December 14, 2021
Re: § 58.1-1821 Application: Withholding Tax and Retail Sales and Use Tax
Dear *****:
This is in response to your letter submitted on behalf of ***** (the “Taxpayer”) in which you seek correction of the withholding tax and sales and use tax assessments converted to the Taxpayer as a responsible officer of ***** (the “Corporation”) for the period July 2013 through November 2015. I apologize for the delay in responding to your appeal.
FACTS
The Corporation was assessed withholding taxes, plus applicable penalties and interest for the period July 2013 through November 2015. The Corporation was also assessed retail sales and use taxes, plus applicable penalties and interest, for the period June 2014 through November 2015. When the Corporation failed to satisfy the assessments, the delinquent assessments were converted to the Taxpayer as a responsible officer. The Taxpayer contends that the converted assessments are erroneous and requests that the converted assessments be abated in full.
DETERMINATION
Responsible Officer
Virginia Code § 58.1-1813 A provides that:
Any corporate, partnership or limited liability 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.
Virginia Code § 58.1-1813 B states that:
The term "corporate, partnership or limited liability officer" as used in this section means an officer or employee of a corporation, or a member, manager or employee of a partnership or limited liability company, who as such officer, employee, member or manager is under a duty to perform on behalf of the corporation, partnership or limited liability company 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.
In Angelson v. Commonwealth of Virginia, 25 Va. Cir. 319 (City of Richmond, 1991), the court pointed out four conditions of Virginia Code § 58.1-1813 that must be met before a person can be held individually liable for taxes assessed against a corporation:
- The person must willfully fail to pay, collect, or truthfully account for and pay over a state tax, or willfully attempt in any manner to evade or defeat such tax or its payment.
- The person must be an officer or employee of the corporation and have a duty to perform the act in respect of which the violation occurs.
- The person must have knowledge of the failure or attempt as set out in the statute.
- The person must have authority to prevent such failure or attempt.
The court further stated that the absence of any one of these conditions prohibits the Department from collecting corporate taxes from an individual. 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.)
The Taxpayer believes she is not a responsible officer of the Corporation because the statutory requirements and the criteria established Angelson have not been met. Specifically, the Taxpayer maintains that the Department has not shown that she willfully failed to pay, collect, or truthfully account for and pay over a state tax, or that the Taxpayer willfully attempted to evade making payment. The Taxpayer states that while she was a minority shareholder of the Corporation, she did not participate in the day-to-day operations of the Corporation, and that her role and responsibilities did not include collecting and paying state tax. The Taxpayer also contends that the Department has not shown that she was an officer of the Corporation and that she had a duty to perform the act of collecting and paying the state tax. The Taxpayer further states that the Department has not shown that she had knowledge of the Corporation’s failure to pay the state tax or that she attempted to evade or defeat the tax or its payment. Finally, the Taxpayer maintains that the Department has not demonstrated that the Taxpayer had the authority to prevent the failure of the Corporation to pay the tax or attempt to evade paying the state tax.
When the Taxpayer purchased 49% of the shares of the Corporation, she entered into a purchase agreement with the owners of the Corporation. Based upon a review of the purchase agreement, no specific responsibilities or duties to remit taxes were assigned to the Taxpayer.
In addition, while the Taxpayer did sign some checks for tax remittances, such actions are not sufficient to show the Taxpayer had the authority to determine which bills would be paid or to prevent the Corporation from failing to remit the taxes to the Department. Further, the Taxpayer was not listed as an officer of the Corporation on the Corporation’s 2008 through 2011 annual reports filed with the State Corporation Commission (the “SCC”). On the 2012 and 2014 SCC annual report filings, the Taxpayer (officer and vice president) is listed along with the majority owner (listed as an officer and president) and a third individual (an officer and treasurer).
In order for an individual to be held individually liable for the taxes assessed against a corporation, the four conditions stated in Virginia Code § 58.1-1813 must be met. In this instance, for the periods July 2013 through February 2015 for the withholding tax assessment and June 2014 through February 2015 for the sales tax assessment, the evidence fails to clearly show that all of the conditions have been met.
In March 2015, the Taxpayer purchased the remaining 51% of the shares of the Corporation, and became the sole owner and officer of the Corporation for the withholding and sales tax periods March 2015 through November 2015. No evidence has been produced to demonstrate that someone other than the Taxpayer was a responsible officer under a duty to perform on behalf of the Corporation or was responsible for filing returns and remitting the withholding and sales taxes to the Department during these tax periods. Accordingly, pursuant to Virginia Code § 58.1-1813, the Taxpayer is deemed the responsible officer for the Corporation who did not account for and pay over the taxes as required. As such the converted assessments are correct as issued for the withholding and sales tax periods March 2015 through November 2015.
Financial Hardship Offer in Compromise
The Taxpayer maintains that she is experiencing extreme financial hardship, and provides that she was forced to file for bankruptcy and that her former residence was foreclosed upon. As such, the Taxpayer may wish to request an offer in compromise based on doubtful collectability. The Taxpayer must present evidence of doubtful collectability to support a claim of financial hardship. If the Taxpayer wishes to pursue a settlement based on doubtful collectability, please complete and return the enclosed OIC - Fee and OIC B - 3 forms to: Tax Commissioner, Virginia Department of Taxation, Post Office Box 2475, Richmond, Virginia 23218-2475. These forms will allow the Department to review and analyze the Taxpayer’s financial situation. Upon completion of the Department’s review, a response will be issued based upon the information provided.
CONCLUSION
Based upon this determination, the converted assessments issued to the Taxpayer for the periods July 2013 through February 2015 for the withholding tax period and June 2014 through February 2015 for the sales tax period will be abated in full. The Taxpayer is liable for the converted assessments for the withholding and sales tax periods March 2015 through November 2015. A revised bill, with interest accrued to date, will be mailed shortly to the Taxpayer.
If the Taxpayer decides to pursue an offer in compromise based on doubtful collectability, the Taxpayer must file the offer in compromise forms addressed above within 60 days of the date of this letter. If the Department does not receive the completed forms within the allotted timeframe, it will be presumed that the Taxpayer will not submit an offer in compromise based upon doubtful collectability. At that time, the revised converted assessments will become immediately due and payable.
The Code of Virginia sections and public documents cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s web site. If you have any questions about this response, you may contact ***** in the Department’s Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/781P