On March 10, 2022 the Virginia Tax Commissioner released a redacted letter ruling which held the responsible officer of a Virginia corporation individually liable for unpaid tax liabilities of the corporation.
Originally, the corporation was assessed withholding taxes, applicable penalties and interest, as well as sales and use taxes, applicable penalties and interest. However, when the corporation failed to satisfy the assessments, the delinquent assessments were converted to the Taxpayer as a responsible officer.
“... the converted assessments are correct as issued ...”
Responsible Officer Penalty
Citing VA statutory requirements and the criteria established in Angelson v. Commonwealth of Virginia, 25 Va. Cir. 319 (City of Richmond, 1991), the Taxpayer believed she was not a responsible officer of the corporation.
When the Taxpayer purchased 49% of the shares of the corporation prior to ultimately purchased the remaining 51%, she entered into a purchase agreement with the owners of the corporation within which no specific responsibilities or duties to remit taxes were assigned to her.
The Taxpayer maintained that the Department had not shown that she willfully failed to pay, collect, or truthfully account for and pay over a state tax, or that she willfully attempted to evade making payment. She stated that while she was a minority shareholder of the corporation, she did not participate in the day-to-day operations of the corporation, and that her role and responsibilities did not include collecting and paying state tax. Further, she was not listed as an officer of the corporation on the corporation’s annual reports for some of the years in question.
Moreover, the Taxpayer stated that the Department had not shown that she had knowledge of the corporation’s failure to pay the state tax or that she attempted to evade or defeat the tax or its payment. Finally, she maintained that the Department had not demonstrated that she had the authority to prevent the failure of the corporation to pay the tax or attempt to evade paying the state tax.
Although the Tax Commissioner agreed with the Taxpayer that all requisite conditions were not met for the minority owned years at issue, he concluded that they were indeed met for the years during which she was the majority owner. Accordingly, she was held liable as the responsible officer for the corporation who did not account for and pay over the taxes as required.