Tax Type
Withholding Taxes
Description
Responsible officer failure to file withholding tax returns
Topic
Appropriateness of Audit Methodology
Collection of Delinquent Tax
Penalties and Interest
Date Issued
03-08-2002
March 8, 2002
RE: § 58.1-1821 Application: Withholding Tax
Dear *****
This will reply to your letter in which you seek correction of the assessment of penalty issued to ***** (the "Taxpayer") as the responsible officer of a corporation (the "Company") that failed to file withholding tax returns and remit withholding tax for the periods July through September 1998 and April through September 1999. I apologize for the delay in the department's response.
FACTS
The Taxpayer was president of the Company during the taxable years at issue. The Company failed to remit withholding tax and assessments of tax, penalty, and interest were assessed for the periods at issue. Because the Company failed to pay the assessments when it closed, the department assessed the Taxpayer a penalty in the amount of the tax, penalty, and interest owed by the Company. The Taxpayer contends that its Chief Financial Officer ("CFO") was solely responsible for preparing, filing and remitting Virginia withholding tax. Therefore, you are requesting that the penalty assessed against the Taxpayer as the corporate officer be abated.
DETERMINATION
Code of Virginia § 58.1-1813 addresses the liability of corporate officers and provides, in pertinent part, the following:
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- Any corporate or partnership officer who willfully fails to pay, collect or truthfully account for and pay over any tax administered by the Department of Taxation, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty of the amount of the tax evaded, or not paid ....
The term "corporate or partnership officer" as used in Code of Virginia § 58.1-1813 means an officer or employee of a corporation, who as such officer 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 or attempt as set forth herein and (2) had authority to prevent such failure or attempt.
Code of Virginia § 58.1-1813 requires that the failure to pay over the taxes be willful, and that the corporate officer had: (1) knowledge of the failure, and (2) authority to prevent it. See also Angelson v. Commonwealth, 25 Va. Cir. 319 (Richmond 1991). 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 corporate officer was aware of the outstanding liability and knowingly and intentionally paid operating expenses or other debts of the company.
The evidence shows various other employees, and not the Taxpayer, were responsible for preparing and signing withholding returns that were filed during the periods at issue. The evidence also substantiates that the CFO had the primary check signing authority. Based on the information provided, there is insufficient evidence to demonstrate during the periods at issue that: (1) the Taxpayer was under a duty to file the withholding tax returns on behalf of the Company, and (2) the Taxpayer knew or should have known about the Company's failure to timely file the returns.
Accordingly, the assessments issued to the Taxpayer for withholding tax for the periods July through September 1998 and April through September 1999 will be abated. If you have any questions regarding this determination, you may contact ***** in the Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
AR/32187B
Rulings of the Tax Commissioner