Was a corporate general manager personally liable for unpaid Virginia withholding tax when he knew of the failure and could sign company checks?

Subject

Failure to file and pay withholding taxes

Plain-English summary

A corporation failed to pay Virginia withholding assessments for 2001 through 2004. Virginia converted the unpaid tax to three individuals it considered responsible officers: the president, bookkeeper, and general manager. The general manager argued that he signed checks only when directed and lacked authority to prevent the nonpayment.

Virginia upheld his personal penalty. The general manager handled day-to-day operations, signed payroll, tax, and operating-expense checks, and had authority to disburse money from the corporation's bank account. Evidence and the president's statements contradicted his claim that he lacked meaningful authority.

Va. Code § 58.1-1813 required knowledge of the failure, authority to prevent it, and willfulness. The ruling described willfulness as voluntary, conscious, and intentional conduct, including knowingly paying operating expenses or other creditors while aware of the outstanding tax. The Commissioner found each requirement met and denied abatement.

What this means for you

• A job title was not decisive; actual duties, knowledge, and financial authority controlled.
• Check-signing and responsibility for day-to-day operations supported authority to prevent nonpayment.
• Paying other business expenses while knowingly leaving withholding unpaid could satisfy willfulness.
• More than one person could be assessed as a responsible officer for the same corporate liability.

Citations and references

• Va. Code § 58.1-1813, responsible-officer penalty for unpaid corporate tax.
• Angelson v. Commonwealth, 25 Va. Cir. 319 (Richmond 1991).
• Hewitt v. United States, 377 F.2d 921, 924 (5th Cir.).

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 07-29

Original ruling text

April 9, 2007

Re: § 58.1-1821 Application: Withholding Tax

Dear *:

This will reply to your letter in which you contest the assessment of a tax penalty against * (the "Taxpayer"), a former employee of *** (the "Corporation"), for the 2002 taxable year and the fourth quarter of the 2004 taxable year. I apologize for the delay in responding to your appeal.

FACTS

The Corporation was assessed withholding taxes, penalties, and interest for the 2001 through 2004 taxable years. When the Corporation did not pay the assessment, the liability was converted to the corporate officers, pursuant to Va. Code § 58.1-1813.

The Taxpayer was employed as the general manager of the corporation. His primary duties involved generating business and getting the jobs finished. The Taxpayer signed checks for payroll, taxes and operating expenses. The bookkeeper handled all other tax and financial matters including signing tax returns. The Corporation's president was responsible for providing financing and overall fiscal management. All three were authorized to sign the Corporation's checks.

The Department determined that all three officers (the president, the bookkeeper, and the general manager) were responsible officers and converted the assessments against the Corporation to all three. The Taxpayer contends that he only signed checks at the express order of the president and lacked the authority to prevent the Corporation's failure to remit the taxes due.

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 the tax evaded, or not paid, collected or accounted for and paid over under Va. Code § 58.1­1813. 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 as set forth herein and (2) had 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. See also Angelson v. Commonwealth , 25 Va. Cir. 319 (Richmond 1991). 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 (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 company.

The Taxpayer was responsible for all day-to-day operations including the tax payments. The evidence shows that the Taxpayer signed checks to pay Virginia withholding tax. This included the authority to make disbursements from the Corporation's bank account.

The Taxpayer claims that he only signed the checks under the direction and for the convenience of the president. The evidence and the president's statements, however, contradict the Taxpayer's claim.

Based on the evidence provided, the Taxpayer had knowledge of the failure to file and pay withholding taxes. The Taxpayer had the authority to ensure that withholding returns were filed and the tax paid. Therefore, the Taxpayer's request for abatement of the penalty is denied.

The Taxpayer should remit payment for the balance of * within 30 days from the date of this letter to avoid collection action. Payment should be sent to: Virginia Department of Taxation, 3600 West Broad Street, Suite 160, Richmond, Virginia 23230, Attention: . If you have any questions concerning payment of the assessment, you may contact at ***.

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

Sincerely,

Janie E. Bowen

Tax Commissioner

AR/1-672737615B