Here, the term “loss carry forwards” is not defined by the Utah Tax Code, or the Commission, or the Internal Revenue Service. But according to Black's Law Dictionary, “loss carryforward” is synonymous with a loss “carryover.” Compare Loss carryforward , Black's Law Dictionary (9th ed. 2009) (referring the reader to “carryover”), with Carryover , Black's Law Dictionary (9th ed. 2009) (explaining that a carryover is a “deduction (esp. for a net operating loss) that cannot be taken entirely in a given period but may be taken in a later period” and is “[a]lso termed a loss carryward ”).

¶15 A case from the Court of Special Appeals of Maryland, Baker v. Baker , 221 Md.App. 399, 109 A.3d 167 (2015)

, explains the deduction associated with loss carry forwards:

[I]f an individual taxpayer generates a capital loss (i.e., the loss from the sale or exchange of any capital asset) in a given year, the taxpayer, to reduce a tax liability, may offset the loss against any capital gains from that year. If the taxpayer's aggregate losses exceed the capital gains in that year, he or she may also deduct up to $3,000.00 of the excess loss against ordinary income. The taxpayer may then “carry forward” any unused capital losses to the following year. In each future year in which that carried-forward loss remains, the taxpayer again may offset the loss against future capital gains, and against up to $3,000.00 of ordinary income, until all losses are exhausted or until the taxpayer dies.

Id. at 170

(citations omitted).

¶16 Accordingly, by its nature a capital loss can carry over, or carry forward, but the taxpayer may only claim up to $3,000 of the entire capital losses each year. See id.

Subsection (6)(b) expressly states that nontaxable income includes “loss carry forwards claimed during the taxable year in which a claimant files for relief.” Utah Code Ann. § 59–2–1202(6)(b)(ii) (LexisNexis Supp. 2008) (emphasis added). Thus, although we agree that loss carry forwards is synonymous with a loss carryover, Khan is mistaken in asserting he claimed $98,086 as his loss carry forwards for 2010. Rather, as indicated on his federal individual tax return, he claimed $3,000 in losses for 2010, and the remaining amount of his capital loss carried over to the next year.

¶17 More importantly, the loss carry forwards is not a deduction that offsets Khan's income for the purposes of determining his renter's refund, but is instead added to his AGI to determine his household income. See id. § 59–2–1202(6)(a)(i)

. The Utah Code defines “income” for the refund as the “sum of (A) federal adjusted gross income ... and (B) all nontaxable income as defined in Subsection (6)(b).” Id. (emphases added). Subsection (6)(b) defines “nontaxable income” to be “amounts...