Tax Type
Employer Income Tax Withholding
General Provisions
Description
Assessment converted to corporate officer
Topic
Taxpayers' Remedies
Withholding of Tax
Date Issued
08-13-1999
August 13, 1999
Re: Sec. 58.1-1821 Application: Withholding Tax
Dear ****
This will reply to your letter in which you contest the assessment of a tax penalty against ***** (the "Taxpayer'), a former officer of (the "Corporation'), for the 1994 and 1995 taxable years. I apologize for the delay in my response.
FACTS
The Corporation was assessed withholding taxes, penalties, and interest for the 1994 and 1995 taxable years. When the Corporation did not pay the assessment, the liability was converted to the corporate officers, pursuant to Code of Virginia Sec. 58.1-1813. The Taxpayer was one of two corporate officers at the Corporation. The Taxpayer held the following positions with the Corporation: 1) vice president, 2) secretary, 3) director, 4) 50% shareholder, and 5) registered agent as listed in the corporate bylaws. The Taxpayer also had the signatory authority for the Corporation. The Taxpayer resigned as a corporate officer in June 1994. He tendered his resignation as a director in August 1994, and subsequently relinquished his ownership in the Corporation.
DETERMINATION
When a corporation fails or is unable to pay its tax deficiencies, the department can convert the assessments to the corporate officers under Code of Virginia Sec. 58.1-1813. This statute defines the term "corporate officer' as an officer of the 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 and (2) had the 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.). You maintain that the department cannot hold the Taxpayer liable because he did not willfully fail to pay the tax and did not have knowledge of the deficiency.
The evidence is insufficient to demonstrate that the Taxpayer had the duty to report and remit Virginia tax on behalf of the Corporation. Although he had check signing authority, the Taxpayer did not sign any withholding returns or remittance checks for the 1994 or 1995 taxable years. The president of the Corporation signed all the Virginia tax returns and checks for those years.
The Taxpayer did have knowledge of the Corporation's failure to withhold and remit the tax. In fact, the reason that the Taxpayer resigned as a corporate officer of the Corporation is that he was unable to persuade the Corporation's president to pay delinquent Virginia taxes. However, the information provided indicates the Taxpayer only gained such knowledge shortly before his resignation.
Further, the Taxpayer did not have the authority to prevent the failure to pay taxes. An individual would be responsible for the collection and payment of taxes if he had significant control over a corporation's finances. In the instant case, the evidence demonstrates that the Taxpayer controlled the day-to-day operations of the Corporation, but did not control the Corporation's financial affairs. While the Taxpayer did have check signing authority, the evidence shows the president controlled the checkbook, and only allowed the Taxpayer to make payments for certain expenses.
Based on the information provided, the Taxpayer has shown that he was not responsible for the Corporation's failure to pay Virginia taxes. Accordingly, the penalty assessed against the Taxpayer has been abated. If you have any questions about this determination, you may contact ***** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12502B
Re: Sec. 58.1-1821 Application: Withholding Tax
Dear ****
This will reply to your letter in which you contest the assessment of a tax penalty against ***** (the "Taxpayer'), a former officer of (the "Corporation'), for the 1994 and 1995 taxable years. I apologize for the delay in my response.
FACTS
The Corporation was assessed withholding taxes, penalties, and interest for the 1994 and 1995 taxable years. When the Corporation did not pay the assessment, the liability was converted to the corporate officers, pursuant to Code of Virginia Sec. 58.1-1813. The Taxpayer was one of two corporate officers at the Corporation. The Taxpayer held the following positions with the Corporation: 1) vice president, 2) secretary, 3) director, 4) 50% shareholder, and 5) registered agent as listed in the corporate bylaws. The Taxpayer also had the signatory authority for the Corporation. The Taxpayer resigned as a corporate officer in June 1994. He tendered his resignation as a director in August 1994, and subsequently relinquished his ownership in the Corporation.
DETERMINATION
When a corporation fails or is unable to pay its tax deficiencies, the department can convert the assessments to the corporate officers under Code of Virginia Sec. 58.1-1813. This statute defines the term "corporate officer' as an officer of the 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 and (2) had the 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.). You maintain that the department cannot hold the Taxpayer liable because he did not willfully fail to pay the tax and did not have knowledge of the deficiency.
The evidence is insufficient to demonstrate that the Taxpayer had the duty to report and remit Virginia tax on behalf of the Corporation. Although he had check signing authority, the Taxpayer did not sign any withholding returns or remittance checks for the 1994 or 1995 taxable years. The president of the Corporation signed all the Virginia tax returns and checks for those years.
The Taxpayer did have knowledge of the Corporation's failure to withhold and remit the tax. In fact, the reason that the Taxpayer resigned as a corporate officer of the Corporation is that he was unable to persuade the Corporation's president to pay delinquent Virginia taxes. However, the information provided indicates the Taxpayer only gained such knowledge shortly before his resignation.
Further, the Taxpayer did not have the authority to prevent the failure to pay taxes. An individual would be responsible for the collection and payment of taxes if he had significant control over a corporation's finances. In the instant case, the evidence demonstrates that the Taxpayer controlled the day-to-day operations of the Corporation, but did not control the Corporation's financial affairs. While the Taxpayer did have check signing authority, the evidence shows the president controlled the checkbook, and only allowed the Taxpayer to make payments for certain expenses.
Based on the information provided, the Taxpayer has shown that he was not responsible for the Corporation's failure to pay Virginia taxes. Accordingly, the penalty assessed against the Taxpayer has been abated. If you have any questions about this determination, you may contact ***** at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12502B
Rulings of the Tax Commissioner