95-145 | Virginia Tax

Tax Type

Corporation Income Tax

Description

Liability of corporate officers; Willful failure to pay tax

Topic

Collection of Tax

Date Issued

06-06-1995

June 6, 1995

Re: §58.1-1821 Application:

Dear***************

This will reply to your letter of November 12, 1993, in which you apply for a correction of tax assessments converted to**************(the "Taxpayer") from******* (the "Corporation"). I apologize for the delay in responding.

FACTS

The Corporation filed Virginia Form 500's for the 1990 and 1991 taxable years. The Taxpayer signed each return as "President." The 1991 return contained information indicating that the Taxpayer owned, directly or indirectly, 100% of the voting stock of the Corporation.

Although the Corporation's 1990 and 1991 returns both reflected a tax liability due, no payment was made to the department. The 1991 return included a balance sheet reflecting a cash balance as of December 31, 1991, equal to 95% of the tax liability owed to the Commonwealth, and a net worth as of December 31, 1991, thirteen times greater than the tax liability. The Corporation's net worth was approximately equal to its largest asset, a loan to the shareholder.

On October 13, 1993, the department sought satisfaction of the Corporation's outstanding liability for corporate income taxes for the 1990 and 1991 taxable years from the Taxpayer, under Code of Virginia §58.1-1813. The Taxpayer believes that although he was President of the Corporation, he should not be responsible for the taxes as he had delegated those duties to a bookkeeper.

DETERMINATION

Code of Virginia § 58.1-1813 addresses the liability of corporate officers and provides, in pertinent part, the following:

- 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 this section 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: (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.

Based on the above, the department finds it reasonable to conclude that the Taxpayer had knowledge of the outstanding tax liability, evidenced by his signature on the corporate tax returns. The information available to the department indicates that the Taxpayer owned 100% of the voting stock and was the President of the Corporation. Accordingly, the Taxpayer clearly had the authority to prevent the Corporation's failure to pay such tax liability. Your argument that payment duties were delegated is irrelevant; the Taxpayer had the authority to delegate such duties and therefore had the authority to direct proper and timely payment to the department.

Accordingly, the department finds that the assessment must be upheld. However, in light of the delay in responding to your protest, the department shall waive interest which has accrued on the outstanding liabilities since November 19, 1993, the date of your letter, if the balance due per the attached schedule*****is paid within 30 days of the date of this letter.

The Taxpayer's payment may be sent to***********c/o Office of Tax Policy, Department of Taxation, P.O. Box 1880, Richmond, Virginia 23282-1880. If you should have any further questions, please feel free to contact**************.

- - - - Sincerely,
        
        Danny M. Payne
        Tax Commissioner

OTP/7509M

Rulings of the Tax Commissioner