Tax Type
Corporation Income Tax
Description
Liability of corporate officers
Topic
Collection of Delinquent Tax
Date Issued
05-19-1993
May 19, 1993
Re: §58.1-1821 Application: Corporate Income Tax
Dear***********
This will reply to your letter of June 15, 1992 in which you seek correction of a corporate income tax assessment against *********(the "Taxpayer") for the taxable year ending July 31, 1989.
FACTS
The Taxpayer is a one-third shareholder, officer, and director of *********** (the "Company"). The Taxpayer asserts that he only participated in the Company's operations in the first year of his affiliation with the Company. Thereafter, the Taxpayer claims that he did not participate in the management of the Company, nor did he have any knowledge of the Company's creditors and payment procedures.
The Company failed to pay income taxes due on corporate earnings. Such amounts remain unpaid. The department assessed the Taxpayer with the Company's unpaid tax liability pursuant to Va. Code §58.1-1813. The Taxpayer has requested that the assessment be abated claiming that he lacked knowledge of the Company's finances and creditor payment practices.
DETERMINATION
Pursuant to Va. Code §58,1-1813, an officer cannot be held personally liable for corporate taxes due to the Commonwealth unless he (i) had knowledge of the debt, and (ii) had power to prevent the nonpayment of the debt.
The Taxpayer was an officer and a director of the Company. Although the Taxpayer claimed that he resigned as an officer of the Company, he continued to be a director. Despite the Taxpayer's position as a director, the Taxpayer asserts that he lacked knowledge of the Company's failure to pay the outstanding amounts due to the Commonwealth.
Based upon the information provided to the department, it appears that the Taxpayer lacked actual knowledge of the Company's failure to pay taxes due to the Commonwealth and due to his limited involvement in day-to-day operations he did not have the corporate power to prevent the nonpayment of taxes.
The Taxpayer's account will be adjusted in accordance with the determination made herein.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6261O
Rulings of the Tax Commissioner