Tax Type
Individual Income Tax
Description
Corporate officer assessed penalty for deliquent corporate tax
Topic
Collection of Delinquent Tax
Persons Subject to Tax
Date Issued
05-11-2000
May 17, 2000
Re: § 58.1-1821 Application: Individual Income Tax
Dear ****
This will reply to your letter in which you contest the assessment of penalty for corporate income tax against a corporate officer ***** (the "Taxpayer"), for the 1994 and 1995 taxable years.
FACTS
The Taxpayer was the responsible officer of a corporation which was assessed additional federal income tax pursuant to an Internal Revenue Service ("IRS") audit for the taxable years ending December 31, 1994 and 1995. The corporation did not challenge the federal assessment because the corporation was closed and had no assets.
The corporation did not file Virginia corporate income tax returns for the taxable years ending December 31, 1994 and 1995. The corporation also failed to notify the department of the change in federal taxable income by the IRS. Based on the IRS audit, the corporation was issued an assessment for the additional tax and the Taxpayer was assessed a penalty under § 58.1-1813. The Taxpayer contests the additional penalty and requests that it be abated.
DETERMINATION
When a corporation fails or is unable to pay its tax deficiencies, the department can assess the corporate officers for a penalty of the amount of the tax evaded, or not paid, collected or accounted for and paid over under Code of Virginia § 58.1-1813. This statute defines the term "corporate officer" as an officer of the corporation who is under a duty to perform on behalf of the corporation the act in respect of which the violation occurs and who (1) had knowledge of the failure and (2) had the authority to prevent it. Under the standard of willfulness applied by the courts, all that needs to be shown is that the act was "voluntary, conscious, and intentional." Hewitt v. U.S., 377 F.2d 921, 924 (C.A. Tex.). In other words, it need only be shown that the responsible officer was aware of the liability and voluntarily failed to comply.
You maintain that the department cannot hold the Taxpayer liable because she did not willfully fail to pay the tax and did not have knowledge that there would be a liability to Virginia. Code of Virginia § 58.1-311 requires any taxpayer to report a change or correction in federal taxable income within ninety days of the final determination of the change or correction by filing an amended return with the department. Since Virginia uses federal taxable income as the starting point for computing Virginia corporation income tax, any change to federal taxable income by the IRS will likely result in a change to income tax due to Virginia.
The department has previously ruled in similar cases. In Public Documents 97-230 (5/19/97) and 97-434 (10/29/97) (copies enclosed), the department ruled that a responsible officer assumes the responsibility of insuring that a return is correct through the period of limitations. As such, a responsible officer has the knowledge when a return is filed or not filed that an adjustment could be made by the department. If the responsible officer fails to provide for such an occurance, the department will consider the responsible officer to have willfully failed to pay the corporation's tax and assess the penalty.
As this is clearly defined by statute and because responsible officers have a duty to comply with the laws of the Commonwealth on behalf of the corporation, the Taxpayer knew or should have known that the changes made by the IRS would result in additional state liability. The fact that the Taxpayer did not comply with her duty as a responsible officer shows that she voluntarily failed to comply which provides the department with the requisite willfulness and knowledge needed under Code of Virginia
§ 58.1-1813.
As such, your request for an abatement cannot be granted. Please pay the balance of $**** within the next 30 days to avoid collection action. Please remit your payment to the attention of *****, Virginia Department of Taxation, Office of Tax Policy, P.O. Box 1880, Richmond, Virginia 23218-1880. If additional information is needed, you may contact ***** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/24807G
Rulings of the Tax Commissioner