Was a former officer personally liable for a corporation's January-June 2005 delinquent Virginia withholding taxes?

Subject

Taxpayer was not a corporate officer responsible for delinquent withholding taxes

Plain-English summary

Virginia discharged the personal assessments because the former officer was not responsible for paying the corporation's withholding taxes. The corporation owed withholding tax for January through June 2005, and the Department had converted the liability after collection from the company failed.

Responsible-officer liability required an officer or employee who had a duty concerning the unpaid tax, knew of the failure, and had authority to prevent it.

The taxpayer supplied an outside bookkeeper's affidavit saying the president controlled tax payments, emails between the bookkeeper and president about withholding tax, and first-quarter payroll records that did not list the taxpayer as an officer or employee. He also said he left in January 2005.

That evidence showed he did not meet the statutory responsible-officer definition, so Virginia discharged the converted tax, penalty, and interest amounts.

What this means for you

• Corporate title alone does not establish responsible-person liability.
• Evidence should address actual duty, knowledge, authority, payroll status, and departure date.
• Affidavits, internal communications, and payroll records can establish who controlled tax payments.

Citations and references

• Va. Code § 58.1-1813.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 07-216

Original ruling text

December 20, 2007

Re: § 58.1-1821 Application: Withholding Tax

Dear *:

This will reply to your letter in which you seek correction of an assessment issued to * (the "Taxpayer"), a former officer of *** (the "Corporation").

FACTS

The Department issued an assessment to the Corporation for withholding tax for the period January 2005 through June 2005. Upon failure to collect the deficiencies from the Corporation, the Department assessed the Taxpayer penalties in the amount of the taxes, as well as penalties and interest owed by the Corporation pursuant to Va. Code § 58.1-1813.

The Taxpayer contests conversion of the assessments. He admits that he was an officer of the Corporation, but states that he left the Corporation in January 2005. In addition, he contends that even while he worked at the Corporation, he was not responsible for the payroll or payment of taxes. As such, the Taxpayer contends that he is not a corporate officer as defined in Va. Code § 58.1-1813 and cannot be held liable for the taxes, penalties and interest assessed to the Corporation.

DETERMINATION

When a corporation fails or is unable to pay its tax deficiencies, the Department is permitted to assess the corporate officers for a penalty of the amount of tax evaded, or not paid, collected or accounted for and paid over under Va. Code § 58.1-1813. The term "corporate or partnership officer" as used in this statute means an officer or employee of a corporation, who as such officer 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 to evade taxes and (2) had authority to prevent such failure or attempt.

The Taxpayer has provided substantial documentation to support his position, including an affidavit from the outside bookkeeper asserting that the authority for the payment of the Corporation's taxes was the responsibility of the Corporation's president. In addition, the Taxpayer has provided copies of e-mail between the bookkeeper and the president regarding the payment of withholding taxes. Finally, the Corporation's 2005 first quarter officers' payroll does not list the Taxpayer as being an officer or employee of the Corporation.

In this case, the evidence demonstrates that the Taxpayer was not a corporate officer for purposes of converting the Corporation's delinquent withholding taxes pursuant to Va. Code § 58.1-1813. Accordingly, the penalties assessed against the Taxpayer in the amount of the taxes, penalties and interest owed by the Corporation will be discharged.

The Code of Virginia section cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If you have any questions regarding this determination, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-1382333714B