Tax Type
Corporation Income Tax
Description
Liability of corporate officers
Topic
Collection of Tax
Date Issued
10-29-1997
October 29, 1997
Re: § 58.1-1821 Application: Corporation Income Tax
Dear***************
This will respond to your letter in which you are requesting a redetermination of the department's ruling previously issued to your client,********(the "Taxpayer"), for the taxable year ended March 31, 1991.
FACTS
The Taxpayer was liquidated effective March 31, 1991. The department adjusted the Taxpayer's final corporation income tax return based on information received from the Internal Revenue Service (I.R.S.). As a result, the department issued an assessment dated January 2, 1997, pursuant to Code of Virginia § 58.1-312 (A)(3).
You contested this assessment because the Taxpayer lacks the resources to pay the assessment and you believe the department lacks the authority to act against the officers and shareholders of the Taxpayer. In its previous ruling, the department agreed that it could not proceed against the shareholders, but concluded that it could proceed against the officers of the corporation under Code of Virginia § 58.1-1813. See Public Document 97-230, (5-19-97), copy enclosed.
You are requesting a redetermination on the grounds that the officer's lacked the authority and ability to pay the taxes because the Taxpayer had been liquidated three years before they had knowledge of the Virginia tax liability pursuant to an l.R.S. audit in 1994.
DETERMINATION
In order to convert an assessment to a corporate officer, Code of Virginia § 58.1-1813 requires that the failure to pay over the corporation's taxes must be willful, and that the corporate officer must have had (1) knowledge of the failure and (2) authority to prevent it. Under the standards 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 924 (C.A. Tex.). In other words, it need only be shown that a responsible officer was aware of the liability and voluntarily failed to comply.
The responsible officer(s) liquidated the business knowing that the final corporation income tax return could be audited and adjusted by the l.R.S. and the department within a period of limitations. When the responsible officers(s) file a tax return, they certify that the information on that return is correct to the best of their knowledge. However, inherent in the filing of the return, is the knowledge that the return could later be adjusted and the responsibility to perfect any adjustment made by a taxing authority. In this case, the department made a valid assessment under Code of Virginia § 58.1-312 (A)(3). Thus, the responsible officer(s) assumed the authority of insuring that the final corporation income tax return is correct when it was filed and had knowledge of the deficiency within the period of limitations for making such an assessment. Thus, the department does have the authority to hold the responsible officer(s) liable for a penalty equal to tax assessed against the Taxpayer.
The responsible officer(s) may resolve the Taxpayer's assessment before the assessment of individual penalties pursuant to Code of Virginia § 58.1-1813 by paying the assessment of in tax and**** in interest) within 30 days. Please send the payment to **** c/o Office of Tax Policy, Department of Taxation, P.O. Box 1880, Richmond, Virginia 23218-1880. The assessments will be converted if this matter is not resolved within the time allotted. If you have any further questions, please contact *** at*****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/12649O
Rulings of the Tax Commissioner