Document Number
05-132
Tax Type
Individual Income Tax
Description
Corporate penalties and interest can be converted to a corporate officer
Topic
Penalties and Interest
Persons Subject to Tax
Date Issued
08-10-2005


August 10, 2005



Re: § 58.1-1821: Individual Income Tax

Dear *****:

This will reply to your letter in which you protest the assessment of penalty and interest issued to ***** (the "Taxpayer") by the Department for the taxable periods April 2002 through December 2002.

FACTS

The Taxpayer is an officer of ***** (the "Corporation"). The Corporation was issued assessments for employer withholding taxes. When the Corporation failed to pay the tax, interest, and penalty deficiencies, the Department converted the assessments to the Taxpayer, pursuant to Va. Code § 58.1-1813.

You seek a correction of the portion of the converted assessments attributable to penalty and interest, contending there is no provision in Virginia law or regulations that allows corporate penalties and interest to be converted to a corporate officer. You cite Internal Revenue Code ("IRC") § 6672 in support of your argument.

DETERMINATION

The Department has previously ruled that any penalty or interest imposed against a corporation becomes part of that entity's assessment and is passed on to the responsible corporate officer as provided for under Va. Code § 58.1-1813, with interest accruing on the total outstanding tax, penalty and interest. See Public Document ("P.D.") 92-99 (06/15/1992).

IRC § 6672 imposes a 100% penalty for failure to collect, truthfully account for, and pay over any tax. The Taxpayer contends the restriction in IRC § 6672 that precludes penalties from the responsible corporate officer liability is analogous to Va. Code § 58.1-1813 because the Virginia statute is similar in wording. Specifically, both statutes impose a penalty on a responsible officer equal to "the amount of tax evaded." (Emphasis added). A number of federal courts have ruled that the penalty is limited to the federal tax not paid by the corporation. Thus, the Internal Revenue Service may not convert penalties and interest assessed against the corporation.

Although similar, Va. Code § 58.1-1813 is not identical to IRC § 6672. Virginia Code § 58.1-1813 goes further to provide that the penalty against a corporate or partnership officer is "to be assessed and collected in the same manner as such taxes are assessed and collected."

P.D. 92-99 affirms that, when a taxpayer has failed to file a proper return and pay the proper amount, Va. Code § 58.1-1812 allows the Department to assess "the taxes prescribed by law, adding to the taxes so assessed the penalty prescribed by law, if any . . . . In addition thereto, interest on the outstanding tax and penalty shall be charged . . . ." Virginia Code § 58.1-1813 then allows for the conversion of the tax, penalty and interest assessed against a responsible officer of the corporation in the same manner as it was assessed against the corporation.

Further, Va. Code § 58.1-1832 specifically provides that Chapter 18 of Title 58.1 (including Va. Code § 58.1-1813) "shall be construed to include taxes, levies, penalties and interest or all of them." (Emphasis added). Clearly, the General Assembly, when adopting language of Va. Code § 58.1-1813 in 1972, chose to permit the inclusion of the underlying penalty when computing the total amount subject to conversion.

Accordingly, the penalty and interest portions of the converted assessments are correct. The Taxpayer will shortly receive an updated bill with accrued interest. The assessment must be paid within 30 days of the bill date to avoid the accrual of additional interest.

The Taxpayer has indicated an interest in arranging a payment plan. He may contact ***** in the Department's Collections Unit at ***** to determine the current balance due, and set up a payment plan. Please note that while a payment plan will provide an extended period for payment of the balance due, interest will continue to accrue on the balance until paid, in accordance with pursuant Va. Code § 58.1-1812.

The Code of Virginia sections and public document cited, along with other reference documents, are available on-line in the Tax Policy Library section of the Department's website, located at www.policylibrary.tax.virginia.gov. If you have any questions about this determination, you may contact ***** of the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
                    • Sincerely,

                    • Kenneth W. Thorson
                      Tax Commissioner



AR/54810E


Rulings of the Tax Commissioner

Last Updated 08/25/2014 16:46