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The Utah Court of Appeals has ruled the state must refund penalties and interest paid by two Duchesne County developers whose convictions of failure to file tax returns were overturned.

However, the court also said in a 3-0 decision handed down Jan. 6 that Joan A. Steed and the estate of Frank "Joe" Steed, who died in 2014, are not entitled to a refund of the costs of their incarceration and probation.

The case began about a decade ago when the Utah State Tax Commission conducted an audit of the Steeds' sales tax collection and requested copies of their tax returns and supporting documentation from 2003 through 2006, according to court records. Prosecutors allege the two received $20 million during those years while developing a 5,000-acre subdivision in Duchesne County.

After multiple requests by an auditor for the returns and other materials went unanswered, a criminal investigation was launched, according to court documents. In 2008, the Steeds were charged in 3rd District Court with tax-related felonies and the case went to trial several years later.

A jury convicted the pair in 2010 of three counts each of failure to file a proper tax return and one count of engaging in a pattern of unlawful activity. They each were acquitted of four counts of tax evasion and two additional counts of failure to file a proper tax return.

Judge Robin Reese sentenced Frank Steed to 365 days and Joan Steed to 180 days, at the Salt Lake County jail, placed each on six years of probation, fined them a total of nearly $146,000 and ordered them to pay about $157,000 in penalties and interest, according to court documents.

Because of Frank Steed's poor health, the Steeds asked to serve their terms closer to their home in Midway, the court documents say. The two ended up at the Wasatch County jail, which had a pay-to-stay policy, and they paid incarceration costs of $29,855. In addition, they paid $3,293 in supervision fees to Adult Probation and Parole, according to court records.

The Steeds appealed and their convictions were overturned in 2014 by the Utah Supreme Court, which ordered the trial judge to enter a judgment of acquittal in the case. In the 5-0 ruling, the court said there had been insufficient evidence to support the guilty verdicts.

The ruling said that to obtain a conviction, the prosecution had to establish that the Steeds "intentionally or willfully" failed to file returns and did so with one of three specific intents: to evade a tax; evade a requirement of Title 59, Revenue and Taxation; or evade any lawful requirement of the Utah State Tax Commission.

However, the trial judge interpreted the failure-to-file statute to include only two intents, to evade a tax or a tax commission requirement, the ruling said. And although prosecution presented sufficient evidence of the Steeds' intent to evade a requirement of Title 59 — which covers a number of tax provisions — that alternative was excluded from the jury instructions, according to court documents.

The Supreme Court concluded there was insufficient evidence to convict on either of the two alternatives considered by the jury and that the double jeopardy clause forbids a second trial. The court also reversed the convictions based on the Steeds' alleged pattern of unlawful activity because they hinged on the failure-to-file charges.

The Steeds filed a motion in 3rd District Court for a refund of about $336,000 for all fines, penalties, interest, incarceration costs and probation costs after the reversal. (They did not ask for a refund of the principal amount of taxes they owed as restitution, which was about $149,000, their attorneys said.)

In the appeal, the Steeds' attorneys — Max Wheeler, Rodney Parker and Richard Van Wagoner — argued that due process required that all funds taken from them as a result of the convictions be returned to them.

The $146,000 in fines was refunded with interest, but Reese declined to return the penalties and interest paid to the tax commission as part of the Steeds' sentence. The judge said the pair's tax returns were filed late and "the penalties and interest charged here could have been charged to any person who failed to file and pay their taxes on time."

The judge also refused to return the incarceration costs, based on the fact that the money was paid under a civil contract entered into by the Steeds and the jail.

The probation fees were not refunded because court rules — while providing for the return of bail and deposits when a conviction is vacated — do not provide for the return of fees for rehabilitative services," Reese wrote in an order on the refund request.

The case then went to the Court of Appeals, which said in its ruling this month that because the convictions were overturned, the sentences are null and the obligation to pay penalties and interest also is void.

The court said it upheld Reese's decision on the jail costs because the Steeds had not addressed the primary basis for his ruling — that they voluntarily chose to transfer to Wasatch County and that the arrangement was the result of a civil contract.

In upholding the denial of supervision fees, the Court of Appeals cited previous rulings that said the purposes of probation are reform and rehabilitation rather than punishment.

The ruling rejected the Steeds' argument that their probation was "clearly punitive" because they received no treatment, pointing out that the Utah Supreme Court has not distinguished between probation where therapeutic treatment is prescribed and probation that does not include therapeutic treatment.

"We conclude the district court appropriately denied the Steeds' request for a refund of the costs of probation, even though we acknowledge that this result is troubling at an intuitive level," the appeals court judges said in their ruling.

Twitter: @PamelaManson