Tax Type
Corporation Income Tax
Individual Income Tax
Description
Corporation's failure to pay the tax liability; Converted assessment
Topic
Collection of Delinquent Tax
Corporate Distributions and Adjustments
Responsible Officer
Withholding of Tax
Date Issued
05-17-2011
May 17, 2011
Re: § 58.1-1821 Application: Converted Assessments
Dear *****:
This is in response to your letter requesting correction of the converted assessments issued to ***** (the "Taxpayer") for unpaid withholding taxes assessed to ***** (the "Corporation").
FACTS
The Taxpayer owned 10% of the stock of the Corporation and was its secretary and treasurer. The Taxpayer's son (the "President") was president and owned a 60% share of the Corporation.
The Department issued assessments to the Corporation for withholding tax liabilities owed for the taxable periods October 2008 through March 2009. When the Corporation failed to pay the deficiencies, the Department timely converted the assessments to the Taxpayer and the other officers of the Corporation as permitted under Va. Code § 58.1-1813.
The Taxpayer paid the assessments and filed an appeal, contending he should not be held personally liable for the unpaid withholding taxes of the Corporation because his sole responsibilities were as the Corporation's registered agent responsible for filing the annual report with the Virginia State Corporation Commission (SCC).
DETERMINATION
Virginia Code § 58.1-1813 A states, "Any corporate . . . 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, collected or accounted for and paid over, to be assessed and collected in the same manner as such taxes are assessed and collected."
Under Va. Code § 58.1-1813 B, the term "corporate officer" is defined as "an officer or employee of a corporation .... who as such officer [or] employee 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 the authority to prevent such failure or attempt." [Insert added.]
Virginia Code § 58.1-1813 requires that the failure to pay over the taxes be willful, and that the corporate officer had: (i) knowledge of the failure, and (ii) 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 corporate officer was aware of the outstanding liability and knowingly and intentionally paid operating expenses or other debts of the Corporation.
Although the Taxpayer was an officer of the Corporation, he asserts that he was not permitted to see the Corporation's books and records and did not sign any checks or tax returns. The Corporation's 2007 and 2008 Virginia income tax withholding returns were signed by the President. The available evidence does not indicate whether the Taxpayer had the authority to sign the Corporation's tax returns or to prevent the Corporation's failure to pay the tax liability. The evidence does show that the Taxpayer resigned as an officer in the Corporation in January 2009.
The Taxpayer asserts that he did not learn of the Corporation's failure to remit its withholding taxes until after he resigned from the Corporation and received the converted assessments from the Department. Based on the evidence, it appears the Taxpayer did not have a duty to perform or oversee the performance of the filing and payment of the Virginia withholding taxes for the periods assessed. As such, I conclude that the Taxpayer was not a responsible corporate officer under Va. Code § 58.1-1813 for the Corporation's withholding tax assessments for the taxable periods October 2008 through March 2009.
Based on this determination, the Department will issue a refund to the Taxpayer in accordance with the enclosed schedule. The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions about this determination, you may contact ***** in the Department's Office of Tax Policy, Appeals and Rulings, at *****.
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- Sincerely,
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- Craig M. Burns
Tax Commissioner
- Craig M. Burns
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AR/1-4512401704.B
Rulings of the Tax Commissioner