Khan v. Tax Commission

2016 UT App 142

THE UTAH COURT OF APPEALS

NASRULLA KHAN,
Petitioner,
v.
TAX COMMISSION,
Respondent.

Memorandum Decision
No. 20140583-CA
Filed July 8, 2016

Original Proceeding in this Court

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

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.

1. Senior Judge Pamela T. Greenwood sat by special assignment
as authorized by law. See generally Utah R. Jud. Admin. 11-
201(6).
Khan v. Tax Commission

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

2. A renter’s refund is a credit designed to ‚provide general
property tax relief for certain persons who own or rent their
places of residence‛ in order to ‚offset in part the general tax
burden . . . *of+ property tax.‛ See Utah Code Ann. §§ 59-2-1201,
1209 (LexisNexis 2006 & Supp. 2010). The amount of the credit is
based on the taxpayer’s income.

3. Khan does not challenge the Renter Refund Schedule. The
Renter Refund Schedule provides that an individual with an
income between $26,289 and $29,210 may receive a 2.5% refund
up to $106. But Utah Code section 59-2-1209 allows a 2.5%
refund for individuals with an income between $24,247 and
$26,941. Utah Code Ann. § 59-2-1209(1)(a). The Utah Code also
allows the Commission to increase or decrease the household
income eligibility amounts ‚by a percentage equal to the
percentage difference between the consumer price index for the
preceding calendar year and the consumer price index for the
calendar year 2006.‛ Id. § 59-2-1209(1)(b) (Supp. 2010). Because
Khan does not challenge the discrepancy between the household
income eligibility in the Renter Refund Schedule and the Utah
Code, we presume the schedule reflects an adjustment the
Commission made based on the consumer price index and we
do not address it further.

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Khan v. Tax Commission

¶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

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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

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Khan v. Tax Commission

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

4. We also note that restricting ‚household income‛ to income
physically received, as Khan recommends, would be inconsistent
with the statute. ‚*W+e seek to render all parts *of a statute+
relevant and meaningful, and we accordingly avoid
interpretations that will render portions of a statute superfluous
or inoperative.‛ Hall v. Department of Corr., 2001 UT 34, ¶ 15, 24
P.3d 958 (citation and internal quotation marks omitted). For
purposes of calculating the renter’s refund, household income
includes the AGI and all other nontaxable income, except relief
or aid provided by a public or private agency. Utah Code Ann.
§ 59-2-1202(6)(a) (Supp. 2008). Included as ‚nontaxable income‛
in subsection (6)(b) are at least two kinds of income not
physically received by a claimant: loss carry forwards and
depreciation. Id. § 59-2-1202(6)(b). Insisting that household
income is restricted to what is physically received renders these
two categories inoperative and superfluous and is thus an
untenable interpretation.

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Khan v. Tax Commission

¶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

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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, 109 A.3d 167 (Md. Ct. Spec. App. 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

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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
excluded from adjusted gross income under the Internal
Revenue Code,‛ and expressly includes ‚loss carry forwards
claimed during the taxable year.‛ Id. § 59-2-1202(6)(b). This
means that the $3,000 Khan claimed on his tax return as loss
carry forwards is added to his $10,619 AGI, not subtracted from
it. That the loss carry forwards is not a deduction, but is instead
added to the AGI, is bolstered by the inclusion of Khan’s Social
Security payments; although they are not taxable and were not
included in his AGI, the $13,842 in Social Security payments was
added to his AGI to determine Khan’s household income.
Similarly, because it was excluded from his AGI under the
Internal Revenue Code, the $1,290 nontaxable portion of his IRA
conversion should also be added to his AGI in determining his
household income.

¶18 The Commission determined that ‚Khan’s household
income was $27,367 . . . , [which] includes his $10,619 in adjusted
gross income, $12 in interest, $4,236 from pension/annuities,
$13,842 in social security, and a $94 short-term capital loss.‛ On
its face, the Commission’s calculation appears incorrect; these
smaller amounts do not add up to $27,367. Additionally, the $12
in interest and $4,236 in pensions and annuities was already
included in Khan’s AGI; the Commission should not have
calculated them in Khan’s income a second time. Further, the

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Commission erroneously calculated Khan’s loss carry forwards
as $94, not the $3,000 he claimed.

¶19 Nevertheless, the Commission’s error is harmless.
Correctly calculated, Khan’s household income still falls
between $26,289 and $29,210 which entitles him to a refund of
$106. Khan’s correct household income should be $28,751, which
is the sum of his $10,619 AGI, $13,842 in Social Security benefits,
$1,290 in nontaxable IRA distributions, and $3,000 claimed as
loss carry forwards. Thus, according to the Renter Refund
Schedule, Khan’s income qualifies him for a $106 refund.

CONCLUSION

¶20 In sum, we determine that the Commission correctly
included the IRA distribution amount in calculating Khan’s
income for purposes of the renter’s refund. We also conclude
that the Commission erred in calculating Khan’s household
income. But because his income correctly calculated still entitles
him to a refund of $106 according to the Renter Refund
Schedule, we conclude the Commission’s error is harmless. We
therefore decline to disturb the Commission’s determination.

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