Tax Type
Income Tax
Description
Taxpayer did not have a duty to file and pay Virginia corporate income taxes
Topic
Persons Subject to Tax
Records/Returns/Payments
Responsible Officer
Date Issued
09-28-2012
September 28, 2012
Re: § 58.1-1821 Application: Converted Assessment
Dear *****:
This will reply to your letter submitted on behalf of your client, ***** (the "Taxpayer"), requesting correction of the converted assessment resulting from the assessment issued to ***** (ACP) for the taxable year July 1, 2008 through June 30, 2009. I apologize for the delay in responding to your letter.
FACTS
The Taxpayer was vice president, treasurer and secretary of ***** (ACP) until he resigned on June 1, 2009. Immediately after his resignation, the Taxpayer formed ***** (BCP). In late June 2009, BCP purchased substantially all of ACP's assets. As a result of the transaction, ACP recognized deferred revenues and a gain on the sale of intangible property for the taxable year at issue.
ACP filed a 2008 Virginia corporate income tax return but failed to pay the resulting liability. When the Department was unable to collect the corporate income tax assessment from ACP, it converted the assessment to the Taxpayer as a responsible officer. The Taxpayer appeals the assessment, contending he was not a responsible officer of ACP at the time of the sale or when the liability was recognized because he resigned from ACP before the liability was incurred.
DETERMINATION
Virginia Code § 58.1-1813 A states, "Any corporate . . . 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."
Under Va. Code § 58.1-1813 B, the term "corporate officer" is defined as "an officer or employee of a corporation . . . who as such officer [or] employee 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 the authority to prevent such failure or attempt." [Insert added.]
Virginia Code § 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." See 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.
Although the Taxpayer was an officer of ACP, he resigned from that position on June 1, 2009, prior to the transaction between ACP and BCP on June 26, 2009. While ACP's corporate income tax return was due by October 15, 2009, ACP did not file the return for the taxable year ended June 30, 2009 until December 1, 2010. As such, it appears the Taxpayer did not have a duty to perform or oversee the performance of the filing and payment of the Virginia corporate income taxes for the taxable year at issue. Accordingly, the Taxpayer was not a responsible corporate officer under Va. Code § 58.1-1813 for ACP's income tax assessment for the taxable year ended June 30, 2009. The penalty assessment against the Taxpayer will be abated.
The Code of Virginia sections and public documents cited are available on-line in the Tax Policy Library section of the Department's web site, located at www.tax.virginia.gov. If you have any questions regarding this determination, you may contact ***** in the Office of Tax Policy, Appeals and Rulings, at *****.
Sincerely,
Craig M. Burns
Tax Commissioner
AR/1-4997344092.E
Rulings of the Tax Commissioner