Tax Type
Corporation Income Tax
Description
Liability of corporate officers; Sole shareholder
Topic
Collection of Tax
Date Issued
08-17-1995
August 17, 1995
Re: §58.1-1821 Application:
Dear*************:
This will reply to your letter of June 16, 1995, in which you have asked the department to reconsider its ruling issued to *************(the"Taxpayer") on June 6, 1995, (Public Document 95-145 (616195), copy attached). That ruling dealt with tax assessments converted to the Taxpayer from *****(the"Corporation").
Although the Taxpayer may have delegated some responsibilities regarding the Corporation's business operations, the department must respectfully disagree with your conclusion that there are no facts to support the Taxpayer's personal liability for the tax debts of the Corporation.
As to the issue of authority, according to information obtained from the State Corporation Commission, the Corporation was terminated on September 1, 1992, and at that time the Taxpayer was the sole officer and director of the Corporation. As the only shareholder, director and president of the Corporation, the Taxpayer had the exclusive authority to direct the affairs of the corporation. This authority is provided by statute (for example see Code of Virginia §13.1-669, 13.1-673 and 13.1-694) and by the articles of incorporation and bylaws. The Taxpayer also had the sole authority to amend the articles of incorporation and bylaws (for example see §§13.1-707 and 1 3.1627 of the Code of Virginia. The Taxpayer had ultimate responsibility for the operations of the corporation, and any authority for matters of the corporation could only have been delegated by the Taxpayer. As such, the Taxpayer had the authority to direct any matter pertaining to the payment of corporate liabilities.
As to the issue of knowledge of the liability, the Taxpayer affixed his signature to the tax returns as President, and such tax returns clearly reflected the unpaid tax liability on the same page just above his signature. In addition to this the department sent bills to the Corporation's address of record, thereby eliminating any question as to knowledge that the liabilities remained unpaid.
With respect to whether the Taxpayer's acts were willful, the failure to pay the taxes with the original return, or upon the subsequent presentation of a bill, supports such a determination. In addition, as mentioned in our ruling, the corporation's largest asset listed on its balance sheet at December 31, 1991, was a loan to the Taxpayer. This loan increased by approximately $13,000 during 1991, while at the same time the corporation failed to make required estimated tax payments. The fact that transfers were made to the Taxpayer without adequate consideration while the responsibility for corporate income taxes remained unpaid, combined with the fact that the Taxpayer had the sole discretion to authorize and direct these transfers to himself in lieu of the satisfaction of other legal liabilities, strengthens the conclusion that a willful pattern of behavior exists.
Pursuant to Code of Virginia §58.1-205, an assessment is deemed to be prima facie correct. The burden of proof therefore rests upon the Taxpayer. Although there was a delay in requesting additional information from the Taxpayer, opportunities were afforded to the Taxpayer to furnish factual evidence regarding his relationship to the Corporation. Given that no additional information was furnished to rebut the department's assessment, the department was forced to rely on the factual information available to it. As already explained, such evidence strongly supports the Taxpayer's liability.
Finally, I will address the department's authority to apply Code of Virginia §58.11813 to corporate income assessments. This statute provides, in pertinent part:
-
- Any corporate or partnership 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. (Emphasis added.)
The plain language of the statute does not limit its application to taxes which are withheld or collected in trust. As stated above, the available evidence supports finding that the Taxpayer had knowledge of the failure, ability to prevent the failure, and acted willfully in his failure to pay the required taxes.
Your letter presents no new evidence or documentation, and the department finds no error in its earlier determination. Accordingly, the department's previous determination is upheld.
As previously stated, the department is prepared to waive interest which accrued on the outstanding liabilities between November 19, 1993, and July 6, 1995, but only if the balance due per the attached schedule******* is paid in full within 14 days of the date of this letter.
The Taxpayer's payment may be sent to*******c/o Office of Tax Policy, Department of Taxation, P.O. Box 1880, Richmond, Virginia 23282-1880. If you should have any further questions, please feel free to contact*************.
If the Taxpayer will need to establish an installment payment plan, he should contact********in the Office of Collections at*************.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/9879M
Rulings of the Tax Commissioner