June 8, 2018
Re: § 1821 Appeal: Converted Assessment
Dear *****:
This will respond to your letter in which you seek correction of the converted assessments issued to ***** (the “Taxpayer”) for the unpaid tax liabilities of ***** (the “Corporation”).
FACTS
The Taxpayer was the president, one of only two corporate officers, one of only two directors, and one of only two shareholders in the Corporation. The Taxpayer's only business partner in the Corporation passed away in October 2016, leaving the Taxpayer as the sole shareholder, director, and corporate officer. In June 2017, the Department converted various outstanding tax liabilities of the Corporation to the Taxpayer as a responsible officer of the Corporation. The Taxpayer now appeals, contending that she was primarily an investor and did not participate in the operations of the business, and that her associate forged her signature.
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 Virginia 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.”
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.” Hewitt v. U.S., 377 F.2d 921, 924 (1967). 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 the president of the Corporation, she asserts that she was primarily an investor and did not participate in the operations of the business during the withholding periods at issue. The Taxpayer, however, has provided no evidence to support this assertion. Additionally, the Taxpayer has continued to operate the business as the sole owner and officer since her business partner's death.
The law provides that any assessment of a tax by the Department is deemed prima facie correct, and the burden of proof is on the Taxpayer to show that an assessment is incorrect. See Virginia Code § 58.1-205. Additionally, Virginia courts are directed to not correct erroneous assessments caused by a taxpayer's willful failure to provide necessary information to the Department. See Virginia Code § 58.1-1826. In the absence of evidence that the Taxpayer lacked either knowledge or authority to pay the tax debts of the Corporation, the assessment must be upheld.
The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department's web site. 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/1424.C