Was an individual personally liable for a dissolved company's tax merely because her Social Security number appeared on company returns?

Plain-English summary

Virginia abated the converted company tax assessment because the individual was not a corporate officer or employee at all. Department records associated her Social Security number with company returns, but she submitted an affidavit denying any shareholder, officer, director, or employee role.

The evidence indicated that her number had been used erroneously. Without an actual corporate role, she could not have the required duty to report or pay the tax, knowledge of the failure, authority to prevent it, or willful nonpayment.

Virginia therefore canceled the personal assessment in full. The ruling also noted that a memorandum of lien previously issued to her had already been vacated.

What this means for you

• An identifier on a return is evidence, but it is not conclusive proof of corporate responsibility.
• Use affidavits and corporate records to correct mistaken officer associations.
• Responsible-officer liability requires actual duty, knowledge, authority, and willfulness.
• Address both the assessment and any recorded lien.

Common questions

Q: Why was her Social Security number on the company returns?
A: The ruling concluded that it appeared to have been used erroneously.

Q: Had she worked for or owned the company?
A: The available evidence said no.

Q: What happened to the assessment?
A: It was abated in full.

Citations and references

• Va. Code § 58.1-1813.
• Hewitt v. United States, 377 F.2d 921, 924 (5th Cir. 1967).

Subject

Taxpayer was not a corporate officer as defined in Va. Code § 58.1-1813.

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 11-164

Original ruling text

September 27, 2011

Re: § 58.1-1821 Application: Retail Sales and Use Tax

Dear *:

This is in response to your letter submitted on behalf of * (the "Taxpayer"), in which you request correction of a converted retail sales and use tax assessment issued for the period January 2005 through April 2008.

FACTS

According to the Department's records, the Taxpayer was a corporate officer for * (the "Company"). Because the Company failed to pay a retail sales and use tax assessment issued for the period January 2005 through April 2008 before it dissolved, the liability was converted to the Taxpayer and assessed accordingly.

Although the Taxpayer's Social Security number appears on several income tax returns of the Company, the Taxpayer submits an affidavit that she has never been a shareholder, officer, director or employee of the Company. As such, the Taxpayer claims that she is not a corporate officer as defined in Va. Code § 58.1-1813 and is not liable for the assessment in question.

I understand that a memorandum of lien was previously issued to the Taxpayer but has since been vacated.

DETERMINATION

When a corporation fails or is unable to pay its tax deficiencies, the Department may convert the assessments to the corporate officers pursuant to Va. Code § 58.1-1813. This statute defines the term "corporate officer" as an officer of the corporation who 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 and (2) had the authority to prevent it. Virginia Code § 58.1-1813 requires that the failure to pay over the taxes be willful. 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 (5t" Cir. 1967).

Based on all of the available facts and evidence, it appears that the Taxpayer's Social Security number was erroneously used on the Company's tax returns. It also appears that the Taxpayer was not involved with the Company in the capacity of a corporate officer or employee. Accordingly, it is my, conclusion that the Taxpayer was not a corporate officer as defined in Va. Code § 58.1-1813. As such, the converted assessment in question will be abated in full.

The Code of Virginia sections cited 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 about this determination, you may contact * in the Department's Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1-4687792596.R