Could a restaurant member remove converted sales-tax assessments by saying her late husband alone managed finances when Department records listed her as a member?

Plain-English summary

A Virginia restaurant closed with unpaid sales and use tax. Virginia converted the company's liabilities to an individual listed in Department records as a member. She said she was only on the building lease and that her late husband alone handled operations, checks, and finances.

Virginia declined to abate without proof. Her statements were not supported by the requested organizational or financial records.

The four responsible-person conditions

Va. Code § 58.1-1813 and Angelson v. Commonwealth require:

1. Willful failure to collect, account for, or pay tax, or willful evasion;
2. Status as a covered officer, employee, member, or manager with a duty concerning the tax;
3. Knowledge of the failure; and
4. Authority to prevent it.

If any condition is missing, Virginia cannot collect the company's tax from the individual. “Willful” means voluntary, conscious, and intentional conduct.

Why the existing record did not clear her

The articles named the late husband as registered agent but did not establish that he was the only member or responsible person. Department records showed the taxpayer as a member.

She asserted that she lacked financial control, but did not provide the additional documents Virginia requested. Without evidence describing the company's ownership, duties, bank authority, tax responsibilities, and operations, the Department could not find that one of the four conditions was absent.

The taxpayer received 30 days to submit proof. Without it, the converted assessments would be upheld and updated bills issued.

What this means for you

• Title alone is not the whole test, but records matter. Operating agreements, bank signatures, payroll/tax duties, and internal controls can establish responsibility.
• A statement that someone else handled taxes is insufficient. Document the actual division of authority.
• Any missing statutory condition defeats conversion. Focus evidence on duty, knowledge, authority, and willfulness.
• Respond to document requests promptly. The Department left the record open for only 30 days.

Common questions

Q: Did Virginia conclusively decide she was responsible?

A: It found no basis for abatement on the current record but allowed one final 30-day evidence period.

Q: Was being on the lease enough by itself?

A: The ruling did not say so. It relied on Department membership records and the absence of contrary documentation.

Q: What proof could matter?

A: Records showing who owned the company, signed checks, controlled finances, filed returns, knew of liabilities, and could prevent nonpayment.

Citations and references

• Va. Code § 58.1-1813(A)-(B) — converted responsible-person liability
• Angelson v. Commonwealth, 25 Va. Cir. 319 (Richmond Cir. Ct. 1991)
• Hewitt v. United States, 377 F.2d 921 — willfulness standard quoted
• Related Virginia ruling: P.D. 91-81

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 19-52

Original ruling text

May 9, 2019

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

Dear *:

This is in response to your letter in which you seek correction of the retail sales and use tax assessments converted to * (the “Taxpayer”) as a result of liabilities incurred by *** (the “Company”) for various periods between October 2015 and September 2016. I apologize for the delay in responding to your letter.

FACTS

The Company operated a restaurant in Virginia. Prior to the Company’s closing, it incurred certain unpaid retail sales and use tax liabilities. The unpaid tax liabilities of the Company were converted to the Taxpayer pursuant to Virginia Code § 58.1-1813.

The Taxpayer states that throughout the Company’s existence, she had no involvement with, responsibility for, duties, or knowledge of the Company’s sales tax liabilities or daily operations. The Taxpayer states she was only on the lease for the building because it was required by the landlord. The Taxpayer requests an abatement of the converted assessments.

DETERMINATION

Virginia Code § 58.1-1813 A states, “Any corporate, partnership or limited liability officer who willfully fails to pay, collect, or truthfully account for and pay over any tax administered by the Department of Taxation, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall in addition to other penalties provided by law, be liable to a penalty of the amount of the tax evaded, or not paid, collected or accounted for and paid over, to be assessed and collected in the same manner as such taxes are assessed and collected.”

Virginia Code § 58.1-1813 B defines the term “corporate, partnership or limited liability officer” as “an officer or employee of a corporation, or a member, manager or employee of a partnership or limited liability company, who as such officer, employee, member or manager is under a duty to perform on behalf of the corporation, partnership or limited liability company 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 the authority to prevent such failure or attempt.”

In Angelson v. Commonwealth of Virginia , 25 Va. Cir. 319 (City of Richmond, 1991), the court pointed out four conditions of Virginia Code § 58.1-1813 that must be met before a person can be held individually liable for taxes assessed against a corporation:

First, the person must willfully fail to pay, collect, or truthfully account for and pay over a state tax, or willfully attempt in any manner to evade or defeat such tax or its payment. Second, the person must be an officer or employee of the corporation and have a duty to perform the act in respect of which the violation occurs. Third, the person must have knowledge of the failure or attempt as set out in the statute. And fourth, the person must have authority to prevent such failure or attempt.

The court stated that the absence of any one of these conditions prohibits the Department from collecting corporate taxes from an individual. 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.)

While the Taxpayer contends she does not meet the criteria set forth in Angelson , the only documentation provided to support this contention is the Articles of Organization for * The registered agent in these articles is the Taxpayer’s late husband, but the articles do not state that he is the only registered agent or member of the organization. Further, the Department’s records show the Taxpayer is a member of the organization.

In the appeal, the Taxpayer asserts that her husband had the sole authority to sign checks and handle the Company’s finances. The Taxpayer maintains that she never had control of the finances or the estate. Documentation was requested in order to further investigate the Taxpayer’s claim, but no additional documentation has been received.

If the Taxpayer has documentation outlining how she does not meet the tests set out in Angelson , the Department will review it. Such documentation must be provided within 30 days from the date of this letter. Documentation should be provided to: Virginia Department of Taxation, Office of Tax Policy, Appeals and Rulings, Attn: *, Post Office Box 27203, Richmond, Virginia 23261-7203.

CONCLUSION

Based on the foregoing, there is no basis to adjust or abate the converted assessments. No evidence to disprove the requirements set out in Angelson has been provided. If the Taxpayer does not submit the requested documentation within 30 days of the date of this letter, the assessment will be upheld. In that event, the Taxpayer will receive updated bills with interest accrued to date. The bills should be paid within 30 days to avoid the accrual of additional interest.

The Code of Virginia sections cited are available on-line at www.tax.virginia.gov in the Laws, Rules and Decisions section of the Department’s website. If you have any questions regarding this determination, please contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/1422L

Related Documents

91-81