Tax Type
Corporation Income Tax
Description
Liability of corporate officers; Corporate records falsified
Topic
Collection of Tax
Date Issued
12-07-1995
December 7, 1995
Re: § 58.1-1821 Application: Sales, Withholding and Corporate Income Taxes
Dear*********:
This will reply to your letter of October 18, 1995, in which you seek correction of retail sales and use tax, withholding tax, and corporate income tax assessments on behalf of your client, ******** (the "Taxpayer").
FACTS
The Taxpayer owned a business jointly with his wife. The Taxpayer was the president of the corporation and responsible for buying and selling merchandise. His wife was the secretary and treasurer responsible for all federal and state taxes, including the filing of returns and the remittance of payments. The corporation also retained the services of a certified public accountant and a bookkeeper.
In February and March 1988, the department issued assessments to the corporation for sales, withholding and corporate income taxes. In May 1988, the Internal Revenue Service assessed the corporation for unpaid taxes and placed a lien on its bank accounts. During the following months, it was discovered that the Taxpayer's wife (i.e., the corporation's treasurer) had failed to file the required returns and pay the taxes due. In addition, the corporation's books were falsified to indicate all tax obligations had been fulfilled.
Upon failure to collect the deficiencies owed to it by the corporation, the department converted the assessments to the Taxpayer, pursuant to Code of Virginia § 58.1-1813 in April 1989. The Taxpayer contests the converted assessments, maintaining he is not a "responsible officer" under Code of Virginia § 58.1-1813 because he had no knowledge of the failure to file the returns and remit the taxes due.
DETERMINATION
Code of Virginia § 58.1-1813 states that "[a]ny corporate or partnership officer who willfully fails to pay, collect, or truthfully account for and pay over any tax...or willfully attempts in any manner to evade or defeat any such tax or the payment thereof...shall be liable to a penalty of the amount of the tax evaded, or not paid, collected or accounted for and paid over...."
The statute defines the term "corporate officer" as an officer or employee of a corporation who 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 and (2) had the authority to prevent it.
Based on the information provided, it appears that the Taxpayer lacked actual knowledge of the corporations's failure to remit the taxes at issue. The treasurer was solely responsible for preparing and filing the returns and remitting the taxes. Affidavits from the corporation's certified public accountant and bookkeeper indicate the treasurer falsified the business records, checking account, and account ledgers of the corporation and lied to the Taxpayer, CPA and bookkeeper by indicating all returns were filed and all taxes paid. The Taxpayer did not have the requisite knowledge that the taxes had not been paid.
Accordingly, the sales tax assessments for the periods October 1987 through January 1988, the withholding tax assessments for the periods September 1987, November 1987, December 1987, and January 1988 and corporate income tax assessment for the taxable year beginning August 1986 and ending July 1987 will be abated. In addition, the Memorandum of Lien recently filed against the Taxpayer will be released in full.
If you have any questions regarding this matter, you may contact ******* at***********.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/10475F
Rulings of the Tax Commissioner